New scheme may not defeat loan sharks

 Two banks that have their own microfinance services say they are not worried that the Finance Ministry’s new programme will make a dent in their business, since they offer better interest rates.

The ministry’s programme is expected to be operational in all 77 provinces by January 1. Its loan ceiling for each borrower is fixed at Bt100,000 without collateral required. Borrowers are not allowed to apply for additional loans in other provinces.

The ministry will allow private operators to apply for licences at the Bank of Thailand to offer this microfinance scheme. They must have registered capital of no less than Bt10 million and be able to mobilise capital from their shareholders and promissory notes, as required by the Securities and Exchange Commission.

Each microfinance operator will be limited to a specific geographic area. The Fiscal Policy Office is in the process of determining these areas.

However, some organisations have voiced opposition, including the Foundation for Consumers, which says the interest rate is too high.

Vendor Monthian Krataijan has obtained three "outside the system" loans to cover the daily expenses of running her Isaan food stall. She needs to repay one loan shark Bt900 a day and Bt10,000 a month to the other two. The daily rate doubles the following day if she cannot pay it, and collectors visit her stall every day.

Monthian, 55, said her daily sales must reach at least Bt3,000 to cover all expenses and ingredients. She said rising expenses at home had forced her to obtain illegal loans and she now owed about Bt80,000 to the three loan sharks.

Another food vendor, Duangphorn Khomekhunthod, said she was making daily payments of Bt600 on a Bt20,000 loan, at a monthly interest rate of 20 per cent, along with an interest-free Bt10,000 she borrowed from relatives. "I have not repaid my relatives yet," she added.

All of her disposable daily revenue goes to payments on the Bt20,000 loan, since she obtained it four years ago. She needs to bring in Bt3,000 every day to cover expenses, she said, adding that she often had to borrow small sums to cover daily expenses.

Banks serve vendors

Two major private microfinance lenders said they were not worried about the new programme, but warned participants to ensure they have a good debt-collection system in place.

Krungthai Bank launched a microfinance programme for vendors in wet markets late in 2011, and it has found that a debt-collection system is the most important aspect of a successful operation, said Weidt Nuchjalearn, first senior executive vice president.

KTB has three debt-collection systems, one in its branches near wet markets, one in a van serving wet markets that are not close to one of its branches, and finally by authorising wet-market owners to serve as debt collectors.

He said private companies interested in joining the government scheme should carefully consider whom they lend to, making sure the borrowers have enough income to repay the loans, such as vendors in markets in potentially lucrative locations.

The interest rate must also be lower than the non-financial system offers, he said.

KTB currently provides a maximum credit line of Bt100,000 per person at a monthly interest rate of 1.25 per cent.

CGF Services or Srisawad Ngern Tid Lor, a business unit under Bank of Ayudhya, is another lender in the microfinance segment. Like KTB, it offers the service to vendors in wet markets.

CFG gives a maximum credit line of Bt100,000 per person with an interest rate of 1.3 per cent per month.

Managing director Piyasak Ukritnukun said those participating in the government scheme should think about how to educate to borrowers in financial planning.

CFG does not deal with vendors operating near gambling dens or close to hypermarts. It is concerned that such customers might spend the money they have borrowed on gambling or, if they are near a hypermart, might not be able to compete. The company also provides financial knowledge and financial planning to customers as it believes this necessary to keep a microfinance scheme sustainable.

To prevent bad debts, CFG has developed on-site collection staff, equipped with tablet devices to keep track of the daily instalments of each borrower and mini-printers to issue receipts. The borrowers have a printed record with which to keep track of their daily payments and outstanding debt.

Piyasak said the Finance Ministry’s microfinance scheme would not have an impact on the company as it believed in its framework and debt-collection model.