Raghav saw his friend acquire a car by taking a loan. He felt that if his friend could do so, it should be possible for him too. After all, who does not want to progress and prosper in life? Raghav thought a car would also help him in his livelihood as a tailor, since it would become easier to carry the cut pieces of cloth, and deliver the tailored readymade garments. But Raghav did not consider his earning capacity, or unforeseen circumstances. Blinded by the thought of owning a car, he took the plunge. After having spent nearly Rs 3 lakh for the car, what does he have, after his car was seized for default in payment? Nothing but misery, tears, and a sense of emptiness and frustration. Raghav’s prayers are not going to solve his problem. He failed to act with prudence, dazzled by his friend’s progress in life and the glib talk of the finance company’s representative. He did not weigh all the pros and cons before deciding to avail of a loan. When he was asked to sign the agreement and other papers for the loan without even reading them or being provided with a copy, he did not want to do so. He could have refused to sign. But that would mean no loan, and his dream of getting a car would be dashed. So, he acted impulsively and signed the documents, which would make him the proud owner of a car — a possession which lasted exactly 17 months! Whenever someone wants you to sign something blindly or does not want to give you a copy of what you are executing, your antennae must go up. There has to be some catch. Never sign documents without reading their contents and understanding their implications. The most disastrous tendency is to avoid the “botheration” of reading the fine print, and instead depending on the salesman’s explanation, because it is the fine print that must be read carefully. When a standard contract framed by a service provider contains contradictory or conflicting clauses, or is ambiguous such that it can be interpreted in different ways, the doctrine of “contra preferentum” will apply. It simply means that when an agreement can be interpreted in different ways, the court would accept the interpretation that favours or benefits the consumer, considering the fact that the consumer does not have equal bargaining power to negotiate the terms of the contract, and accepts whatever conditions are unilaterally imposed on him. In Raghav’s case, the agreement with Ambara contained two conflicting clauses: one which permitted him to pay the EMI along with interest for delayed payment, and another which vested the company with the discretion to recall the loan in case of default. The principles of natural justice require the borrower to be put to notice and given an opportunity to pay up the outstanding amount. Yet, Ambara did not follow this procedure and took the law into its own hands. Ambara felt that no action would be taken against it. Why? First, Raghav was not an educated man who would know his rights. Second, a man who defaulted in paying the EMI would not be able to afford legal fees and costly litigation against a financial giant. Third, before even sanctioning the loan, Ambara had obtained from an unknowing and unsuspecting Raghav a signed a declaration that he was surrendering his vehicle due to inability to repay the loan. When Raghav didn’t have a car, the only problem he had was of commuting. But after his car was seized, he lost not only the car, but the money he had spent to acquire it. Worse, he lost his cloth pieces, and with it, his customers’ faith, and his reputation. As a result, he stopped getting orders, and lost his source of livelihood. Even though he was fortunate to get people to fight his consumer case without charging any fees, he had to incur the expenses involved in filing the case. It is said that experience is the best teacher. This experience has made Raghav wiser and more mature, but it has been the costliest lesson of his life, and he is paying for it even today! The author is a consumer activist who has received the Government of India’s National Youth Award for Consumer Protection (This story was published in BW | Businessworld Issue Dated 22-04-2013)
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Raghav Jaikar is perhaps one of those ‘lucky’ few who have someone like Ramakant Joshi to take up the fight for them. The rest would not stand a chance in the face of this blatant discrimination on the part of the financing organisation. There are several million who have to suffer in silence.We are likely one of the largest discriminators against our own people. Which means that approximately 80-90 per cent of our 1.2-billion population could be in the chappals of Raghav, having to defend themselves against a type of violence that has to be seen to be believed. Staggering numbers. Staggering violation of basic principles of business. A simple man that he is, his ire is turned towards Lord Ganesh. Aware that he is a victim and this discrimination is real, he still insists on believing that his God will protect him from this. His anger then is the small discovery that this may actually not happen.Our country, our mess. In reality it’s not God we need to turn to but ourselves. But the odds are stacked against a properly functioning democracy. As long as the powerful have the tacit backing of the government, they can do anything. And in this they share a ‘symbiotic’ relationship (each grows from the other’s efforts).This perverted relationship has to do with curtailing or restricting one’s awareness as a necessary condition for survival. It produces the Raghav kind of condition: cheated, distraught, penniless. Whereas a true symbiosis would have produced harmony.Raghav turns to Lord Ganesh for a very simple reason. He, or for that matter anyone else in his chappals, would do the same. The regulatory authorities, under the auspices (read protection) of the government, appear to have abdicated their responsibility of protecting the interests of all concerned, while upholding what is legitimate.The financiers and their goons can clearly do what they believe is right because they know that there is no authority to stop them. The theme is a common one. We see it over and over again. In this case, it is the loan providers. But we can replace that with any key service provider. For example, education: all kinds of educational organisations mushroom, regardless of the values they embody. Infrastructure: Sixty-plus years since independence and the road system is woefully inadequate. Energy: the market is known to be dominated by the oil mafia. The way these sectors work is no different from the means used by the underworld. This all-pervasive fractionated, hydra-headed mafia is the one that rules the roost. The first victim is the lowest, often referred to strangely as the ‘weakest’ sections, in the pecking order. The next, perhaps, is higher up.The mafia creates its own rules — comply or die; regulates how things move; enforces, naah, forces compliance via subtle to not so subtle coercion. In Raghav’s case we see this form of strong-arm, intimidating tactics that try and create compliance. Conquering armies are known to use these tactics to viciously dominate the conquered. Do we have internal armies that conquer our very own people? And in the midst of this, the elected authority looks the other way. Clearly, the elected authority does not have the leadership. Which really means that the loan providers are ‘allowed’ to take the law into their hands. The public cannot do anything, and nor can the elected party. If they do, they may stand to lose valuable income.Who provides the actual direction? Where do we want our society to go? Leadership is what leadership does. How can we define leadership so that it does what we would like it to do? How do we provide hardworking people like Raghav a sense of security and confidence that they can grow and flourish? The author is a psychologist-psychoanalyst who works as the Coaching Talent Manager for Center for Creative Leadership, APAC. He is based in Singapore(This story was published in BW | Businessworld Issue Dated 22-04-2013)
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Raghav Jaikar stood by a side inside the Siddhivinayak temple. This was his wife Raksha’s bappa. Today there were tears in his eyes as he spoke to the deity, “Did we do any wrong to you? Then forgive me... But what face will you show Raksha? You have broken her faith more than anyone else...”Broken, Raghav came out and met Taufiq Ali, his master cutter, who was waiting on his bike. “Let’s go,” he urged. “Joshi sahib will be waiting.” Recap: Last year, Raghav, through his friend Vinayak, had gone to the car dealer Peacock, and its resident car loan man, Hiren Dholakia, from Ambara Finance. Raghav and Raksha, tailors by profession, needed a car to help them with their work as they transported a lot of fabric and made-ups. So Raghav bought a Maruti car with a loan of Rs 3 lakh from Ambara. According to the terms of agreement, Raghav made the downpayment of Rs 1,20,600 in three instalments. The loan itself he would pay in 36 EMIs of Rs 10,800 each.Raghav paid his EMIs religiously. Out of the 36 instalments, 17 were paid when Raghav defaulted on the 18th. By a day.Continuing...A week ago, Ambara’s people stopped Raghav on the road, forced him out of the car and drove it away. The simple folk that they were, Raghav and Raksha were greatly agitated. Their simple lives focused on the children’s schooling, and on their parents’ wellbeing. They made offerings to ‘Mumbaicha Raja’ (Ganesha) and visited Pandharpur every year. They did not have friends; they had neighbours. And they all lived in ‘accepting’ co-existence. Into that kind of life came this malevolent storm.Eighteen months ago, Dholakia had walked into their home without any intimation, and compelled them to sign an agreement that Raghav had not read, nor could read. He sought a day’s time so his nephew could read and explain it. But Dholakia was in a hurry. He had taken Raghav’s signature on a blank agreement with no amounts or names filled. The manner in which he had arrived without intimating and showed a stern side that was different from his erstwhile sales face, had bullied Raghav into submission.On that occasion, Dholakia also took 36 post-dated cheques from Raghav for the EMIs. Cheques that were blank as to the name of the payee. These cheques were security, he had said, but Raghav must deposit his EMI every month into a specified bank account. But he said nothing about what would happen to these post-dated cheques, when they would be returned, if they would be returned... nothing. Raghav, already overwhelmed by the fat agreement book, the English which he could not speak or decipher, and the swank showroom from where Dholakia came, felt pressured.So he did what he was told. Even at the dealer’s showroom, Dholakia’s approach was clear: you want a loan, take it on our terms. Sign without question. Or else you don’t get the loan. Except that his tone was sweet, encouraging, and his attitude was ‘what-are-we-there-for, hanh?’Not that Raghav intended to delay or default; but he dropped his 18th instalment, sadly. That month a client had not paid in time, causing the delay. But Raghav recalled Dholakia had told him it would only mean delayed-payment charges. Raghav decided he would pay the penalty along with the instalment as soon as he was paid by Gore Brothers.When Raghav was followed and then stopped by hefty men with mean looks, for a brief moment he feared he was being kidnapped. But then they told him that he had defaulted and so his car was being seized. And they drove away, in his car. break-page-breakRaghav had stood by the kerbside, shaken and his heart thudding, unable to breathe. That was when he realised to his horror that the six men had driven away the car along with all the material lying in it, given to him by Shilpa Garments. Later, the panchnama would record the recovery agency’s reference to this material. The value: Rs 1.2 lakh. Raghav shared this with Ali, his master cutter, who said, “Why don’t you ask Joshi sahib whose daughters-in-law you stitch for, for guidance? He is a good man.” And that is what Raghav did. Joshi, a retired auditor from a large company, lived in a high-rise in the locality. Raghav told him all that had happened. Joshi had a young advocate named Murali Shivmoorthy take up Raghav’s case.Today, reaching Joshi’s home, Raghav stood in a corner seeing a number of men in discussion. Joshi was asking his neighbour Anil Vartak, a respected banker, “Tell me, when you give loans for cars and computers, is your attitude towards a borrower who is a white-collared manager like our Parandikar from the cigarette company, different from that to a borrower like, say, Damu, our barber down the road? Mind you, Damu earns well with his facials, etc.”Vartak: It is unwritten but practised widely by banks and NBFCs: a defaulting white-collared borrower will be forgiven. Sometimes, even the penalty can be waived if he makes up the EMI. And his asset won’t be seized. But if a non-white collared borrower defaults even once, he is removed from the system even if he says he was attending his mother’s funeral. No remorse is felt. The reasoning goes that ‘these type of people’ have a tendency to not take loans seriously. So, if they default, it stands to reason that they will always default. One slip and it’s goodbye for them.Joshi: And why is that?Vartak: Parandikar type of big-company employees can lead to more colleagues borrowing; that’s good for our business. So we look after him. The barber, the carpenter, etc., are not big company people, you see!Murali: Yes, the Damus and the Raghavs are good fish for their bottom line though!Murali knew the racket. His consultation with Raghav confirmed what he was expecting. All the forms were in English. Dholakia explained everything in Marathi and satisfied Raghav’s questions. It was only later that Raghav realised that his signature had been taken on documents that were not explained to him. Murali: Did he explain to you what the document contains? Did he explain how the loan would work?Raghav: He told me how many cheques to make out. He said don’t worry if you delay payment one month, but you will pay penalty. [Later, when Ambara Finance produced the agreement before the consumer forum, the following startling facts were revealed. One of the clauses stated that the contents of the agreement have been read out and explained to the borrower in xx language. But sadly, the blanks in this clause had not been filled up.Two, the agreement was undated. Even when Murali pointed this out to Ambara and the sitting judge, Ambara did not fill in the date. Three, the saddest of them all, a painful spotlight on Indian conditions: the agreement had neither been stamped nor registered.] break-page-breakRaghav now told Joshi’s audience: “When I went to pay the outstanding instalment and the penalty, Ambara refused to accept it. They said, since I had defaulted, I would now have to clear the entire balance of Rs 2.25 lakh if I wanted the car released.”Raghav had also been facing tough exchanges with Shilpa Garments, whose fabric had been driven away with the car. While Ambara’s men compelled him to clear the entire loan amount, Raghav desperately asked them to at least return the fabric.Ambara refused.As a result, Raghav got into more trouble with clients, who not only cancelled orders but refused to place fresh orders. Worse, they threatened him with a police complaint. Gradually all work stopped and his relationship with everyone broke down. Raghav lost the source of his livelihood, his dignity, and his sleep. Murali had meanwhile obtained a copy of an agreement form from Ambara’s sales staff, and shared it with Joshi. “What kind of an agreement is this?” asked Joshi. “It provides for interest to be paid for delay in EMI, but I see nothing about repossession. How did they do this then?”Murali: That is why it is not in the agreement. It allows the finance company the leeway to do what it wants. Even fill up whatever it wants in the blank spaces, at a later date! Recall Raghav said the agreement he signed was not filled. Joshi: Arre! The fact that the car was forcibly repossessed, is not evidence?Murali: The gentlemen who performed the act are not in Ambara’s employ.Joshi began to hyperventilate. He now asked Raghav, “What happened after you signed the agreement?”Raghav: Saheb, I don’t know what the papers said. They took my signature on 18 papers. Abhi usme kya likha hai, humko kya maloom?Vartak: Why did you sign when you didn’t know what you are signing?Raghav (upset now): Saheb, padha-likha to woh hai na? Dholakia is the literate one, why don’t you ask him why he did what he did not reveal?Tamhane (another banker friend of Joshi’s): But see, there is a statutory requirement that all banking and non-banking companies have to read out the forms to non-English speaking customers. We call it vernacular declaration... the borrower signs this.Joshi: What nonsense! You print on a paper and say ‘the agreement was read out to me’ and I sign it? How do I know what you read out is what the document says? Is there a reciprocal law that allows Raghav to allege that what was read to him was not what was printed? After all, Ambara did not give him a copy of the agreement or the time to understand it! Then? Where is completeness and accuracy?To Murali: “Is it there in the agreement that defaulting even once will lead to seizure of the car? If so, then under what circumstances and at whose discretion?”Murali: No. On the contrary, the agreement states that notice would have to be given.Joshi: Had they told him this at the time of purchase? Murali: I think not. It was forcible re-possession. I see that Ambara also took from Raghav an advance declaration saying, “I hereby voluntarily surrender the vehicle, due to inability to pay the instalments”.Joshi cursed under his breath. Then turning to Raghav, he asked, “Tell me everything that happened. The finance-wala called you? Or did somebody else call you? What did they say? Did you ask for time? And when did they say they were coming and who did they say would come?”Raghav: Nahin saheb! Aisa kuchh bhi nahin. No phone call, nothing. They came, stopped my car, told me to get out, and drove away with my car.Around this time, Ambara strategically filed for arbitration proceedings and sent the Jaikars a notice accordingly. Even as Murali contemplated squashing it on grounds that the arbitrator would then need to be jointly appointed, he gagged when he read the notice. Though Ambara’s registered office was in Mumbai, and the Jaikars also stayed in Mumbai, and the entire car purchase-loan-EMI-banking-transaction including repossession, seizure, etc., all occurred in Mumbai, in a unique turn of complete insanity, Ambara had sought arbitration proceedings to be held in Kolkata by an arbitrator appointed by them!Joshi and the rest swore and abused. “Chee, chichichi!” sang Joshi. “Kaay halkat maansa! (What cheap people!) Unethical and downright corrupt practice!” he declared in his 1985 internal audit war cry.Murali knew the moves well. He decided to ignore the arbitration, and filed a consumer complaint in the District Forum, appearing free of cost for the Jaikars. Based on Murali’s complaint that the arbitrator was not appointed by consensus, the court, too, ignored Ambara’s arbitration.At the District Forum, Ambara claimed Raghav’s consumer complaint was false, because “he had himself surrendered the car due to inability to repay the loan”. Murali did not need to exert himself over this: this was soon falsified by the statement of Ambara’s recovery agents who stated that they had forcibly evicted Raghav and taken repossession.After this, Ambara stopped appearing for the hearings. The District Forum directed Ambara to refund Rs 1.62 lakh paid by the Jaikars along with 9 per cent interest. Once the District Forum passes an order, any appeal against it has to be filed within 30 days of the order. Ambara did not do so.Meanwhile, overwhelmed by the sudden devastation in his life, Raghav went numb with anxiety, so that he sought execution of the order only three months later, prodded by Murali and Joshi. The Consumer Forum issued a notice to Ambara to honour the court order and pay up.Ambara did not comply within the time prescribed. This tantamount to disobedience of the court and enforcement proceedings were initiated against it. (In such a proceeding the MD of the company can be sentenced to imprisonment for disobedience.) That was when Ambara woke up and decided to file an appeal with the State Commission. The law made it possible for the delay to be condoned if the delaying party filed an application to that effect. Ambara claimed floods had destroyed their office and restoration work had not allowed them to appeal sooner. The court was annoyed and said that the delay (120 days) seemed to exceed Mumbai’s monsoon season itself, and there was no known flooding in September. Besides, other laws had not been breached by them (such as deposit of PF and TDS, etc., which had happened in time, as had business, for Ambara’s revenue had grown instead of dropping in that period). So, the State Commission dismissed the appeal, refusing to condone the delay. Did Ambara pay up? No. It filed an appeal in the National Commission.Joshi stood up and stretched. He would now raise dust. To be continued.casestudymeera(at)gmail(dot)comRead Businessworld case studies on Facebook(This story was published in BW | Businessworld Issue Dated 22-04-2013)
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The movie Repo Men (Jude Law, Forest Whittaker) is an extreme version of how this case could turn out. Repo (session) men brutally cut out organs from borrowers who have bought them on EMIs, and have now fallen behind on their instalment payments. Raghav Jaikar, the tailor, should feel relieved they only took his car!Let’s turn from Hollywood to the grim realities of living on EMIs in lower-middle-class India. Viewed in black & white, the obvious victim is Jaikar, and the big bad Ambara Finance is the equally obvious villain. The poor hardworking honest man is only trying to improve his family’s life. The finance company gave the loan under false pretences, and acted arrogantly by seizing the car for a one-day delay in paying the 18th instalment. This is an open and shut case. But there are many shades of grey in other stories being played out every day, and it’s not clear to anybody what should be done to solve the problem. None of the following practices of Ambara Finance, or other such companies, can or should be condoned:* Not bothering to assess the borrower’s ability to repay* Not fully explaining the terms of the loan in the borrower’s language* Getting blank documents signed and not explaining the clauses* Acting to repossess the car for a one-day delay after 17 instalments were paid on time* The forcible and humiliating repossession itself* The arbitrary and uncooperative stand of Ambara Finance in the legal proceedings that followed.Let’s also not forget what Jaikar could and should have done differently. It is not only the borrower’s right, but also his responsibility, to fully understand the terms on which he is taking a loan. In this case, Jaikar was unfairly “hustled” into signing blank documents, but there is no escaping his own share of blame in acting naively. In the excitement of buying a new car or house, borrowers often get emotionally swept away and don’t bother about things like interest rate, ability to pay EMIs, the possibility of occasional dips in cash flow, etc.Borrowers should choose their car finance company as carefully as they choose their car. Raghav wanted to buy a Maruti because he liked the car’s features and benefits, and also because he trusted the brand. While Ambara Finance was sitting in the car dealership, a typical tactic to make the customer believe that he has no choice about who he can get the car financed from, the truth is the borrower can take a loan from anybody. Jaikar would have been better off getting the car financed from a reputed (not necessarily large) bank.The Reserve Bank of India has very stringent rules for banks (and non-bank finance companies) on how to deal with borrowers. These include:* Recovery agents won’t use physical threat or intimidation * They can’t call at odd times * Banks will be responsible for any undue mental harassment from the service providers* Banks must check the background of its recovery agents.There are enough laws to protect borrowers. But it’s important to remember that at the end of the day, banks have the right to recover the loan, and take just steps to do so. Whenever media reports and public pressure forces banks to “go soft” on defaulters, the result is, invariably, a spate of wilful delinquencies. An example of this is the microfinance imbroglio a few years ago in Andhra Pradesh. A few examples of extortionate lending by microfinance institutions (MFIs) led to a backlash. The state gave in to public opinion and placed severe restrictions on MFIs’ ability to collect money from borrowers. As a result, 90 per cent loans went sour; and many MFIs went bust.We could listen to Shakespeare, who said: “Neither a borrower nor a lender be; For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.” Or, since loans are both a necessity and a reality, borrowers and lenders alike learn to play by the rules, and hopefully Jaikar’s story will be a stray example. The author founded Argus Partners, which places independent directors on company boards(This story was published in BW | Businessworld Issue Dated 06-05-2013)
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Raghav Jaikar’s case is not unique! Consumerism continues to scale new heights. Youngsters, fresh into jobs, aspire for luxuries that their parents barely managed to achieve in their lifetime, thanks to lending companies offering loans and credit cards to help them in their pursuit. As business scaled up, inherent risks surfaced — defaults started and financiers rushed for cover. Documentation, till then a formality, was scrutinised to explore options to cut losses. Clauses providing for repossession of assets became important. However, the slow legal system and high costs of litigation posed a challenge. So, lenders preferred to outsource the “difficult” task to agencies.Regulators responded with strict guidelines, strong reprimands and penalties. Media, at times, hyped cases of apparent unfair treatment, and courts tried to do their bit. But the letter of law often eclipsed the spirit. As such instances increased, it became clear that we had to address the root cause rather than the symptoms.Jaikar signed on loan documentation without understanding the implications of default. Ambara’s salesman sweet talked him into this. When faced with the consequence of default, Jaikar felt cheated.Lending companies must have a strict code of conduct to ensure consumers are provided with clear and concise information. They should advertise responsibly, and their products should match the consumers’ needs and risk profile. Above all, they should consider cases of financial difficulty sympathetically. They should be vigilant against breach by sales staff, who should be trained to offer appropriate products to vulnerable borrowers. Performance may be rewarded, but mis-selling should be severely reprimanded. We now hear of a leading international bank modifying its staff incentive plan to prevent mis-selling.The legal system also needs some reforms. We need a mechanism for speedy and fair settlements; simplified documentation, in regional language with a provision of audio support; and modified arbitration rules that ensure that the venue is the city where the transaction has fructified. Debt collection agencies should be registered and regulated. Courts must insist on evidence that a copy of the completed documentation was made available to the borrower before the loan was disbursed.Usually, consumers are protected by market forces. But in financial products, there is limited competition, and products are complex. The Reserve Bank of India has introduced Financial Literacy and Credit Counselling Centres (FLCCs), which can be funded by contributions from financing companies. FLCCs provide objective financial counselling on responsible borrowing and educate consumers on financial products’ features and risks. These promote financial planning and help individuals in facing debt distress. In short, they guide borrowers to successfully and safely use financial products and manage their scarce resources better. These are not supposed to intervene in cases of wilful default. In due course, FLCCs can provide access to subsidised legal assistance and facilitate speedy settlements with lenders. Qualified individuals, usually retired bankers, run the centres. The regulator has recently issued guidelines to enhance FLCCs’ effectiveness.There is no quick fix to Jaikar’s problems. As Joshi and his friends suggest, simplification of legal system and arbitration, and educating small borrowers are some of the initiatives. But in pursuit of softer issues like voice of conscience, reining in young sales force and collection agents, we all have a role to play. It may be as simple as guiding our maid, driver or our favourite chaiwala when he or she thinks of borrowing. We could also use our spare time to support activities that help all the stakeholders to harmoniously operate in the larger interest of the economy and society. The author is vice-president and chief internal auditor of Voltas, chairman of the audit committee at BOC India, and independent director at Speciality Restaurants. Views expressed are personal(This story was published in BW | Businessworld Issue Dated 06-05-2013)
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Ramakant Joshi pondered over all that was unfolding before him. As far as he knew, all this was complete nonsense. And he was not going to sit quiet. “I will raise dust,” he had sworn to his wife, who placed yet another betel leaf along with Rs 21 this time at the feet of her Vithoba. “The man forgets he is 75,” she whispered to the Lord, who stood akimbo on a brick. “You had better watch over him... I don’t even have a decent housemaid; if he falls ill, I will look after him, barobar aahe, but remember, you will get food from that Sadanand Vihar!”Joshi used to be a senior auditor at Morro Group, and was known to have slammed many senior managers on ethics and fairplay. He recalled Atul Desikar, who was his junior assistant 15 years ago, and today a vice president in one of the NBFCs. Yes, he would enlist Atul’s skills in this case. Calling Atul (via Morro), he said, “There is a matter that I want to initiate policy changes on… What is going on today is daylight robbery. Now I want to fight this till my last day on earth.” He went on to explain how in the name of growth, companies were behaving in a socially irresponsible manner. “Just because you have an MBA does not mean you confuse the common man with laborious forms and jargon! Otherwise don’t sell to him, no! Why pretend!”There must be a story behind this, thought Atul.They met for several cups of tea at Durga Parmeswari (known to veteran users as DP) in Mumbai’s Dadar-Matunga area. Both chose DP, for that is where Joshi’s students (including Atul) used to meet him on Sundays, in the early 1980s when he taught at an evening college nearby. Joshi favourite was DP’s masala toast. After 50 years, the dish remained surprisingly consistent, and his own appetite tops. (Later, of course, Atul would contort an eyebrow watching him wolf down two platefuls.)Sharing the story and plight of the Jaikars, Joshi said, “It worries me that this is where we have arrived as a country after 65 years of travelling! I am surely missing something. You are with a fine NBFC... you also give loans and outsource debt collection to collection agents to recover assets by force? What is this!”Atul: Oh no, sir! At Smee Finance, we don’t even give loans. Because of the related questionable situations it gives rise to, we had opted out of this product long ago. But yes, recent changes in the board have brought this back. Small artisans are good at their existing scale, but gauging their ambition and their drive to remain steady is difficult. They could overreach, and we would have to take a hit on the bottom line; or follow the fashion of recovery agents! Joshi: But why agents, baba? How were we collecting from debtors at Morro? We didn’t use agents! Atul: See, the cost of collecting debts is the highest if you do it legally. Litigation costs are a killer. The product itself is like that — you need scale, high margins and apparently simple documentation with an army of collection agents to pursue the borrowers. Litigation has to be avoided at all costs and there is also a risk of political interference. You will remember the loan melas that left many banks holding worthless paper of documentation? Joshi: Yes, I do, and I have also seen how business is run. So let us not don false halos. What is your point? Atul: Okay, let me show you how this product is driven and kept afloat. Those who lend are not doing so out of love or brotherhood. Once it was being done as a product offering. Today, it is a competitive, bottom line-lifter. That means both hook and crook. For scale, NBFCs train youngsters fresh from college, and give them stiff targets with goodies like high-end gadgets or even an overseas trip for high achievers. Result: oversell. Hype is created by anointing ‘today’s best performer’, giving him a special certificate... The poor bloke kills himself to sell more, wanting to remain in the limelight. But he is selling to the likes of Raghav Jaikar, whom he does not need to respect, who he need not service, who only builds his bottom line... break-page-breakThat is the template we at Smee Finance will have to copy if we add this product. This is where we are undecided because it sets up the wrong road for competing and unethical practices. And these determine the norms for hiring and retention in this industry.Atul went on to elaborate how some of his senior directors were unhappy with this plan. “Because the first thing that happens is that the voice of conscience, which should be present in risk management processes, is lost in the noise. Documentation, which is the foundation for processes, gets compromised; incomplete documents pour in and the operations team often gives in out of sheer fatigue. The race gets exciting beyond imagination...but with highly questionable processes developing.”Joshi: You mean there is no management committee overseeing such things?Atul: Committees are also hollow. Very often the papers reach them late for any meaningful scrutiny. And often, the members depend on fresh youngsters to do basic analysis, which can help them make some noticeable observations at the meeting. It’s finally such a rat race, it is alarming.Joshi: I find this strange. Even then, surely regulators’ teams will easily spot this in the minutes during annual inspection?Atul: Saaheb, regulators are doing far more than what they can possibly do. No one works harder than them. They issue guidelines with a belief that everyone will adhere. See, you can blame the police for not catching the thief, but you cannot blame the police for the thief’s desire to steal! Companies come with ‘the best legal minds’ — sorry, ‘best’ is when you are smart enough to breach the law. The farmaan to them is to enable companies ‘safely’ do what they apparently may not be able to. And these bright minds work ruthlessly towards fat year-end performance bonuses! India has too much money saaheb, that is the problem...Joshi looked disillusioned; the rot seemed too deep. Then he asked, “What about the management and the board of directors? After all, they are the guiding conscience?”Atul: It’s a tightrope walk for them. They are answerable to all stakeholders, you see. Their mantra is growth... investors have to be kept happy!Joshi: Arre! Keep investors happy by stealing from the small fellows?Atul: Frankly, they are too small a people for anyone to worry about. Go anywhere… the small artisan is not anyone’s concern. Simply, the Jaikars of this world have to keep their eyes open and be careful when they commit their monies. Believe me, politicians and so-called social activists will not remain engaged long in this battle. Kaay sangoo... there’s nothing in it for them. Joshi glanced at Atul’s business card and said, “Senior vice-president? Hmm... You watch your step young man. You are a student of Matunga... we carry a big chip on our shoulder about our moorings, samajhla na? Hmmm... theek hai, then tell me: do you have the patience for this small shimpi (tailor)?” break-page-breakAtul smiled and said, “Don’t embarrass me, sir. My father was a small clerk in SBI. We are grateful for our origins.Please tell me.”And Joshi told him more about the Jaikars’ court case, the response of Ambara Finance and Murali Shivmoorthy the lawyer. Atul chewed his lip for a long time, then said purposefully, “Does Mrs Joshi still make those deadly kothambir chi wadi?”Joshi rolled his Mid Day newspaper and whacked Atul in good humour. “Of course she does and she will be most happy that you still remember! Please come, the lawyer too will be there. Let’s see what we can do.”Next day, even as he stepped out of the lift, Atul simply needed to walk in the direction of the high-pitched arguments to find Joshi’s home: Joshi (to Murali): My point is, notwithstanding Jaikars’ lack of legal knowledge or even street smartness, is it fair to have forms only in English? Did not Raghav miss the ramifications of the entire loan process owing to not knowing English? Then calling out to Richa, his niece, he said, “Find out how many English speakers we have in India.” Richa got back with: 350 million users and 100 million core speakers.Rane (banker): That is just 29 per cent! That means 71 per cent do not use English. How then can we run a system for only 29 per cent people! My view is that we must have English, Hindi, and the local regional language. Will it help? Can’t say because in most cases even literate and educated persons consider reading the fine print a waste of time, and think signing the documents is a mere formality. Then again, a copy of the documents is not given nor do borrowers insist on their right to a copy. The financier’s approach too is: ‘Sign on the dotted line or forget about the loan’.Vartak (neighbour, banker): It might interest you to know the experience of a sitting high court judge who wanted a loan to buy a car for his personal use. Upfront, the NBFC asked him to sign in advance a declaration that said: ‘I am unable to repay the loan instalments and hence am voluntarily surrendering the car’. He refused to sign such a document! And they also refused to give him the loan! Ha ha ha. But just imagine, if this is the fate of a sitting high court judge, why are we blaming poor Jaikar! Joshi: But how can a financier or a banker take possession of the vehicle for which loan is given, using force?Atul: Unfortunately, he can. Because of judicial delays and securing justice being tedious, time-consuming and costly, most banks and finance companies have resorted to extra-judicial methods for recovery of dues. Surprisingly, there has been no protest. Joshi: Arre Atul, in such high-growth India, an organisation in civilised society must decide: Do I wish to do business with integrity or not? Is civilised society my market or not?Atul: Saaheb, it’s like this: All kinds of people take loans. Unfortunately, because there are a significant number who are out to cheat and defraud, we have to be stringent. Legally, we cannot differentiate between a criminal and a saint; anyone who applies will get the same review.Joshi: Okay, tell me, here is a man who, you can see, has made a down payment of Rs 1.2 lakh. Does this not speak for him? Did not Ambara use its brains? Murali, why did your court not ask this? Will a man who has paid 1.2 lakhs risk it and defraud you? Should you not infer? Think! You boys have become addicts to law books and management nonsense!Can you not create filters that eliminate the definitely-intending-to-defraud cases and care and respect the likes of Raghav? Does the largesse of liberalisation belong only to the rich to get richer? Why are you blaming the system? That same law has given you discretionary powers!Legal or judicial process may be slow; then fight that, no? Why corner the small artisan? And how dare you use physical force? I am shocked that no regulatory body has slapped a notice on companies! Murali: Totally agree. There are judicial pronouncements to this effect, but they remain on paper and the practice of employing musclemen and recovery agents continues; and these people usually know how to ‘fix’ the law and hoodwink it.Atul (to Joshi): What do you want me to do, sir?Joshi: Go, change the system!Atul: That is easier said than done. Regulators take stern steps and come out with guidelines. What was intended to help business is unfortunately used to exploit small borrowers. Recall during our Morro days, we used to suffer distributors whose cheques bounced. Years later, we did get a law that ordered punishment for cheque bouncing. Yet, see how that very law has become a tool to harass small borrowers by demanding post-dated blank cheques and depositing them in advance.Then entities get black-listed and new documentation policies are drafted. What happens then? Quickly, the blacklisted entities metamorphose into new entities — the same people run the new business and take help from brilliant lawyers to come up with compliant documentation and start all over again.Joshi: When your son falls sick and medicines do not work, do you give up? Don’t you try new means?Atul (very saddened): I know what you mean... the world is not what it was during your days, saaheb! Look, small borrowers have just been freed from corrupt small-time money-lenders, to be trapped by sophisticated ones in suits and boots. Both will coexist; the ones with surplus cash will seek to grow it and the ones with no cash will borrow. Our intention has to be to educate the borrower and be vigilant about the lender. Joshi: Educate the wielders of law too! (Looking at Murali angrily) Law is held as much by you as by the Supreme Court! Go raise dust over this nonsense. You cannot sit still. How can a finance company registered in Mumbai, where the borrower also belongs and where the car loan was given, how can it file for arbitration randomly in Kolkata? You chose to ignore the arbitration because the arbitrator was not chosen through consensus. But was it not oppressive of a minority? Arre zaoo de! What do you mean it is valid in law! But is it fair? Is it fair? The primary tenet of law is fairness! What does your buddhi tell you? Did the judge query this? This is tantamount to oppression of the weak. It is a devious design with an intent to harass the borrower and nullify his attempts to defend himself. Should you not challenge it? Atul: Saaheb, some of the NFBCs are working on creating fair systems...Joshi: Nahin re baba, don’t tell me ‘they are working on this’...show me results! If not, quit your profession! Hanh, both of you! casestudymeera(at)gmail(dot)com Read Businessworld case studies on Facebook(This story was published in BW | Businessworld Issue Dated 06-05-2013)
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Earlier, the prudent and sensible approach was to save to buy whatever one wanted. Now, the modern generation is carried away by growing consumerism, an ambition to quickly improve the standard of living, the culture of “keeping up with the Joneses”, and the tendency to “live by the day” without a thought for the future. This attitude makes people spend beyond their means.Capitalising on this trend are the financial institutions which are eager to offer loans, making a person spend today against anticipated future earnings, without knowing how the future will shape. No allowance is made for the proverbial rainy day or for unforeseen circumstances which might make it difficult to repay the loan and the hefty interest on it. He is too enchanted and blinded by the thought of acquiring something today that would otherwise have been beyond his means. And the consumer is egged on to make injudicious decisions as the finance company’s marketing representative has been given targets to achieve. In this situation, the borrower unwittingly signs blank agreements and forms that are lengthy and in small print, without really understanding the implications. A copy is never provided to the borrower, who considers the entire procedure a mere formality for availing the loan. These documents are usually in English and many of the borrowers sign them in routine course without even understanding the language.Advancing of loans is a lucrative business for finance companies. The interest rates are high, and the penal interest in case of delay is astronomical. In fact, when a borrower delays payment, it is beneficial to the financier, as the company earns more by way of penal interest and delayed payment charges.The repaying capacity of the borrower is not ascertained since the finance company does not have to bother about the sticky loans and bad debts, as the loan is secured either by obtaining collateral security, or hypothecation / mortgage of the financed asset. Also, before the loan is sanctioned, the financier obtains a signed declaration from the prospective borrower that he is voluntarily returning and surrendering the asset as he is unable to pay the EMIs. So, in case the EMI is not paid on time, the company merely sends goons, who call themselves recovery agents, and they either collect payment on the spot or seize the asset financed. The poor borrower finds it difficult to challenge the seizure as he has signed a declaration in advance stating that the asset is being voluntarily surrendered. Also, litigation in India is costly, tedious and time-consuming, and a borrower would find it difficult to match the might of a finance company. This is the ground reality.Once the asset is seized, there is another racket in selling it. The bidders are usually a coterie of persons known to the company and its officials. The asset is often sold at a price lower than the market rate, which is beneficial to the bidding purchaser. The finance company’s official also benefits by getting a cut for manipulating the bids. So everyone is happy, at the cost of the poor consumer!Having understood how the system presently works, it will be essential to suggest ways and means to protect the consumer who borrows money. The government must play a proactive role in regulating financiers. First, every borrower’s repaying capacity must be ascertained and certified by a chartered accountant. Second, every document in respect of voluntary surrender of the asset by the borrower should require notarisation, as the entry in the notarial register will ensure that it is not taken in advance. Third, resorting to extra judicial methods by engaging recovery agents must be made a cognizable offence so that goons as well as those engaging their services can be held criminally liable and punished. Finally, and most importantly, the legal system has to be improved, so that justice is speedy and affordable. Only then will the situation improve. The author is a consumer activist who has received the Government of India’s National Youth Award for Consumer Protection(This story was published in BW | Businessworld Issue Dated 08-04-2013)
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All societies are discriminatory. All societies are constituted of people who have access to resources and those who do not.The former work as gatekeepers so that the resource-less remain so. ‘People with resources’ are able to exclude the resource-less by ensuring that they do not have the opportunity to make decisions in an informed manner. So, when ‘the person without resources’ makes choices about his life, he feels that he doesn’t have much option and as if he does not have a right at all to make the choice. This sets the scene for repetitive exclusion and exploitation. Some people survive this cycle and are included in the inner circle of those with resources. Most do not. Everyone, however, aspires to be in the inner circle.Raghav was denied access to information, which could have enabled making decisions that were appropriate for him. Reason: those at the finance company Ambara want to use him as a customer but not value him as one. They have not respected him as an individual to whom they owe their profits and being in business. Their business model is engineered to ensure their customer’s (Raghav) effort to succeed and to own an asset fails. They have done so by creating a hierarchy where the seller is a part of the inner circle and is very reluctantly opening the door for the buyer to the opportunity but at the same time making it seem he has no right to aspire for the opportunity. This cycle of discrimination, exclusion and exploitation will continue for a long time and people like Raghav will continue to be excluded and treated with circumspect dignity. So, how should Raghav respond to such an assault? He needs to know his rights.Raghav, we act in an unassertive manner because we have learnt through our experience to behave so. As we grow, we learn through interactions that “You do not count”, or, ”To matter and exist, I need to be nice to everyone”. You need to learn to focus on your rights as a person, instead of focusing on being nice. You have the following rights:The right to information regarding issues that affect youThe right to say ‘no’The right to have feelings and express themThe right to change your mind.We all have to create a balance between others and ourselves. When it comes to rights, we are all as important as others. So, it is alright to expect fairness.You are important. To feel this, do these three exercises: Make a list of your abilities and carry it with you. Add to the list every day — a skill that you have, an achievement you are proud of, or an aspect of your personality that you feel good about. Remember how hard it was for you to achieve what you have. Give yourself credit for it. For a week, note in a diary only positive things about yourself, your achievements and struggles; document when your needs are being overlooked. But balance your needs with the realisation that other people have needs as well. Try not to force onto them what you do not want for yourself. Listen to others. It will make them feel that you are not dismissive of them. Summarise what they have said and thank them for their help. Reflect on what they have said. You do not have to take a decision right then. Take time if you need it. Be brief, clear and to the point. Avoid unnecessary padding, keep your words simple, especially when talking to people trying to convince you unreasonably, manipulate you or coerce you.There are certain ‘don’ts’ as well to keep in mind: When you say ‘no’, don’t be sarcastic. Don’t be boastful. You are not rejecting the person, so you need not apologise. Take care! The author is a consultant psychiatrist and psychotherapist. He is director, division of mental health and quality of life, Medanta The Medicity, Gurgaon; and chairperson of NGO Saarthak(This story was published in BW | Businessworld Issue Dated 08-04-2013)
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