Thailand's loan sharks

Deep in debt and near desperation, poor Thais turn to loan sharks as their last hope. These unofficial lenders, who charge exorbitant interest rates and use threats and violence for repayment, pose a growing threat to Thailand's well-being.

Every time a new government takes office, it is said that tough action will be taken against these loan sharks. Things are being done, some arrests are in the news and maybe even the legislation is being changed somewhat, but in fact nothing really changes.

Temporary relief

Loan lenders continue to operate as they have for decades. They charge high interest rates, which is expressly prohibited by law. The victims are mostly working people who try to survive on meager wages and who have difficulty obtaining loans from normal financial institutions such as banks. The loan sharks provide temporary relief, but in fact the financial problems of the debtors only increase because the required interest and repayments cannot or can hardly be paid. This problem is deeply rooted in Thai society. Ironically, many people see the loan sharks as their last hope, especially in rural areas.

Money lenders advertise a lot to get new customers. Usually by putting up pamphlets offering “quick money”. What the pamphlets fail to mention is that these lucrative but illegal companies charge sky-high interest. Usually 20% per month, sometimes per week or even for one day. According to the Thai Commercial and Civil Code, 15% per annum is the maximum allowable interest.

The government “helps”

Every now and then, a message appears in the media from the government with plans to help the debtors. The latest plan was announced by the Ministry of Finance in November after the self-immolation of a poor farmer's wife in front of the Consumer Protection Office in Lopburi. Mrs. Sangvean Raksaphet, 52 years old, owed around 1,5 million Baht to such a loan shark. She was unable to pay the interest, let alone pay off the debt. In an act of desperation, she poured gasoline on herself and set herself on fire. She was taken to hospital with more than 50% burns all over her body.

The news received extensive coverage in local and international media. In response, senior government officials promised the woman help. Even Prime Minister Prayuth, who was in Italy at the time for an international meeting, ordered the woman's help. Although the creditor has canceled her debt, this does not make Mrs Sangvean's scars disappear.

Household debt

In recent months, economists have warned that aggregate household debt is slowly becoming a problem for the Thai economy. The Bank of Thailand reported in July 2014 that in the second quarter of that year, total household debt was nearly 10 trillion baht. That is about 83% of the Gross National Product.

An official speaks

A law enforcement officer with extensive knowledge of the illegal lending companies was willing to talk to us on condition of anonymity. He said most, if not all, of Thailand's illicit lending businesses are run by "mafia-type types" who are also involved in drug trafficking, gambling and other illegal activities. They operate in groups of five to eight individuals.

There are also money lenders of Indian origin, who initially seem friendlier and more reasonable than the mafia types. They only lend small amounts mainly to slum dwellers or other very poor people. The borrowed money is usually used to buy relatively inexpensive products such as fans or other electrical appliances. However, they charge a very high interest rate that increases if the payment is not made on time. They will not threaten the customers but if there is a problem with collecting money they hire gangsters to handle it for them.

Some loan sharks stick advertising brochures to power poles, bus stops, walls, phone booths, and so on. Sometimes those leaflets are simply handed out to the public at footbridges or markets. The text on those flyers is usually something along the lines of, “If you need cash, call this number.” At the bottom of the folder is the mobile number of the 'Loanshark'.

The customers

Loan lenders can be found all over Thailand and their borrower is often a low-income villager. He turns to a loan shark because a regular bank refuses a necessary loan. Often because there is no collateral or the applicant does not have a steady income. The average customer borrows 3.000 to 10.000 Baht. The money is used to purchase a new mobile phone or household appliances. Some people borrow to pay off gambling debts or buy a new motorcycle. The busiest period for the loan sharks is May and June, before the new school year starts. Many parents have to borrow because otherwise the school fees cannot be paid.

If people want to borrow money, the loan shark will copy their ID and sometimes come to their home to see where they live. If the customer cannot pay the interest and principal on time, the 'Loanshark' will use gangsters or 'men in uniform' to threaten them. Those loans and high interest rates drive some Thais into crime. For example, people deal drugs in order to earn money for interest and repayment of the loan.

Loan lenders know they are running a risky business because the borrower who defaults can run off. The loan sharks therefore employ a number of people who come to collect the debt. Usually they are young men on a fast motorcycle, who, in addition to a salary of 8 to 9000 Baht for collecting the money, also receive a commission of up to 20%.

Calling the police when a loan shark resorts to harassment is a waste of time. The loan sharks “know” many influential people, sometimes even within the local police apparatus. They are also hired to collect money or seize goods. They are then “rewarded” for these actions. Most loan sharks are supported 'behind the scenes' by wealthy people. They are rarely arrested, because evidence is not easy to obtain. Customers are afraid to call the police or testify, because they can then expect 'appropriate revenge' from the lender.

Refund policy

The term for repayment of a loan can even be within 24 hours, but also a month or longer. For short-term loans, the customer must repay the principal plus interest at the same time. If the amount exceeds 10.000 Baht, a personal verbal guarantee from a family member may be required unless the customer is known to the loan shark. Other guarantees, such as an original proof of ownership of a car, may also be required for larger amounts.

Looking for sharks

Finding loan sharks is not difficult. Most of the street vendors in Nonthaburi and Phra Khanong as well as the ladies of the night on Sukhumvit Road know where to find them. Two Thai women who had previously borrowed money from 'Loansharks' voluntarily visited some lenders for this article and here are their experiences:

usurer 1
On the outside, there is nothing unusual about the two-storey mansion in Nonthaburi, which has been home to a loan shark for many years. When our undercover lady visited for more information, there were three motorcycles parked outside that are used by the debt collectors. Seven people were present on the modestly furnished ground floor of the mansion. The present "loanshark" lends amounts from 3.000 Baht to more than a million Baht. Most customers borrow 5 to 10.000 Baht. A lucrative business because he lends to anyone and he doesn't care what the customer does with the money. Sometimes foreigners come with a Thai wife for a short-term loan, but he prefers not to lend to foreigners. Interest rates vary from 20% to 60%, depending on the amount borrowed and the period of repayment. The longer the repayment period, the more interest is charged.

usurer 2
The second lender, a woman, lives and works in a modest house on Sukhumvit Soi 62. She is well known in the area, which consists of many slums and large apartment buildings where poor Thai people live. She lends amounts between 2.000 and 5.000 Baht to clients she knows well. Local suppliers can get a loan of up to 10.000 Baht. She lives in the house with her husband and children. You don't see money collectors here, but they call them up if necessary.

She charges 20% interest for loans with a repayment period of up to one month, the normal rate for most illegal lenders. Payments are collected daily on a set schedule. If the debtor is a man, the one who comes to collect the debt will also be a man. A female money collector visits ladies who have taken out a loan.

Potential customers should come to her home, she does not visit customers at home. Normally only regular customers can get a loan. A stranger walking in for a loan will be refused unless accompanied by a known customer. The known person must then guarantee the repayment.

usurer 3
One of the many loan sharks on Sukhumvit Soi 3 operates from a shop known to the local sex workers and is open 24 hours a day. Business is good there because there is no need to advertise. The woman in charge provides loans of up to 10.000 Baht. Payments are collected daily usually in installments of 200 or 300 Baht. The loans are contracted for a short period of time, usually up to ten days. The interest rate for loans with a repayment period of up to one month is 20%. Just like with the loan shark in Soi 62, a new client must be introduced by someone they know and who guarantees the loan.

Source: a (shortened) story by Maxmilian Wechsler in The BigChili – Bangkok