THE GOVERNMENT is considering the creation of a specialised fund or financial institution to take over the debt owed by low-income people to formal lenders and loan sharks.
The new measure, if approved, would follow the welfare card programme that the government launched to help 11.4 million poorer Thais last month.
Prime Minister General Prayut Chan-o-cha has asked the Finance Ministry to study the possibility of creating such a fund, according to an informed source. The study should be complete by the end of this month.
Nathee Klibthong, director of the National Village and Urban Community Fund, said he had consulted with the Bank for Agriculture and Agricultural Cooperatives (BAAC) to find solutions for members of village funds and BAAC clients who owed money to loan sharks.
“We expect to conclude a solution by the end of this month and then start to implement it,” Nathee said.
PM’s Office Minister Suvit Maesincee had urged village funds to seriously tackle the debt owed by poor villagers to underground operators.
Atchara Yomsin, a finance lecturer at Bangkok University, said it is a good idea, but it would be an uphill task. She said previous attempts had failed because they did not tackle the root of the problem. She said the problem was that people could easily get loans from formal lenders, but they could not control ballooning debt. Many of them end up having to borrow from underground lenders after banks cut their credit line.
“Should we change their behaviour and keep them away from easier bank loans, it may solve or lessen the debt issue,” she said.
She gave the example of debts owed by teachers and other education personnel, which the Education Ministry in 2015 estimated to total Bt1.2 trillion.
Teachers accumulate debt easily because their credit worthiness is rated highly. Banks and credit cooperatives offer them loans, but many cannot service their debts and turn to loan sharks, creating what Atchara, who is a consultant on a programme to address this issue, called a “vicious cycle of debt”.
Banks also have a conflict of interest. They want to achieve high lending targets because this generates income for them, but it can lead to less prudent lending practices and less effort to create a sound lending portfolio, said Atchara. She said it is hard to estimate the number of people who have borrowed funds from underground operators, as both middle- and lower-income people can get into this debt trap.
High household debt has constrained consumption. Thai household debt was equivalent to 78.4 per cent of gross domestic product in the second quarter this year – a total of Bt11.6 trillion.
The Bank of Thailand has expressed concern over the debt levels of the low-income group and issued stringent measures to curb credit-card loans and lower interest rates from 20 per cent to 18 per cent per annum. Most households have owed debts to financial institutions, while a small percentage have owed money to loan sharks.
According to a survey of 2,000 people conducted by NIDA and the National Credit Bureau, about 45 per cent of people had incomes roughly equal to their expenses, with the average monthly income of Bt26,469.91 and expenses of Bt 21,606.75.
About 51 per cent of them said they had saved money for the future, with about 49 per cent saving for emergencies, 38 per cent for future expenses, 27 per cent for their children’s education. Only 12.5 per cent said they had saved enough money for retirement.
On the debt side, about 68 per cent said they have accumulated debts – an average of Bt565,302. While about 59 per cent said their debt derived from consumption, just over 35 per cent said their investments or business had led them into debt.
Others said they accumulated debt because they have to look after their children and other family members, or they had borrowed money for home repairs.
The study said most of debtors have the ability to pay back their debts.