Question 1

What do Shroffs do ?

Accepted Answer

Shroffs are traditional money financiers and changers in India. They offer many financial services like remittance, lending, other than currency exchange. Following are some of their common activities :
Bill Payments - They offer bill payment services like payment of water or electricity bills on behalf of their customers.
Currency Exchange - They offer services for exchange of currency notes, coins or even traveller’s cheques. They usually charge a commission or a certain amount of service fees for such services.
Lending - They offer loans to businesses or to individuals. They require collateral which is in the form of jewellery or gold or any other valuable asset. They charge high interest rates on the loans they provide. In old times in India, shroffs were an important source of credit, especially in rural areas where formal banking services were not yet available.
Remittance Services - They offer remittance services, like transfer of money from one place to another. Such services are useful for people who want to send money to their families living in different countries.
Other Financial Services - As per the region and business of the Shroff’s, financial services are offered too. They are tax preparation services, insurance or investment management.

Question 2

What does money lenders do

Accepted Answer

Money Lenders are institutions or individuals who lend money to the borrowers in exchange for a rate of interest. Following are some of the common activities carried out by money lenders
Evaluating creditworthiness: They evaluate the creditworthiness of borrowers prior to any provision of loans. This process may involve review of the borrower's credit history, his income, and other financial details to determine whether they are able to repay the loan.
Providing other financial services: Some of them may offer other financial services, like currency exchange or remittance services. However, this service may vary as per the region and the money lender's business.
Collecting payments: They collect payments from borrowers, usually on a weekly or monthly basis. They may use certain methods to collect payments, like a visit to the borrower's home or workplace, or deduction of payments directly from the borrower's bank account.
Charging interest and fees: They charge a high rate of interest on the loans they provide, and it can be sometimes as high as 50% or more per annum. Along with the interest, they may also charge fees for late payments, processing fees, or other types of fees.
Providing loans: They offer loans to individuals or businesses who are unable to obtain credit from traditional financial institutions, like banks or credit unions. Money lenders may need collateral, like property or a valuable asset, or may need a guarantor for the loan.

Question 3

What are the different types of Shroffs

Accepted Answer

There are various types of Shroffs who offer various financial services in India. Following are some of the common types of Shroffs:
Hundi Shroff: They deal with the hundi system, an informal and traditional system of credit and remittance in India. They offer services like transfer of hundis, discounting of hundis, and such related services.
Forex Shroff: They deal with foreign exchange services like currency exchange, remittance and other related services.
Saraf: They are specialized in dealing with gold and silver. They offer services like gold loan, purchase and sale of gold and silver ornaments and related services.
Shahukar: They provide loans and advances to people at a high rate of interest. They usually need collateral like property, gold or other valuable assets.
Pawnbroker: They provide loan to people against the security of movable property like gold ornaments, household appliances or such valuable items.
Bill Shroff: They specialize in the payment of bills like water bills, electricity bills and such utility bills on behalf of their customers. They charge a commission for this service.

Question 4

What are the different types of money lenders

Accepted Answer

Money lenders can be broadly categorized into two types as per their legal status: They can be either licensed money lenders or unlicensed money lenders. Following are the types of money lenders:
Microfinance institutions: These are organizations that offer small loans to individuals and businesses who are not able to obtain credit from traditional financial institutions. Microfinance institutions usually focus on serving low-income communities and may also offer financial education and other services to their customers.
Licensed money lenders: They are registered and licensed by the government to offer financial services. They are needed to follow certain rules and regulations, which are like limits on the interest rates they charge.
Unlicensed money lenders: They operate without a license and are not regulated by the government. They may charge very high rates of interest and may use aggressive collection tactics to recover their loans.
Payday lenders: They offer short-term loans to individuals who require instant cash. They do charge very high rates of interest and fees and need repayment of the loan within a few weeks.
Traditional money lenders: They have been offering financial services for generations and are often situated in rural areas. They usually offer loans to farmers and small businesses who are not able to obtain credit from formal financial institutions.
Peer-to-peer lenders: They operate online platforms which connect borrowers with investors willing to lend money. The interest rates and fees charged by peer-to-peer lenders vary as per the platform and the creditworthiness of the borrower.

Question 5

Are money Lenders legal in India?

Accepted Answer

In most of the states in India, the Money Lenders Act in the State of Maharashtra, 2014 has been implemented to govern the money lenders. This act is not a single federal law in India, and each state has its own act implemented in different years.
Each and every money lender has to be licensed to operate. The laws were created by many legislative bodies, to stop any uncontrolled indigenous lenders from making any demands from the borrower’s excessive interest rates.
The money lenders need to have license and follow rules and regulations, which includes the restrictions on interest rates and on loan recovery methods as well.

Question 6

What kind of loans do money lenders typically offer?

Accepted Answer

Money lenders offer short term loans like personal loans, small business loans and payday loans. Such kinds of loans have high interest rates and are secured against the income or assets of the borrower. They even offer secured loans like auto loans and mortgage loans.

Question 7

How can I compare different money lenders to find the best loan option for me?

Accepted Answer

You need to make sure to compare the interest rates of different money lenders. Also you have to compare their processing fees, their prepayment fees, terms and such features of other personal loans before opting for a loan.
You can search online and read their reviews from other borrowers, check their credibility by verifying their license and registration with the concerned authorities. This helps you find the best option of loan which can meet your financial needs and your budget as well.
Before applying for a personal loan, you have to make sure that your credit score is good. You can plan your monthly expenditure and decide your EMI too.

Question 8

What is the process for applying for a loan from a money lender?

Accepted Answer

The process of applying for a loan can vary as per the procedures and needs of the lender. Usually, a person has to fill out an application form, offer his needed documents like proof of income and identity. Further, he has to agree to the terms and conditions of the lender, like the interest rate, collateral requirements and repayment schedule. Later on, the lender reviews his application and would decide whether to provide his loan or not.

Shroffs And Money Lenders In Mangalore

Guru Raghavendra Finance

Frequently Asked Questions