Improved access to credit urged

Kittipong Kittayarak

Reducing people's dependence on loan sharks should be pushed on to the national agenda, experts agree, while urging relevant agencies to promote easier credit access in the formal banking sector.

Justice Ministry permanent secretary Kittipong Kittayarak told a seminar on "Informal Debt Crisis: Solutions for Thai Society" that loan sharking was an old problem that was difficult to solve. It is not just a question of poverty, but also about equality of income distribution.

The recent seminar was organised by the ministry.

Reducing indebtedness to underground lenders needs collaboration and integrated implementation by the public and private sectors and civil society, Kittipong said.

"First, income should be distributed fairly to narrow the gap [between rich and poor]. Second, disputes should be solved and knowledge should be provided so people have fast access [to legal remedies]. The informal-debt problem has become a national issue that involves several agencies."

Arjin Chotiwong, deputy senior inspector-general of the Royal Thai Police, conceded that despite extortionate interest rates, it was difficult to take legal action against loan sharks because of mutual agreements between lenders and borrowers.

The best solution is to allow people easier access to formal funding sources such as banks.

"Indebtedness comes from need for money. When a borrower is not able to repay, a lender does everything to get paid, and sometimes violence occurs. We suggest that public agencies coordinate with the complaint centre set up by the Royal Thai Police for the elimination of violent debt-collection gangs," Arjin said.

Sirirat Chumuppakan, director of the Provincial Affairs Bureau, said the Ministry of Internal Affairs had previously attempted to address the problem of loan-sharking at its roots.

First, he said, the causes of indebtedness must be studied and, second, debts must be prioritised. Third, a borrower's capability to repay his debts must be developed.

Fourth, the main sources of capital should be strengthened, and that means increasing income and reducing expenses. Fifth, additional funding sources, including village funds, should be established.

Finally, guarantees should be made for farmers and One Tambon One Product (Otop) goods should be promoted, Sirirat said.

Twatchai Yongkittikul, secretary-general of the Thai Bankers' Association, urged relevant agencies to help people understand the deceptions made by loan sharks. At the same time, people should not overspend and thereby find themselves needing to borrow.

Banks should lower interest rates to allow some people to get access to formal loans, he said.

"If we can get innocent people out of the informal-debt cycle, I think the problem will be reduced. There will remain a real indebted group. Informal lenders who do not have morality should be punished by laws," Twatchai said, suggesting that welfare should be provided for those in financial trouble.

Narong Phetprasert, an associate professor in the faculty of economics at Chulalongkorn University, said Thai society should transition away from populism into a welfare state. He urged the Ministry of Justice to work proactively to provide people knowledge about borrowing wisely.

"Unfair loan contracts can lead to informal debts. Is it possible for the Ministry of Justice to set up an agency to coach people on managing their borrowing?" Narong said.

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