Govt plans to defang Thai loan sharks

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Govt plans to defang Thai loan sharks  
Bangkok Post: 17 Aug 2010
Govt plans new attack on debt
Micro-financing aims to defang loan sharks

The government is preparing to set up a micro-financing programme to help heavily indebted poor people escape the clutches of loan sharks and regain their feet.

Prime Minister Abhisit Vejjajiva yesterday told the launch of a new campaign to alleviate the debts of the poor that the government was experimenting with a refinancing scheme which should pave the way for the micro-financing programme.

Debtors who are enrolled with the government's refinancing scheme would be offered loans if they had not defaulted on repayments in the past 12 months.

Mr Abhisit said the proposed credit line should serve as an incentive for debtors to keep up with their loan repayments while encouraging commercial banks to invest in micro-financing.

The Finance Ministry was prepared to allocate some 20 billion baht to government banks taking part in the scheme, he said.

"This effort to tackle the informal debts will facilitate the setting up of a micro-financing system," he said at the launch of the "Stepping Away From Loan Sharks Into a New Sustainable Life" campaign.

"The government wants state-run banks to set up micro-financing."

Mr Abhisit said the Government Savings Bank would be the first to engage in micro-financing and the Agriculture and Agricultural Cooperatives Bank would follow.

The government would open a new round of debt restructuring for the poor by the end of this year, he added.

The prime minister said last year's scheme drew in 1.18 million debtors who sought to turn their informal debt into formal borrowings under the banking system. The debt amounted to 122 billion baht.

Of the total registered debtors, about 600,000 successfully negotiated repayments with their creditors and 400,000 of them were granted loans totalling 40 billion baht.

Finance Minister Korn Chatikavanij said the government's refinancing scheme was considered a success with the interest payments of participating debtors being reduced by between 24billion and 48 billion baht a year.

Mr Korn said the proposed allocation of 20 billion baht was intended to serve as an "emergency exit" for debtors and keep them away from loan sharks who until now have been their only sources of capital.

While the government was celebrating the success of the scheme, academics and civil leaders remained sceptical. They questioned the sustainability and effectiveness of the project to deal with loan sharks, describing it as a key government propaganda move to woo votes from grass-roots people, many of whom support former premier Thaksin Shinawatra and the Puea Thai Party.

Samphan Techa-athik, a political scientist at Khon Kaen University, said the scheme remained inaccessible to those who could not afford the monthly repayments.

"I'd say it doesn't solve the root cause of the problem," he said.

"It's more of a populist policy used by previous governments to attract votes. This is common ahead of an election campaign for any government."

Mr Samphan suggested the government conduct a qualitative study of the "sustainable" benefits of the refinancing scheme that the registered debtors would receive.

Wilaiwan Sae-tia, leader of the Thai Labour Solidarity Committee, said most workers still fall into the clutches of loan sharks despite the scheme.

She said many workers borrow from loan sharks to support their families and pay off their debt. Others commit suicide to escape their debt burden.

"It [the loan shark problem] is a vicious cycle. How can the government ensure that the people who join its scheme do not go back to the loan sharks?" she asked.

Economist Narong Phetprasert of Chulalongkorn University said the scheme had its merits but the government needed to be sure it was helping those in need.

Some debtors who joined the debt-solution scheme had found a new lease of life.

A flower vendor who asked not to be named said: "I pay just 4,000 baht monthly for a 150,000 baht loan. Before I had to pay 15,000 a month in interest."

http://www.bangkokpost.com/news/politics/191393/govt-plans-new-attack-on-debt

[Prakhonchai Nick]

In my village people registered their loans some 6 months ago, and some did receive ultra cheap government loans to enable them to repay the sharks.  Within a week, they were back borrowing once again from the village sharks, so in effect doubling their debt.

Its time the government adopted the saying "you made your bed so you must lie in it"!