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Thai govt's collateral-free loan scheme may not combat loan sharks-report

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November 24
10:14 PM 2013

The Government of Thailand will implement a collateral-free microfinance scheme next year to fight against illegal loan sharks. However, a report from The Nation said the plan may not be accepted nationwide because of its high interest rate of 36% each year. The Finance Ministry is set to operate in Thailand's 77 provinces starting January 1. Each borrower can loan up to THB 100,000 without requiring any collateral but they cannot apply for extra loans in the country's other provinces.

Under the program, private operators will need to apply for licenses with the Bank of Thailand in order to provide the microfinance scheme. The businesses should hold a registered capital of at least THB 10 million. The Securities and Exchange Commission also requires that they should also be able to raise capital from their stakeholders and through promissory notes. The program requires that each operator operate only a in a particular geographic location. The areas will be determined by the government's Fiscal policy Office.

The Foundation for Consumers and other organizations have expressed their opposition to the scheme's very high interest rate, the report said.

Two lenders offering microfinance services also told The Nation that they were not worried about the program reducing their businesses because their interest rates were more competitive. They also said that operators should be ready with a good debt collection system ready. Krungthai Bank said the most important part to succeed in the business lies in the system of debt collection. The bank began its microfinance program that caters to wet market vendors two years ago. Krungthai Bank First Senior Executive Vice President Weidt Nuchjalearn said the interest rate offered must be less than that offered by the non-financial system.

Another lender that offers microfinancing to wet market vendors is Bank of Ayudhya's CFG Services. Managing Director Piyasak Ukritnukun told The Nation that CFG is not concerned that the government's financing scheme will affect the company because of their established framework and debt collection model.

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