Nagaland Money Lenders Act, 2005, a Law on Paper, Not in Practice

Despite its enactment, the Nagaland Money Lenders Act, 2005 remains largely ineffective in practice. Although the law was intended to regulate money-lending activities, protect borrowers from exploitation, and bring transparency to informal financial transactions, enforcement remains a distant dream. Unlicensed and unauthorised money lenders continue to exploit vulnerable borrowers with exorbitantly high interest rates- ranging from 2% per day (which amounts to a shocking 730% per annum) to 4-5% per month (or 48%-60% annually). These transactions often occur without legal agreements and sometimes even involve mortgaging borrowers’ movable or immovable assets, violating both the letter and spirit of the Act.

The Act was enacted on 05.11.2005 with the objective of monitoring money lending practices and safeguarding borrowers. Its key provisions include:

Key provisions of the Nagaland Money Lenders Act, 2005

1)         Licensing – (Section 4) Money Lenders must obtain a license and renew it annually (Sub- section 2, 6 and 7).

2)         Change of Business Address- (Section 5) Money lenders must notify the licencing authority before changing their place of business.

3)         Interest Rate Cap- Section 7 Money lenders are restricted from charging interest more than 3% above the prevailing average bank rate.

4)         Display Requirements-(Section 6) Money lenders must prominently display their name and the term “Money Lender” on their place of business.

5)         Regulations Oversight- (Section 12) Inspectors must be appointed to monitor and inspect money-lending activities. They are empowered to access records, safes, vaults, and other materials as required.

6)         Penalties for Malpractices-(Section 16)Charging higher interest or advancing lesser amounts than recorded can attract imprisonment (up to 1 year) or a fine (up to Rs. 5,000/-), or both, Repeat offenders may have their licences cancelled.

7)         Harassment (Section 20) Molestation or harassment of borrowers is punishable with imprisonment or fines.

8)         License suspension (Section 21-23): License can be suspended or cancelled for violations. Orders are to be published in the Gazette, police station, and notice boards. No compensation is given for such cancellation.

9)         Illegal Lending (Section 24) :Unlicensed lending is punishable with imprisonment (up to 6 months), a fine (up to INR 2,500), or both.

Ground reality in Nagaland – A grim Picture

In Dimapur, Nagaland’s commercial hub, a Right to Information (RTI) response from the Office of the Deputy Commissioner reveals a startling fact: only 2 to 3 licensed money lenders are currently operating. No Inspectors have been appointed as mandated under the Act. This glaring administrative lapse has allowed illegal money lending to flourish unchecked for nearly two decades.

Money lending in the state is now carried out by individuals, societies, self-help groups (SHGs), and others without legal authorization, Borrowers are lured by the promise of quick funds and end up trapped in a vicious cycle of debt. To pay off one loan, they are often forced to take another. These borrowers face mental harassment, social humiliation, and the loss of their only means of income or shelter.

A Tale of Exploitation- A Case in Point

One such egregious case involves a society referred to as AAA. This society issued loans amounting to INR xxxxxxxxxx with an interest rates varied from 4% to 5% and the borrower’s pension book and ATM card were taken as security. While the agreement lacked any clause about monthly deductions, the society has been continuously withdrawing the client’s salary, allowances and arrears for years- leaving only few thousand rupees a month for subsistence. Despite already recovering a staggering triple amount of the said principal amount, they continue to siphon off the pension, punishing the borrower who has already paid more than the original loan. This exploitation of a retired public servant is both illegal and immoral, violating every provision of the Act.

Widespread Violations and Social Impact

Numerous unregistered money lending businesses continues to function across the state. These entities charge illegal interest rates, demand security in the form of the borrower’s only asset or income source, and exploit the socio-economic vulnerability of susceptible loners. Borrowers driven by necessity-not luxury-often need money for medical emergencies, family needs, or education. Instead, they are met with harassment and threats, and suffer in silence due to fear and shame.

The absence of proper grievance redressal mechanisms and enforcement authorities has allowed these practices to proliferate. Without public awareness campaigns or appointed Inspectors to regulate lending practices, the law remains ineffective.

Consequences of Weak Enforcement

The unchecked rise of illegal lending in Nagaland is not just a legal failure but a social crisis. Surplus interest rates are bleeding the hard-earned savings of poor families. Borrowers are pushed deeper into poverty, mental trauma, and social alienation. This is not a matter of ignorance, but of state neglect.

Way Forward: Recommendations

1.         Immediate Appointment of Inspectors under Section 12 to monitor both urban and rural areas.

2.         State-wide Licensing Drive to identify and legalize existing money lenders and regulate interest rates.

3.         Awareness campaigns in local languages, educating citizens about the Act, their rights, safe borrowing options.

4.         Encourage Alternatives like microfinance institutions, co-operatives, and government schemes offering low-interest loans.

5.         Establish local Grievances Redressal Cells for borrowers to lodge complaints without fear of retaliation.

Conclusion

Despite being enacted nearly two decades ago, the Nagaland Money Lending Act, 2005 remains largely on paper. Enforcement is virtually non-existent, and illegal money lending practices have grown into an organized threat, exploiting the poor and desperate. The state government must act immediately to enforce the Act in letter and in spirit. The marginalized should not be left at the mercy of exploiters in a cycle of unending debt. If we fail to act now, financially injustice will continue to plague our society, one borrower at a time.

Benison V Shohe

Advocate

Gauhati High Court, Kohima Bench