2022 survey by the Puey Ungphakorn Institute for Economic Research showed that up to 60% of all small businesses resorted to informal lenders for funding while 42.3% of households had informal debt averaging at ฿54,300 per capita with 40.8% of all loans taken out informally outside the financial system.
A loan shark was arrested this week in Nonthaburi after charging a victim a loan rate of 730% per annum, collecting 160% of the amount owed and still mounting a campaign of terror against his victim who was forced to flee his home and business. The borrower found he could not repay the loan at such an extortionate rate of interest and was forced to report the matter to the police.
On Tuesday, Thai police in Nonthaburi arrested a loan shark who had forced a small businessman to close his business and leave home after borrowing ฿20,000 from him leading to a campaign of intimidation and terror.
The story gives a clear idea of the dark underworld of informal lending in Thailand as the country’s household debt crisis worsens and credit becomes unavailable to a large segment of the population, particularly those involved in the informal business sector including many of Thailand’s small shops and traders.
Arrest warrant issued on the 17th of July 2023 against the Nonthaburi-based loan shark known as Nat Bangkruai after borrower asked the police for help
Police Major General Puttidet Boonkraphue of the Economic Crime Suppression Division of the Royal Thai Police briefed the media on the arrest of Mr Nat based on a warrant issued on July 17th, 2023.
The warrant specified offences such as the operating of a personal loan business without permission, demanding interest above the specified rate defined by the law and collecting debt in a manner which threatened violence.
The loan was taken out by the small retailer for ฿20,000 at an interest rate of 730% per year or ฿400 per day. The businessman managed to pay back ฿32,000 or 160% of the amount borrowed.
The borrower, however, still owed most of the principal and when he discovered he could no longer pay the interest required on the mounting debt, the loan shark began a campaign of intimidation against him with visits to his house and his place of business.
Loan shark faces several charges
The borrower was eventually forced to move away from the area before finally making a report to the police.
Responding to the case, investigating officers took a detailed statement from the small businessman and applied to Nonthaburi Provincial Court for an arrest warrant.
It is understood that the loan shark has confessed to the crime and is being held while legal proceedings are progressed against him.
Loans in Thailand are governed by laws relating to banks and the Civil Code. 2022 survey showed that 42.3% of Thai households had borrowed informally
Loans in Thailand are governed by the Thai Civil and Commercial Code, Sections 650 to 656 which specify a maximum annual interest rate of 15% per annum although legislation in parliament allows banks and financial institutions to charge rates of up to 25% per annum under the auspices of the Bank of Thailand.
The provisions also specify that any loan over ฿2,000 must see a written contract between the lender and the borrower.
A study conducted by the Puey Ungphakorn Institute for Economic Research in February 2022 across 12 provinces with a sample of 4,800 households showed that 42.3% of them resorted to informal debt to raise funds as required with the average loan outstanding being ฿54,300 per head.
The same survey showed that of the total debt outstanding for the combined number of households surveyed, 40.8% was owed to informal lenders.
The survey revealed that 28% of households had borrowed informally to repay existing debt obligations while up to 60% of small business owners used informal lenders in the course of their business for investment in stock and other business activities at rates that varied from 10% to 25% per annum.