Moneylending

A moneylender is a person or group who typically offers small personal loans at high rates of interest and is distinct from banks and financial institutions that typically provide such loans. The high interest rates charged by them is justified in many cases by the risk involved.

They play an active role in lending to people with less access to banking activities, such as the unbanked or underbanked or in situations where borrowers do not have good credit history. They sometimes lend to people like gamblers and compulsive shoppers who often get into debt.

Many countries have laws in place that require moneylenders to be registered, and set limits on the interest rates that may be charged. For example, in India licensed moneylenders are governed by Money Lenders Acts of respective states.

A paper from the Abdul Latif Jameel Poverty Action Lab found that people living in poverty tend to borrow money from moneylenders (as well as relatives) rather than banks. For example, in the Udaipur sample they used, 18% of those who borrowed money borrowed from moneylenders compared to 6.4% from a formal source (like a bank). In the urban Hyderabad sample, 52% of those who borrow money borrow from moneylenders compared to 5% from commercial banks.

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