What do you do when a friend owes you money and won’t return it?

It started with a desperate call for help, for a few thousands, but over the years Malini’s bank account turned into an overdraft account of sorts for her sister, who didn’t think twice before sending out an SOS for financial help. “She returned money initially but for last four years, nothing has made its way back to me. I feel enraged but she is the only sibling I have and I do not want money to ruin our relation. It’s not that I am a millionaire or something and all the lending doesn’t affect my finances. I am unable to save anything for myself and it has started bothering me now,” she says.

Malini has been curt in suggesting she will no longer support any requests, but she often worries if she will ever get the money back. “People tell me to forget about it and release it as a gift. The whole experience is making me so bitter that the other day when an office colleague approached me for some financial help, I simply turned him away without really knowing the reason for his request.”

Lending money to family and friends can be a gesture of goodwill when someone you know is in a tight spot financially. But many a time, such loans have to be written off for the sake of friendship or relation. In a few cases, it even presages the end of relationships. In the UAE, a court recently dismissed a lawsuit filed by a young man demanding Dh555,000 that he said he had loaned to a friend.

Come to think of it, lending or borrowing money informally comes with its own set of challenges and sticky issues that are hardly confronted by the two parties. Should you, as a borrower, commit to a timeline for repayment? Should you, as a lender, charge any interest? Who should broach such subjects that are awkward to begin with but are essential if you are to maintain transparency and trust in such dealings?

While there are no relevant studies from the region to suggest how big or small this industry is, surveys done in the West do shed some light on the general practices that take place in any society. A 2019 survey by LendingTree, a US-based online loan marketplace, noted that 24 per cent of people who lent money to someone they knew said they regretted doing so. A few other surveys conducted in the US in 2018-19 noted the informal lending industry could be well over $180 billion.