Hire-purchase companies

As with the leasing business, there are no specific or regulatory laws for hire-purchase companies, so the industry must depend upon related law such as the Civil and Commercial Code, which broadly covers the characteristics of the business but does not cover every aspect.

These related laws often conflict, which confuses entrepreneurs and fails to provide clear operational guidelines. This confusion is passed on to the consumer and brings about a lack of, or inefficient, protection.

Likewise, the supervision of hire-purchase companies is inconsistent. To develop and control the hire-purchase business, the appropriate governmental sectors should establish an organisation to regulate all hire-purchase companies. It should standardise rules and guidelines that cover all hire-purchase businesses, including foreign companies. At the same time, specific laws for hire-purchase companies should be drawn up and passed in order to provide a detailed legal framework covering all aspects of the business and to prevent legal conflicts.

Factoring companies

The factoring business has faced and still faces many legal problems and limitations due to a lack of specific laws governing factoring. It looks to the Civil and Commercial Code for guidance, but the code is particularly difficult to apply. It lacks clear guidelines on several issues including defining contracts and transferring rights.

There are limitations on available sources of funding, meaning that some factoring companies incur high financial costs on their flexible short-term loans of 1-3 months.

The government should promote the business of factoring by pushing through laws and regulations that specifically tackle the undertaking. Financial support should also be given to factoring companies that need to expand investment and lending to SMEs. This will enable the SMEs to have a viable alternative source of funding that supports their expansion and increasing role in the economy.

Overall, I conclude that business growth has been very rapid; credit quality is of a good standard and has the potential to be an alternative source of capital other than credits from the banking sector.

However, the guidelines for development and regulation of the business are still unclear and rely on several related laws. Overall business size is still small in comparison with the commercial banking system.

It is suggested that guidelines for development and regulation be laid down, including the establishment of a main organisation to coordinate, consult, publicise and systematically collect non-bank data.

The enactment of comprehensive and specific laws for each non-bank business is necessary in order to protect consumers and standardise business operations. The establishment of a self-regulatory organisation is also desirable.

We are currently considering the opinions of all related parties and are preparing guidelines for the development and regulation of non-bank financial institutions, both as a whole and for each specific type of business. These guidelines will be proposed and forwarded to the higher authority to determine the appropriate policy for Thailand's continuing growth of the non-bank sector.

nThis is the concluding part of a series by Dr Chodechai Suwanaporn of the Finance Ministry on non-bank financial-business regulation, based on his book. The previous article was published on July 17. The writer can be reached atchodechai@fpo.go.th.

Dr Chodechai Suwanaporn

Special to The Nation