Do you want to live off the poor?

By Philip Mudartha
Bellevision Media Network

Doha, 11 March 2012: If you honestly answered ‘yes’ to my question, I am sure you are not doing that now. Probably, that is because you do not know how to. Or you know, but do not know the details. Or you do not care. In any case, you may change your mind and want to not live off the poor. It may prick your conscience to deprive the poor of what rightly belongs to them.

 

If you answered a firm and resolute ‘no’, you may change your mind. Because, you feel pity and sympathy for the poor or you hold those who live off the poor are immoral, corrupt and dishonest people, mostly the heartless cruel politicians and bribe-taking government servants.

 

If you skipped to answer and waited to read further, you may be disappointed by my advice: do not act on the information I disclose herewith. You may not be arrested, charged and put behind bars. Or you may land yourself in trouble and blame me for your own decisions.

 

I have fairly good concepts of money management and investment planning. I am familiar with theories of arbitrage and leveraging and how it works. You borrow from someone at a low interest rate and invest it in high yield assets. For example, you can borrow in Japan for less than 2%p.a. interest. Then invest the loan with banks in Brazil at 11%p.a.  You make 9% without any capital. The only risk is exchange rate fluctuations in currency markets. You may bet on your luck, take the gamble and mint money without owning any money. You live off on others’ money. Would your conscience prick you? Would you call it immoral, unethical and definitely not illegal?

 

Yet, I was not prepared what I came across during my travels through villages in southern Indian states. A well-dressed lady of means was in a nationalized scheduled bank and was getting it weighed by branch manager. She did not look like she required a loan. She must be having safety locker. Why are they weighing it then? Actually, she was taking out a crop loan using the jewelry as collateral security. She took out a loan of three lakh rupees at 4%pa interest and promptly invested it in the same branch on a fixed deposit yielding 9.5%pa. The difference of 5.5% was her free income, with no capital of her own, and at zero risk.

 

It is important to note that the money belongs to the public, with which banks engage in loaning business and earn a net profit (or loss), a legitimate activity under law. The banks are by Finance Act of 2010 are required to lend to priority sectors such as Agriculture, at concessional rates. The Act has fixed the rate of interest at 4%pa. The branch manager has got annual targets for loan amount disbursed. He has target for debt recovery.  Low disbursal and bad debts tell on his performance. His increment and promotions are at stake. The loan given to this lady is safely back in his own bank and risk of bad debt is zero. For the lady, she earns Rs16,500 a year and her gold is securely locked in bank vault, without any rental. Normal rental for a bank locker is Rs3, 500 which she saved. She made Rs20, 000. Brilliant, would you not say? Would you say it is immoral, unethical and illegal?

 

Our learned and illustrious Finance Minister, Pranab Mukherjee gave away largesse in farm subsidies in order to promote agriculture. He wanted to increase the acreage under crops by making cheaper loans to farmers and free them from the clutches of greedy money lenders. He knew statistics of farmer suicides and the reasons. He knew that lands are left fallow because farming is not economical. Government must help. It must motivate. It can do so by financial hand-outs through scheduled banks and NABARD. If the banks make losses, the government will bail them out with infusion of money as equity. The money will be created from thin air, like magicians do. Just print currency notes without tangible assets like sovereign gold or basket of precious metals and reserve currencies.

 

Sitting within his plush chamber in Parliament, he is happy that farmers are helped. Bankers are happy that government is happy. People are happy because they can siphon off the money. Genuine poor farmer has no gold jewelry as collateral. Even if he had, he has a history of default and bank managers will not trust him to give him any money. He will continue to borrow from money lender, may be even from this lady. When he defaults, his land will also be this lady’s on which she can raise more agricultural loan in another branch of a scheduled bank.

 

All in the name of the poor! Now, are you tempted to be the well-heeled lady with jewelry and farm documents as proof of being a farmer? If you do, do not blame your sins on me! I oppose subsidies and all subsidies in the name of the poor; even as concede they need to be helped. Do we have a way?