Money lender is a person or firm who usually gives small loans at high interest rates. Some of them also accept deposits from the public, in the absence of a solid framework of regulations for money lending activities. Money lenders are governed by regulations of the state where they have obtained government license to do business in.
Money lenders have prevalence in rural areas where many borrowers either do not have access to financial institutions or are hesitant to approach them due to lack of awareness and education. Some prefer money lenders to institutional lenders since with money lenders the process is informal, quick and easy.
Money lenders are permitted to charge higher interest rates on loans than their institutional counterparts subject to the maximum lending rate stipulated by the state government. However there is no estimate of the numerous unregistered money lenders who operate from their houses or workplaces. Loans extended by money lenders are usually of short duration and interest charged varies from client to client.
In general money lenders are notorious for the exorbitantly high interest they charge, for use of force and illegal means for recovery of money lent but there is no denying that they play no small role in the financing needs of many a rural farmer or household.