Wednesday, April 5, 2017

Farmer loans waiver : How about an Unfair Interest waiver?

https://www.equitymaster.com/diary/detail.asp?date=04/05/2017&story=4&title=With-Farmer-Loans-Waived-Off-UP-Govt-Has-Its-Oh-Darling-Ye-Hai-India-Moment&utm_source=VKD&utm_medium=mail&utm_campaign=e-letter&utm_content=VKD
With Farmer Loans Waived Off, UP Govt Has Its Oh Darling Ye Hai India Moment

Reading this, an idea came to mind:

Why not waive off just the INTEREST on the loan?

Or, cap it off at a certain rate of simple (not compound) interest
like, say, 5% and bail out the remaining?

Let the farmer stay liable with fairness restored and liability
limited; "take care" of the unfair component only.

In the long run this would create an incentive for govt to CRACK DOWN
on unfair lenders.

Actually it could start doing so immediately, what with the
established precedent of enacting laws retrospectively going as far
back as the 60s. Or, even if not denying them the bailout, a
government can throw bureaucratic spanners in to ensure that the
lenders recovering this unfair component take ages to get it, same way
as is happening in subsidy schemes.

All this would give more power to RESPONSIBLE lending and recovering
and also responsible and safe borrowing; and severly discourage the
high-interest lenders. It would avoid the current adverse effect of
encouraging unsustainable borrowing by farmers. The farmers who do pay
off their loans.. will not be left looking like fools; only the
lenders who charged high interest will.

Addendum : Putting the data hat on, I'd also like to see a break-up of this mighty loans figure and see how much of it is the principal owed and how much is the interest built up?

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