The judiciary will propose a separate Standard of Procedure (SOP) for resolving monetary disputes that are not included in the Rules and Regulations for Registered Private Money Lenders (RRRPML) 2021.
Private money lending has become a concern with adverse socio-economic consequences involving litigation despite discouragement from the Royal Monetary Authority (RMA).
RMA Chief General Counsel Damche Tenzin said that with the 2016 Private Money Lending Rules and Regulations (PMLRR), cases involving unregistered private money lending were dismissed by the court. .
The PMLRR which came into effect on April 1, 2017 requires that a formal money lending business in the market requires registration with the RMA. It restricts informal money lending. However, the rule only required people to execute deeds of sale or write fraudulent checks.
“There were social tensions that were increasing in the communities, sometimes the lenders take advantage of it and vice versa,” said Damche Tenzin.
In addition, he said that with the new provision, cases that do not fall under the jurisdiction of RMA, the court will hear a separate case and the provision is included in consultation with the judiciary.
According to article 12.2 of the RRRPML 2021: “The courts may accept all other pecuniary cases outside the jurisdiction of the RRRPML on the basis of a separate SOP (formulated and implemented by the judiciary) and rule on pecuniary prosecutions, inflicting penalties and adjudicating in accordance with other relevant laws of the country. The regulations would come into effect on November 1.
A source said the rules give freedom to accept monetary affairs outside of private money lending rules based on the court’s own SOPs. “I hope the court’s SOP is not lenient towards illegal money lenders.”
He also said that when a court dismisses pecuniary cases, it discourages lenders from choosing to operate illegally because of the risk of losing not only the interest but also the principal.
However, he added that when a court accepts an illegal loan case, the illegal loan is legitimized (it receives the legal right to recover the majority of illegal loans, but only if the borrower can prove that it is illegal loan).
According to the new regulations, private lenders registered with a certificate of registration (valid for one year which can be renewed annually) can lend a maximum of 0.5 million Nu (M) to a single borrower with a written contract. valid according to the law on evidence. (2005) and Law on Contracts (2013).
Also, a lender cannot lend a total loan of Nu 5M, for which specific RMA approval would be required.
However, an unregistered lender can lend up to NU 90,000 to a single borrower or a total of NU 90,000 to multiple borrowers.
The regulation also states that the lender cannot charge interest greater than 15% per annum and the borrower cannot accept interest greater than 15% per annum.
Registered private money lender, if found to be making any form of fraudulent agreement with a borrower, forfeiture of 25% of the total principal amount and other actions would be imposed according to law.
If a borrower is found guilty of fraudulent practices, he will be subject to the relevant laws.
Currently there are three registered private lenders.
Damche Tenzin said that the reason people did not apply for RMA registration certificates to engage in private money lending business in recent years was because the number of microfinance institutions like Respect, Educate, Nurture and Empower Women, Tarayana, Bhutan Care Credit Limited, Micro-finance Bhutan Private Limited and Bhutan Association for Women Entrepreneurs have been authorized by RMA through licenses to provide more financial opportunities or services to the population.
A source also said changes need to be made to ensure more people register and operate legally to prevent exploitation by illegal money lenders.
“I think this issue deserves the attention of our Parliament and that a law on money lending is possibly being considered,” he added.
Edited by Jigme Wangchuk