One of the main objectives of demonetization was to come out with a transparent economy by destroying black money which has otherwise created a parallel one which is led by informal money lenders as per reports from bankers.
A Financial Firm Chief Executive with more exposure in rural business informs that people who earn their wages in cash then to purchase food grains and other essential items, on a daily or weekly basis. In the wake of demonetization of Rs. 500 and Rs. 1000 notes, many of them now receive their wages in a staggered manner. These people in turn are forced to purchase goods on credit from shops at a premium.
For example, if a person buys goods worth Rs. 1000 would be ultimately paying Rs. 1100 when he makes payment after a month or so. This means he bears an interest of 10% per month, on the amount availed. Reiterating the same views, another executive of a Public Sector Bank, who heads the retain operations in Western Maharashtra region, adds that it is true that some money lenders are charging such exorbitant interest from the rural folks is indeed unfortunate. The only hope with these people is the use of digital payments coupled with improved supply of currency notes in the coming months.
Another Private sector banker adds, that with the bankers being busy in accepting deposits and disbursing cash, informal lending channels have taken advantage of the situation, which possibly would continue for another two months.
Urban folks are not exempted from this. Even here, to meet their urgent requirements, people avail short term loans, which has compelled the micro or small entrepreneurs to turn towards online portals, working in the space of peer to peer lending wherein, one individual can lend money to another without assistance from any financial intermediary.
Subsequent to demonetisation, there is around 25% increase in the borrowings vis-à-vis there is also increase in the number of people who are looking at investment for giving out loans.