Loan sharks in Thailand are partially to blame for the rising household debt that is responsible for Thai’s spending less money on goods and services. Loan sharks lure in clients that are in need of money and offer such high rates that the loans can’t be paid back sufficiently without taking out further loans, creating a vicious cycle of debt.
The Thai government announced today that they will offer 50 billion baht in soft loans to help residents refinance non-formal debts, such as debts taken on from loan sharks.
The Bank for Agriculture and Agricultural Cooperatives (BAAC) along with the Government Savings Bank(GSB) are offering 1% interest rates per month with an annual interest rate of just 12%. Nano finance interest rates in the country can reach 36% by law.
The BAAC previously allowed for non-formal borrowers to refinance their debt, with 36,000 out of 100,000 people able to benefit from the program. The bank refinanced a total of 3 billion baht in debt.
Permanent offices will be created in an attempt to curb loan shark growth in Thailand.
Loan sharks allow cash-strapped borrowers to receive a loan when they do not meet the stringent requirements of traditional lenders. State agency loans are also a concern, according to the Finance Ministry.
An amendment to the Public Debt Act allows the ministry to manage state agency debt, which is not classified as “public debt.” The amendment was approved on Tuesday. The ministry can now monitor debt that is considered a risk to the country, such as the 3 trillion-baht debt that the Bank of Thailand holds. High debts put Thailand at great fiscal risk.