The practice of borrowing money at high rates of interest took root in the mid-1970s in the Kannada film industry.
Producers would borrow for terms ranging from three to six months from friends and acquaintances, and repay them with interest.
By the 1980s, three major groups from Andhra Pradesh, Maharashtra and Tamil Nadu began funding film productions in Karnataka.
Telugu-speaking traders, mostly from the Vysya community, financed Kannada films in the 1980s and 1990s. They would charge between 25 paise and 50 paise for an amount of Rs 100 for a loan upto Rs 3 crore and above, per month.
If a producer failed to repay the principal and interest within months, the traders would add up the principal and interest for three months and then charge interest on the total for the next three months.
These terms and conditions hold good to this day.
With the distribution rights being given area-wise (rather than for the entire state), Distributors and theatre owners began to finance film productions, and would hold producers on a tight leash.
“All was well when reels ruled the screen. The situation became chaotic when reels made way for digital formats,” filmmaker Kulla Shantha says.
By the 1990s, heroes like Vishnuvardhan, Ambareesh and Ravichandran would negotiate with financiers on behalf of producers.
Even today, distributors and theatre owners are the major sources of short-term finance for producers, industry insiders reveal.
Financiers’ conditions
Financiers lend money on the condition that 75 per cent of the shooting of a film be done. It has to feature reputed actors and be directed by well-known names.
Shantha adds, “For loans of Rs 20-50 lakh, financiers collect as much interest as the principal. Sometimes, producers badly need a few lakhs to complete a portion, and agree to the conditions.”
A producer, requesting anonymity, says film financing took an unethical turn when some producers sought help from underworld elements.
“Rowdies in Kalasipalya and Gandhinagar began funding films by 1995. Riding on the trend, some underworld elements became producers and distributors,” he says.
However, the police, considering potential crimes, stepped in and blocked the trend, insiders say. A few dons, who say they are reformed, are successful distributors today.
“Rowdies no longer fund films these days or take supari to abduct or kill filmmakers,” he adds. A director, who gave three consecutive hits in the 2000s using underworld stories for plots, was dependent on gangsters for money to produce his films, insiders say.
Sandalwood’s reputed film production houses — Eshwari Productions, KCN Productions, VPC Productions, Parijatha Production, Sri Vajreshwari Combines and Srikanth and Srikanth productions -— don’t bank on distributors and theatre owners for funds.
Distributors and theatre owners provide finance without too many questions for films featuring Darshan, Sudeep, Puneeth Rajkumar, Yash and Shivarajkumar (in that order), according to a filmmaker.
They agree to finance a film on one of two conditions: they charge interest or get films for distribution for a specific area in Karnataka, in which case the repayment or part of it is waived.
The money is paid back in instalments, while the mode of payment is always cash.
Banks don’t lend
The industry attempted to borrow money from banks, treating film production as an entrepreneurial venture.
“About 15 years ago, Rajendra Singh Babu and Sunil Kumar Desai took loans from a bank to produce films. They wanted banks to consider film production as an industry. However, the idea didn’t work,” says music director K M Indra.
Some producers admit black money is being pumped into film productions. Because of more stringent monitoring of financial transactions, producers, distributors and theatre owners are finding it difficult to pump black money into film productions.
About 80 per cent of all producers are dependent on distributors and theatre owners for money, adds Shantha.
Producers don’t borrow money from private financial institutions. There is nothing on record and all transactions happen verbally and on trust, he says.
Murder story
Sandalwood often witnesses tension between producers and financiers over financial matters. This is aggravated whenever high-budget films flop. Sometimes, the film chamber intervenes to settle disputes. Complaints are lodged with the police when a cheque bounces.
An incident that rocked the industry is the murder of producer Chidambar Shetty in 1997. He had borrowed money from underworld elements. He was shot dead when he failed to pay them back in time.