Loan sharks wheeling and dealing desperate families into debt

Raees is a 41-year-old resident of Sher Shah in Karachi. There was a time when his family owned three Mazda buses that used to run on different routes in the city, earning enough to cover their household expenses. Everything was going well until one day his father came home and told the family that he had gone broke. His debt was so high that even if he sold all his buses and the roof over their heads, he would still not be able to pay the loan sharks back.

How did it get to this?

Raees’ father told the family that he had started a ‘committee’, which as most people know, is a group of people who agree to put in a fixed amount of money every month. Then every month one person can take the entire amount. This kind of rotating saving makes it possible for people to access a large sum in one go. This goes on until everyone is paid off.

However, one member backed out in the middle of the committee. To plug the gap, Raees’ father started putting money from his own pocket.

After some time, another person stopped paying his monthly contribution and Raees’ father tripled his payable share to plug an even bigger gap to keep the committee afloat. The income from his buses stayed the same, and the extra committee payments ballooned. Soon, the family started to feel the pinch.

Enter the tire traders

Someone advised Raees’ father to buy trailer tires on credit and sell them on cash. This way he would suffer a loss of Rs30,000 but it would solve his cash flow crisis.

His father kept buying tires on credit, hoping to resurrect his fortunes.

“Our lives changed the day our father told us about his destitution,” says Rasees. “I went to Saudi Arabia [to earn money]. My elder brother and four younger brothers started working too.”

It took them fifteen years to repay the loan and extract ourselves from this vicious cycle that began with a pair of tires, he said.

How tire scammers prey on people

The loan shark or creditor ropes in the desperate cash-strapped buyer. They give them tires on credit for Rs10,000. The market value of those tires is Rs7,000.

Once the tires change hands, the loan shark will buy the tires back at the market rate (Rs7,000) and get Rs7,000 in cash. Now, the borrower has to repay Rs10,000 minus Rs7,000 and fork over Rs3,000 in interest.

The trade takes place only on paper. But the real purpose is to lend money and earn interest on its repayment.

Why are tires used in this transaction?

According to oil tanker owner Noorullah there are many reasons why loan sharks use tires as a commodity. One of the reasons is that people who do interest-based lending – both the creditor and debtor – are looked down upon in Pakistani society. So a tire gives it an appearance of being a non-cash based transaction that involves a physical thing that is traded.

People also try to avoid interest-based lending as there is a risk of the parties forming jirgas or going to court if there is a dispute.

According
to Noorullah, the interest charged in a month in this kind of arrangement equals
the amount of profit a bank charges in a year.

“On a loan of Rs100,000, Rs10,000 is charged monthly,” he says. “Since securing a loan from a bank is a lengthy process and requires a lot of documentation, people in dire need of cash become victims of the tire mafia.”

How big is
this network?

The biggest centres of this trade are in Karachi’s Shireen Jinnah Colony, Mauripur, Pipri and Sohrab Goth.

Creditors use these centres as banks to lend people money. Some creditors actually deal in tires while some use their shops as a front and actual deal take place somewhere else, like at their homes, offices, or deras.

Some creditors use real tire shops for billing and give them few thousand rupees in return.

Besides Karachi, there are hubs for this kind of lending in Quetta, Lahore and Peshawar.

In some instances, when the amount beint lend is substantial, trucks, cars and trailers are used as collateral instead of tires.

In some areas of the tribal districts, Kalashnikovs and opium are used.

Transporters say that these transactions, which are worth billions of rupees, often take place on personal guarantees. If such guarantees are not available, property documents or vehicles are mortgaged. If even papers are not available, the creditors are so powerful that they recover their money one way or the other. Even if a dispute goes to a jirga, the decisions are always in favour of the creditors as they hold considerable sway over in the community.

What does the Shariah say about such transactions?

When SAMAA Money asked Jamiatul Uloom-ul-Islamia, Binori Town, if the Shariah would allow these kinds of transactions, its clerics said that this is just another way of doing interest-based lending. This is strongly condemned in the Hadiths, they added.