- What's this?
This is a traditional rule relating to finance on credit or moneylending targeting the behaviour of lenders.
This limits loan recovery by the Lender to a Maximum of Twice (2 times) the outstanding Principal, Irrespective of the Amount of Interest Accumulation.
- How old are its' Roots ?
Experts say they can be traced back to the "smrti" , texts that are said to be as much as 2000 years old, which exposit the "Dharmasastra" or "science of righteousness".
- Where is it still prevelant?
At least the money lending legislations of five states viz. Gujarat, Maharashtra, Punjab, West Bengal & 1 more i dont remember.
- What does this Rule do there in through legislation?
Restricts the maximum amount of interest chargeable by the lender to the principal amount.
This rule also discourages excessive interest on loans and limits the scope for compounding of interest and for penalising premature repayments in excess of twice the amount of the loan.
- What is the background of this story?
It is a prime need to tame Loan Sharks
The suicides of farmers in Andhra pradesh, Vidarbha (Maharashtra), TamilNadu, Karnataka etc.
The excessive interest rates charged ranging from 12% to 150% on loans by these middleman or sahukars
Out of every Rs 1,000 debt taken on by farmer households in the country, Rs 257 is sourced from moneylenders
According to IIMS database & Invest India Economic Foundation - the share of moneylenders in the total debt of households in the past 2 years is estimated at about 31 %
- What's Current Perspective and RBI committee Recomendations ?
The Technical Group to review the legislation on Money lending that was set up by the RBI has recommended that the rule of DAMDUPAT should be incorporated in the legislation by all the states, therby restricting max. amount of interest chargeable on the principal amount by the lender.
The Group also says that there should be a Provision Requiring the Money lender to Refund to the borrower any Excess Money paid.
They also advocate a simple and easy greivance redressal and dispute settlement system too.
Thus we earnestly hope the money lenders some day find it difficult to ditch innocent borrowers.
please see the disclaimer (plus courtesy ET, The Telegraph, The RBI)
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