Thailand: Nature and extent of loan-sharking; protection available to victims of loan sharks (2009-January 2013)

Sources indicate that the interest rate on personal loans in Thailand is legally limited to 15 percent per year under the Civil and Commercial Code (The Phuket Gazette 6 Jan. 2012; Siam Legal 13 July 2010). Article 654 of the Code states that "[i]nterest shall not exceed 15% per year; when a higher rate of interest is fixed by the contract, it shall be reduced to 15% per year" (Thailand 1985). Despite this, many Thais borrow money from loan sharks at high rates of interest (Bangkok Post 18 Dec. 2012; Pattaya One 7 Aug. 2012).

1. Nature and Extent of Loan-sharking

Sources indicate that many who resort to borrowing money from loan sharks do so because they lack access to formal sources of funds (Bangkok Post 18 Dec. 2012; The Nation 8 Dec. 2010). According to daily newspaper the Nation, out of 38 million people between the ages of 20 and 59, 18 million are unable to access loans from recognized lenders (ibid.).

According to the Bangkok Post daily newspaper, "most borrowers are low-income villagers or vendors upcountry" who cannot qualify for loans from lending institutions (23 July 2012). An article posted on the Pattaya One news site likewise states that some borrowers are vendors who use loans to purchase goods for resale in markets (12 Aug. 2012). However, according to the Nation, illegal money lending has reportedly "expanded from rural areas and the agricultural sector to urban societies and industry," with salaried workers increasingly turning to loan sharks (18 Dec. 2012). Some people resort to loan sharks to supplement their income when it is insufficient to support their families (The Nation 18 Dec. 2012; The Phuket News 19 Jan. 2012). The Permanent Secretary of the Thai Ministry of Justice was reported to have said that those who resort to underground loans "usually have no legal knowledge and [lack] any bargaining power" (Bangkok Post 18 Dec. 2012).

1.1 Interest Rates Charged by Loan Sharks

The Nation describes the interest rates charged by loan sharks as "extortionate" The Nation describes the interest rates charged by loan sharks as "extortionate" (12 Jan. 2013). Sources cite a variety of interest rates charged by loan sharks (Bangkok Post 18 Dec. 2012; The Nation 18 Dec. 2012; Thailand Business News 8 Dec. 2010), although Thailand Business News says that terms "usually amount to well over 100% interest rate annually" (ibid.). Some of the interest rates reported by sources are 10 percent per month (The Phuket News 19 Jan. 2012; The Phuket Gazette 6 Jan. 2012), 15 percent to 20 percent a month (The Phuket News 19 Jan. 2012), and up to 200 percent per month (The Nation 18 Dec. 2012). According to the Ministry of Justice's permanent secretary, cited by the Bangkok Post, some loan sharks may charge up to 3 percent interest per day, the equivalent of 1,095 percent a year (Bangkok Post 18 Dec. 2012).

1.2 Methods Used by Loan Sharks

According to the Permanent Secretary of the Ministry of Justice, many borrowers are "forced to sign blank contracts that allow the loan sharks to inflate the size of the loan and the interest rate" (ibid.). Several sources indicate that loan sharks may resort to violence to collect repayments from their clients (The Nation 12 Jan. 2013; Bangkok Post 23 July 2012; Pattaya One 7 Aug. 2012). According to Thailand Business News, "many of these creditors are known to be mafia figures with ruthless thugs in their employ" (8 Dec. 2010). The Nation also notes the existence of debt-collection gangs (12 Jan. 2013). According to the Bangkok Post, the police believe there are 40 to 50 major networks of "predatory" money lenders throughout the country, noting that some lenders employ debt collectors who "terrorise" borrowers and who may resort to physical assaults (23 July 2012).

Sources indicate that money lenders may hold passports (The Phuket Gazette 6 Jan. 2012; The Phuket News 29 Dec. 2011), ATM cards, bank books or valuables such as vehicles or land deeds as security against loan repayment (ibid. 19 Jan. 2012). Some sources report on loan sharks who keep records of their borrowers and the money they owe (ibid. 29 Dec. 2011; The Phuket Gazette 6 Jan. 2012; Pattaya One 13 Mar. 2012). However, an article in the Phuket News, a daily newspaper, indicates that verbal agreements over loans are common, as lenders prefer "the lack of a paper trail" (19 Jan. 2012).

2. Protection Available

Information on protection available to victims of loan sharks was scarce among the sources consulted by the Research Directorate.

The Phuket News states that "[l]oan sharking is not considered a particularly serious offence in Thai law, usually drawing no more than one year in jail on conviction" (29 Dec. 2011). A Bangkok Post article likewise indicates that penalties for illegal money lending are "light" (23 July 2012).

2.1 Police Efforts Against Loan Sharks

Media sources provide examples of police investigations and arrests of illegal money lenders:

An American man and a Filipina woman who were reported to have illegally loaned money were arrested in Phuket by the local immigration police (The Phuket News 29 Dec. 2011; The Phuket Gazette 6 Jan. 2012). The Phuket News reported they had allegedly loaned money mostly to foreigners and that police found 60 loan contracts and a ledger with the names of borrowers and the amount of their debts (29 Dec. 2011). According to the Phuket Gazette, the pair had over 500 clients who were charged ten percent interest per month (6 Jan. 2012).

City of Pattaya police arrested a man linked to an illegal money lending business that reportedly had over 100 clients and used violence to collect debts (Pattaya One 7 Aug. 2012).

Police shut down a two million baht [about C$69,200 (XE 8 Mar. 2013)] a day illegal money-lending operation near Pattaya, which reportedly operated over the entire eastern seaboard of the country (ibid. 13 Mar. 2012).

In addition, the Bangkok Post reports that, in June 2012, the Thai police Central Investigation Bureau launched a special unit tasked with fighting illegal money lending (23 July 2012). According to the Bangkok Post, the unit "brings together some of the more decorated crimebusters in the bureau, in a sign that those in charge of law enforcement are finally taking the problem of predatory lending seriously" (23 July 2012). However, Thailand Business News reported in 2010 that some police officers may "double as unscrupulous loan officers" (8 Dec. 2010), and the Bangkok Post notes in the article about the launch of the anti-loan sharking unit that some local police officers request bribes to "look the other way" regarding illegal money lending (23 July 2012).

2.2 Post Bank Initiative

According to sources, the Thai government has considered several ways to reduce loan sharking (The Nation 12 Jan. 2013; Bangkok Post 18 Dec. 2012). These include improving access to legitimate loans, improving financial education (ibid.; The Nation 12 Jan. 2013), and lowering interest rates (ibid; Thailand Business News 8 Dec. 2010).

loans, improving financial education (ibid.; The Nation 12 Jan. 2013), and lowering interest rates (ibid; Thailand Business News 8 Dec. 2010). According to sources, in December 2010, Cabinet approved a plan for Thailand Post to set up its own bank (ibid.; The Nation 8 Dec. 2010), (ibid.; The Nation 8 Dec. 2010), which would offer loans at low rates through its 1,200 post offices (ibid.). This alternative to loan sharks was to start as a pilot project in ten branches throughout the country and offer complete financial services over the following two years (ibid.). According to the Nation Nation, the government expected between 14 and 18 million people to use the new bank (8 Dec. 2010). Information on the implementation of this initiative could not be found among the sources consulted by the Research Directorate within the time constraints of this Response.

This Response was prepared after researching publicly accessible information currently available to the Research Directorate within time constraints. This Response is not, and does not purport to be, conclusive as to the merit of any particular claim for refugee protection. Please find below the list of sources consulted in researching this Information Request.

References

Bangkok Post. 18 December 2012. King-oua Laohong. "Loan Sharks Charging Up to 1,095%." [Accessed 24 Jan. 2013]

_____. 23 July 2012. Wassayos Ngamkham. "Police Target Predatory Lenders." [Accessed 24 Jan. 2013]

The Nation [Bangkok]. 12 January 2013. "Improved Access to Credit Urged." [Accessed 24 Jan. 2013]

_____. 18 December 2012. Nakarin Srilert. "Loan Sharks Now Preying on Salaried Workers, Justice Seminar Told." [Accessed 24 Jan. 2013]

_____. 8 December 2010. "Anti-loan Shark Bank Approved." [Accessed 5 Feb. 2013]

Pattaya One. 7 August 2012. "Illegal Money Lender's Assistant Arrested in East Pattaya." [Accessed 5 Feb. 2013]

_____. 13 March 2012. "2 Million Baht per-day Money Lending Business Shut Down by Pattaya Police." [Accessed 5 Feb. 2013]

The Phuket Gazette. 6 January 2012. Atchaa Khamlo. "Phuket Expat, 74, Faces Deportation Over Loan Sharking." [Accessed 24 Jan. 2013]

The Phuket News..19 January 2012. "Swimming with Sharks: Loan Sharks Are Common and So Are Their Victims." [Accessed 24 Jan. 2013]

_____.29 December 2011. "American Arrested for Loan-sharking." [Accessed 25 Jan. 2013]

Siam Legal International. 13 July 2010. Siriporn Denkesineelam."Loans of Money in Thailand." [Accessed 5 Jan. 2013]

Thailand. 1985. The Thailand Civil and Commercial Code. [Accessed 6 February 2013]

Thailand Business News. 8 December 2010. Boris Sullivan. "Thailand Post Anti Loan-Shark Bank to Start Early 2011." [Accessed 24 Jan. 2013]

XE. 8 March 2013. "Currency Converter Widget." [Accessed 8 Mar. 2013]

Additional Sources Consulted

Internet sites, including: Centre for Protection of Consumer Rights; ecoi.net; The Economist; International Bar Association Anti-Money Laundering Forum; Thailand - Anti-Money Laundering Office, Bank of Thailand Financial Consumer Protection Center (FCC), Ministry of the Interior, Revenue Ministry, Royal Thai Police; Thailand Post; Thailand Law; UN - Integrated Regional Information Networks, Refworld; United States - Department of State.