The imminent introduction of picofinance is expected to help convert around 100 billion baht worth of underground loans into the formal financial system, says the chief of the Fiscal Policy Office (FPO).
The more relaxed requirements for setting up picofinance businesses compared with nanofinance rules should encourage more operators across the country to seek licences, reducing problems with loan sharks, said Krisada Chinavicharana, director-general of the FPO.
The Finance Ministry will require picofinance operators to have registered capital of at least 5 million baht, far below the minimum 50 million baht required for nanofinance companies.
Nanofinance operators can lend only for occupational purposes, with a lending maximum of 100,000 baht per borrower and a ceiling interest rate of 36% a year. Picofinance operators lend for general purposes and are limited to lending 50,000 baht per borrower at a maximum rate of 36% a year.
The ministerial announcement on setting up picofinance companies is now pending publishing in the Royal Gazette, which could take less than a month after the draft bill was approved by the cabinet on Oct 4.
Nineteen of the 27 companies given nanofinance operating licences from the Finance Ministry have already started their business. As of August, they lent 1.05 billion baht to 40,000 borrowers and only 1% of the loans outstanding turned sour.
Both nanofinance and picofinance were formulated by the Prayut Chan-o-cha administration as part of its effort to address the problems with loan sharks.
Mr Krisada said the amended Civil and Commercial Code imposes stricter punishments against those who charge interest rates above 15% per year as stipulated in the law, which should lessen underground lending.
The amended law, which passed first reading in the National Legislative Assembly, will increase penalties up to three years in prison and a maximum 300,000 baht fine from up to one year in prison and a maximum 1,000 baht fine.
If loan sharks are found to have a network, penalties against them are increased to a maximum five years in jail and up to 500,000 baht in fines. If state officials are found to act as loan sharks, their penalties will be doubled.