Government mulls 'nano-financing' to ease debt problems with loan sharks

The plan is being put forward as a ministry guideline on resolving out-of-system debt problems, usually caused by loan sharks.

Under the concept, non-bank lenders would be allowed to offer loans to a maximum of Bt100,000-Bt120,000. These loans would be subject to higher interest rates than those from financial institutions, but lower than the rates generally charged by loan sharks, said Finance Minister Sommai Phasee.

Initially, the interest rates for nano-finance are expected to range from 30-36 per cent per annum. Those interested in operating a nano-finance scheme would be required to register with the ministry.

“The ministry will propose that Deputy Prime Minister Pridiyathorn Devakula consider in the next 10 days whether to seek approval from the Cabinet,” Sommai said.

He said that normally, the ministry would ask financial institutions to extend loans of not more than Bt200,000 each to people indebted to loan sharks. This interest rate was capped at 28 per cent per annum. However, many bankers expressed concern that this was not easy to achieve and would not resolve the problem.

“If we do not finalise what to do, the out-of-system debt problem will spread. So we think nano-finance is the last choice,” Sommai said.

Each eligible nano-finance operator would be required to have paid-up capital of not less than Bt10 million and would not be allowed to receive deposits from the public as banks do. The lender could mobilise funds by means of promissory notes from its shareholders in accordance with Securities and Exchange Commission regulations. One operator would be permitted per province.

Approved nano-finance operators would be offered tax incentives, such as a 50-per-cent deduction on their annual corporate income tax. 

“I believe nano-finance would not increase household debts, but it would help reduce the proportion of out-of-system borrowing counted as household debt,” the minister said.

According to a recent survey of household debt, about 50 per cent is outside the banking system. 

Sommai claimed the Thai economy was being hit by stagflation, meaning that consumers have less money to spend. However, this stagflation was not risky to the economy because the fiscal status was sufficiently strong while the government has measures to stimulate the economy. When the government evaluates economic stimulus measures in the first quarter of the current fiscal budget, it is expected to see resolution of stagflation.