Debt & Poverty: Trapped by loan sharks

Poor borrowers forced to sign blank contracts so loan sharks can increase size of loan & interest rate to as high as 1,095% per year (3% per day).

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Economics

Poor Thais trapped in informal debt

18/12/2012
Online Reporters

The very many Thais who earn less than 10,000 baht per month, in both industry and in rural areas, are trapped in a cycle of usury debt and exhorbitant interest rates demanded by loan sharks, a university economist warned on Tuesday.

Narong Phetprasert, an associate professor of economics at Chulalongkorn University, said the problem of informal debt had moved up demographically, from farmers in rural areas to factory workers in the cities across the country.

About 14 million of the approximately 17 million daily wage workers in Thailand were in the private sector, he said, and 8-9 million of them earn only 8,000-9,000 baht per month, which is insufficient to meet today's high cost of living and raise their families.

Unless they do overtime, this group of workers is likely to borrow from their bosses or co-workers and take on monthly interest rates of 8-10%, a serious problem among the workforce, Mr Narong said on Tuesday at a seminar organised by the Legal Aid Centre for Debtors and Victims of Injustice by the Justice Ministry.

He said the government had been reducing the problem in rural areas through the introduction of community funds. However, the problem seems to be getting worse among factory workers and could threaten the country's industrial sector in the long run.

"It must be understood that informal debts are increasingly becoming a serious issue among workers in urban areas as substantial numbers of the workforce lack access to proper sources of capital," he said

Mr Narong said he wants the government to raise 50 billion baht through bonds issues for state-controlled banks to provide low interest loans to debtors on certain conditions - that they have a fixed deposit account with monthly deposits and that employers be required to deduct the instalments for the bank.

On Monday, Kittipong Kittayarak, permanent secretary for justice, said people who revert to getting underground loans usually have no legal knowledge and lacked any bargaining power. Many were forced to sign blank contracts that allow the loan sharks to inflate the size of the loan and the interest rate.

If borrowers fail to pay back the money, debt collection was frequently enforced through litigation and violence.

Mr Kittipong said government statistics show that household debt rose 5.7% in 2012 compared to 2011, with average debt at 168,000 baht per household, with many forced to pay high interest rates, often 3% per day (1,095% per year).

He said the solution was to improve accessibility to retail lenders, while law enforcement must be clearly implemented. The government should also work aggressively to educate the public about loan contracts.

Thawatchai Yongkittikul, secretary-general to the Thai Bankers Association, said it must also be made clear to people and bankers that the money in the banks does not belong to the banks but to the depositors. Therefore banks must review the debt payment ability of borrowers.

He said banks in the past were reluctant to extend loans to retail borrowers, but they now realised the significance of small clients.

However, he suggested the bank send a team to survey potential clients before extending a loan.

Generally, commercial banks had three major reservations about borrowers - whether they were addicted to alcohol, were flirtatious, or liked gambling, because these three weaknesses usually caused financial problems and inability to repay, said Mr Thawatchai.

(Source: Bangkok Post, Economics, Poor Thais trapped in informal debt, 18/12/2012, Online Reporters, link) 


Poverty and Debt Vocabulary

poverty - when people do not have enough money to satisfy their basic needs for food, shelter, money and clothing ความจน (See Wikipedia)
debt - an amount of money that you owe หนี้

loan shark - a person who offers illegal loans to people who are unable to borrow at banks at very high interest rates (See Wikipedia)
loan - an amount of money that a person, business, or country borrows, especially from a bank เงินกู้

informal - not official or legal
informal debt - borrowing money from illegal lenders

trapped - unable to leave a place; to be in a dangerous or unpleasant situation from which it is difficult or impossible to escape ถูกกับดัก
trapped in informal debt

poor Thais trapped in informal debt

demography (noun) - the scientific study of population and changes in population over time (See Wikipedia)
demographically (adjective)

rural - in the countryside (farms, forests), not the city ชนบท ในชนบท, บ้านนอก
rural areas

the problem of informal debt had moved up demographically, from farmers in rural areas to factory workers in the cities across the country.

usury - charging people high interest rates to borrow money (in the past was crime to charge any interest) (See Wikipedia)

cycle - a series of events repeated over and over again (in the same order) วงจร, วัฎจักร, รอบ, การหมุนเวียน, รอบหมุนเวียน
cycle of usury

interest - payments made for the use of another's money for a period of time
interest rate - the percentage of the money borrowed paid as a fee for borrowing  

exhorbitant - very high or large 
exhorbitant interest rates

trapped in a cycle of usury debt and exhorbitant interest rates demanded by loan sharks

wage - an amount of money that you earn for working, usually according to how many hours or days you work each week or month ค่าจ้าง
daily wage workers - people who are paid per day of work (in factories, for example, office workers usually paid monthly "salary")

approximately - around or about this amount or number (not exactly or precisely) โดยประมาณ
approximately 17 million daily wage workers

sector - a part of the economy ภาคเศรษฐกิจของประเทศ (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) (See Wikipedia)

private sector
the country's industrial sector

about 14 million of the approximately 17 million daily wage workers in Thailand were in the private sector

insufficient - not sufficient, not enough ไม่พอ
insufficient to meet today's high cost of living

cost of living - how much it costs to pay for all thr things you need to live in a place (food, clothes, transportation, school, health, etc)
raise a family - buy all the things needed by a family (food, clothes, place to live, etc) and do all the things they need (cook, send to school, etc)

8,000-9,000 baht per month, is insufficient to meet today's high cost of living and raise a family

overtime - extra hours worked beyond normal hours (with extra pay)
do overtime

co-workers - the people you work with in your job
borrow from their bosses or co-workers

workforce - all the workers in an economy or all the workers in a company แรงงาน
the workforce

community - local people, all the people who live in a local area or place ชุมชน
funds - an amount of money kept for a special purpose เงินทุน
community funds - money held by a community (used to solve the problems of people in the community)

the introduction of community funds in rural areas

introduction
the government had been reducing the problem in rural areas through the introduction of community funds

threaten - cause danger for, could cause damage to in the future
the problem could threaten the country's industrial sector

in the long run - over a long period of time in the future
the problem seems to be getting worse and could threaten the country's industrial sector in the long run

issue - an important subject that people are arguing about or discussing ประเด็น
serious issue

urban - connected with towns and cities เขตเมือง ที่เกี่ยวกับเมืองหลวง ในเมือง
urban areas

it must be understood that informal debts are increasingly becoming a serious issue among workers in urban areas

substantial - in a large amount or degree
substantial numbers

capital - money invested by owners in the business  

source - the place where something comes from
sources of capital

proper - the right or correct form of something
proper sources of capital

lack - does not have ขาดแคลน
access - the right or opportunity to have, get or use something ได้รับสิทธิ์หรือโอกาสในการใช้
lack access to

lack access to proper sources of capital
substantial numbers of the workforce lack access to proper sources of capital

issue - offering securities (stock shares, bonds) for sale
bonds issues

state - government รัฐ
state-controlled banks

provide - to give someone something that they want or need
debtors - people or companies that owe others money
provide low interest loans to debtors

he wants the government to raise 50 billion baht through bonds issues for state-controlled banks to provide low interest loans to debtors

fixed deposit account - a bank amount with a certain amount of money in it (a fixed amount)
provide low interest loans to debtors on certain conditions - that they have a fixed deposit account with monthly deposits

deduct - to take away an amount or part from a total หักออก
instalments - instalment payment , the money paid each month by a borrower to pay back a loan
deduct the instalments - take away the amount of the instalment payment from the bank account

employers - companies that hire pay workers for the work they do
employers be required to deduct the instalments for the bank

underground - illegal
underground loans - illegal loans

revert to - go back to something used in the past
revert to getting underground loans

bargaining - try to get a better deal from someone (for example, a better price for something you want to buy)
bargaining power
lacked any bargaining power

people who revert to getting underground loans usually have no legal knowledge and lacked any bargaining power.

contracts - an agreement and promise to do something between two or more people
sign contract

blank - having nothing written on it (so it can be changed later)
blank contract

inflate - to make something larger พองตัว, เพิ่มขึ้น
inflate the size of the loan and the interest rate.

many were forced to sign blank contracts that allow the loan sharks to inflate the size of the loan and the interest rate

litigation - the use of the legal system to settle a disagreement การฟ้องร้อง ดำเนินคดี
violence - physical force with the deliberate intention of causing damage to property or injury or death to people ความรุนแรง

if borrowers fail to pay back the money, debt collection was frequently enforced through litigation and violence.

statistics - facts about something, described by counting them สถิติ
household - a group of people, often a family, who live together ครัวเรือน

Mr Kittipong said government statistics show that household debt rose 5.7% in 2012 compared to 2011, with average debt at 168,000 baht per household, with many forced to pay high interest rates, often 3% per day (1,095% per year).

accessibility - when someone can get or use something

implemented - when a plan is put into action, actually doing the things in a plan
clearly implemented

law enforcement - making sure a law is obeyed and punishing people if it is not obeyed  การบังคับใช้กฎหมาย
law enforcement must be clearly implemented

retail - to sell directly to the public for their own use ขายปลีก
retail lenders

improve - to make better ทำให้ดีขึ้น
improve accessibility to retail lenders

the solution was to improve accessibility to retail lenders, while law enforcement must be clearly implemented.

aggressively - done with great energy and intensity
work aggressively
work aggressively to educate the public

the government should also work aggressively to educate the public about loan contracts.

clear - easy to understand
make clear to people

depositors - people who keep their money at a bank in exchange for interest payments

it must also be made clear to people and bankers that the money in the banks does not belong to the banks but to the depositors

review - look closely at something in order to change it, if necessary
banks must review the debt payment ability of borrowers.

realised - come to understand and know about something
significance - importance
realised the significance of ...

clients - customers
small clients - small customers

they now realised the significance of small clients.

extend loans - give someone a loan
retail borrowers - people getting smaller loans for their daily life (not business)

reluctant - do not want to do something, not very willing to do (so are slow, hesitate, or do without enthusiasm) ไม่เต็มใจ ลังเลใจ
reluctant to extend loans to retail borrowers

clients - (formal) customer ลูกค้า
he said banks in the past were reluctant to extend loans to retail borrowers, but they now realised the significance of small clients

potential - possible ความเป็นไปได้
potential clients

survey - take a close look at a group of things or people (to see what they look like)
survey potential clients

he suggested the bank send a team to survey potential clients before extending a loan.

Generally, ...  

commercial banks - banks with many branches that make loans to companies and individuals and receive money from depositors (See Wikipedia)

reservations - feeling of doubt about whether something is good or right ข้อจำกัด
commercial banks had three major reservations about borrowers

weaknesses that caused financial problems and inability to repay

addicted - cannot do without
addicted to alcohol

flirtatious (adjective) - behaving as if you are sexually attracted to someone, usually not in a serious way ชอบแทะโลม
flirt (verb)

gambling - the activity of betting money, for example in a game or on a horse race การพนัน