Harnessing Legal and Technological Frameworks to Combat Unlicensed Money Lending and Enhance Tax Compliance: An Examination of Cheque Bounce Cases and Civil Suits as Tools for Identifying and Curbing

Purpose: Unlicensed money lending has become a pervasive issue in India, deeply affecting the financial stability of vulnerable populations. Unlike regulated financial institutions, these lenders operate outside the purview of legal frameworks, exploiting borrowers through exorbitant interest rates that often range from 120% to 360% annually. Known colloquially as “loan sharks” or “hudkhoors” they prey on individuals in desperate need of immediate cash, creating a vicious cycle of debt and financial ruin. The Karnataka Prohibition of Charging Exorbitant Interest Act caps interest rates at 18% annually, yet unlicensed lenders continue to charge far beyond permissible limits. Furthermore, coercive recovery tactics such as harassment and threats exacerbate the plight of borrowers, leading to extreme consequences like suicides and mass migrations. Despite existing laws, enforcement remains weak, allowing these predatory practices to thrive unchecked. Materials and Methods: This study adopts a qualitative legal research methodology combined with doctrinal analysis and technological assessment to explore how legal and technological frameworks can combat unlicensed money lending and improve tax compliance in India. Findings: The results of this research underscore the imperative need for wide-ranging policy reforms that deal with the causative factors of unregulated lending while promoting tax compliance through increased transparency. Unique Contribution to Theory, Practice and Policy: Tax Compliance, Increased Revenue Collection for Government, Reigning Unlicensed Money Lending.