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Debt Settlement Board


Debt Settlement Board was an institution created under a legislative measure to counter the crisis that caused the collapse of the informal rural credit market and consequent deteriorating relations between creditors and debtors in Bengal rural society in the early 1930s. Debt Settlement Board was established in 1936 under the Bengal Agricultural Debtors Act (Bengal Act VII of 1936).

The Act was preceded by peasant movements against the creditors, who were mostly landholders, jotedars and mahajans (moneylending classes). The Great Depression of the 1930s affected the Bengal rural economy very adversely. Market prices of agricultural commodities fell much below the costs of production. Having no cash in their hands, the peasantry was unable to pay rent to their landlords and buy agricultural stocks needed for continuing cultivation. Traditionally, the supply of rural credit came from mahajans, and most of the loans provided by them were made against usufructuary mortgages. Due to depression effects, repayment of loans became a common problem. In most cases, the mortgaged lands of the debtors lapsed to creditors and the quantum of interest rose at compound rates. Land thus got transferred to non-farming interests on a very large scale.

The loss of purchasing power and the unprecedented rise in rural indebtedness and landlessness had an inevitable impact on political relations. It so happened that the debtors were mostly Muslims and creditors Hindus. Most Hindu zamindars, talukdars and jotedars were also moneylenders at the same time. rural indebtedness and landlessness thus became major factors in igniting class and communal conflicts. To study these developments and to find remedy to the problems, the government formed a Board of Economic Inquiry Committee. After studying the agrarian problems, the Board recommended to take positive measures to check the increasing rural indebtedness and cessation of peasant lands to the non-farming classes. The committee also prepared a draft bill (Bengal Relief of Indebtedness Bill) for the consideration of the Legislative Council.

Based on the recommendations of the Board of Economic Inquiry Committee, a bill was introduced by Khwaja Nazimuddin in the Bengal Legislative Council in July 1935. The bill was passed into an Act in April 1936 under the title, Bengal Agricultural Debtors Act (Bengal Act VII of 1936). It was under this protective legislation that the Debt Settlement Board was established. The Act prescribed for the establishment of a series of debt settlement tribunals called 'Boards' consisting of local people of influence and nominated by both creditors and debtors. The Boards would try to hear both parties and give relief to the indebted agriculturists mainly by way of scaling down their outstanding debts to mahajans. Other ways of helping the indebted peasantry were to declare a debtor insolvent, thereby relieving him of the debt, or paying the scaled down debts by easy installments over a period of maximum 20 years.

The operation of the Debt Settlement Boards began earnestly after the general elections of 1937. Under the operation of the Act, both debtors and creditors seemed to have been benefited, though considerable doubts about the efficacy of the Boards were harboured by public leaders, especially in the opposition. In places where peasant organisations were strong, the debtors were least interested in resorting to the Boards for relief. They were found to be enthusiastic about Debt Settlement Boards only where peasants were relatively weak socially and politically.

The operation of the Debt Settlement Boards apparently impaired the traditional rural credit market. Creditors tended to liquidate their rural credit operation. Consequently, credit shrank and there was an unprecedented decline in acreage due to non-availability of credit. Some scholars even claimed that the operation of the Debt Settlement Boards was one of the reasons for the famine of 1943. The shrinkage of rural credit caused by the withdrawal of mahajani loan led to the decline of acreage and consequently, a shortage of food supply. For good or ill, the Boards operated until 1944 when the operation of the Boards came to a close. The Boards were initially established for five years from 1936 and later, their tenure was extended for another two years. It is highly debatable whether the Debt Settlement Boards could really ameliorate the conditions of the indebted peasantry. [Sirajul Islam]