While the need might be great, the potential risks are huge, with payback becoming a stressful situation that can easily spiral out of control – as the saying goes, ‘payback’s a bi**ch.’
Government employee Khun Aor found this out the hard way when she borrowed a total of B30,000 from two different loan sharks back in August 2011. Khun Aor’s parents were both sick and unable to work, and her monthly wage of B9,000 wasn’t enough to cover the family’s rising expenses.
Both loans were taken out with just a verbal agreement, and nothing in writing, as is common in many loan shark cases in Thailand, where lenders prefer the lack of a paper trail in a grey industry.
The first loan of B20,000 was chargeable at 15 per cent a month interest. To guarantee this amount, Khun Aor had to give the creditor her ATM card and bank account book as security. The second loan was B10,000, where a slightly-less 10 per cent per month interest was charged.
Thai law states creditors may only ask for a maximum of 15 per cent interest per year, and must register their businesses for tax purposes. Failure to do so may result in jail, a B1,000 fine, or both.
Khun Aor found herself managing to pay off the interest for both loans every month (a total of B4,000) plus an additional B500 off the capital of the first loan, but nothing off the second.
It’s now a vicious cycle. At this rate, it will take Khun Aor more than three years to pay off the first loan of B20,000 – and that’s only if she keeps up the B500 per month capital repayments.
By conservative estimates, she could pay an extra B120,000 in interest – six times the value of her original loan – and her loan will be paid off sometime in early 2015, at the earliest. Meanwhile, her second loan will remain until she finds the money to pay off the capital, i.e. indefinitely.
Knowing all this, why did she still borrow from a loan shark? Khun Aor says, “I didn’t know the regulations about borrowing money from the bank, and it looked very complicated. There were many conditions and details. Borrowing from a loan shark is much easier and more flexible.”
FRIEND OR FOE?
So are loan sharks providing a needed service, or ripping off the desperate? Creditor Khun Kae spoke to The Phuket News about her loan shark business on the condition of anonymity.
“We lend people money at the interest rate of 20 per cent per month, but only to people we know well. For someone to borrow money from us we need to know their job, address, and we need to know they have good character.”
Khun Kae never uses written agreements, and keeps the ATM card of the debtor until the entire debt is repaid.
This means Khun Kae can withdraw the person’s entire salary every month, and deduct the interest owed. The debtor gets the rest of their money in cash, but no access to their ATM card.
(According to law, both creditors and debtors must sign a written contract when loans are over B2,000, something almost universally ignored by the already illegal loan sharks. If businesses are not registered to pay tax and are caught, they are then required to pay all back taxes owed, plus additional charges.)
If they don’t have an ATM card, the borrower needs to bring an asset for guarantee, such as a vehicle with registration book, land title deed, or even jewellery, the value of which must not be less than the loan taken out.
“We let the people know before they borrow what payments are required by them to cover interest and pay off the capital. Then we [as the creditor] are covered, and our principle and interest will end up coming back to us for sure,” says Khun Kae.
“If they cannot repay the debt as agreed we will seize the property, or return it when they repay all the debt. If they try to flee or are overdue with their payments, they face a higher interest rate.”
Khun Kae, who says she makes a comfortable profit from her loan shark business, says she knows what she’s doing is illegal.
But she says she never forces anyone into take out a loan. If the borrower doesn’t agree with her conditions
then they don’t have to take out the loan. It’s a matter of choice, she says.
However, not every creditor is as straightforward as Khun Kae.
RIP-OFF MERCHANTS:
In November 2011, a woman from a poor farming family borrowed B50,000 to cover medical treatment for her husband. As guarantee, she gave the loan shark the title deed to the family’s 12-rai property.
But trouble soon arose. The family were given only B45,000, with the loan shark saying B5,000 was interest. The family were still paying off the loan, including both the interest and the capital required each month, when the loan shark came and took around B30,000 worth of rice from their property.
When the woman questioned the increasing amount of the loan, despite her regular and correct payments, plus the additional rice collection, the loan shark told her she had not paid off any of the loan yet. To make matters worse, the written agreement stated that the woman would be charged the legal rate of 15 per cent interest per year, when in fact she was charged 10 per cent per month.
The woman’s son took the matter to court, but lost in both the trial and the appeals court. However, the five-year long ordeal drew to a close last year when they finally won their case in the supreme court.
Defence lawyer for the family, Ligkasith Omthaison, spoke exclusively to The Phuket News from Bangkok about the case.
“The family had only a very small chance of winning this lawsuit. When a creditor has a government document and shows the court... he has a 90 per cent chance of winning.
“But in this case, the woman could not read or write. She needed the money and so just signed the papers, even though she didn’t know what she was signing. She never got any receipts so there was no evidence of her payments. She trusted him.”
YOU’RE ON YOUR OWN:
Significantly, a national policy ended two years ago that – up until that point – was significantly helping to reduce the number of loan sharks in Thailand.
The policy said that people, who had evidence they were in trouble with loan sharks, could approach a bank, and, provided they met all the conditions, refinance their debt. This meant the bank would pay off the loan shark debt, and the borrower would repay the bank the money at a lower interest rate.
Around 1,000 debtors in Phuket (with a total debt value of some B300 million) took advantage of this project, which ran for about two years. This bright initiative helped to reduce the number of loan shark operators on the
island, because they simply couldn’t compete with the rates offered by the banks.
Today however, there is little help available for those with spiralling debt, made worse by the obscene interest rates charged by illegal loan sharks, particularly for those who are unable for whatever reason unable to borrow money from a bank.
The best idea? To not get involved in the first place.