Draft interest rate rule to fight loan sharks

The Finance Ministry will issue licences to non-financial institutions, allowing them to charge annual interest rates higher than 15% to combat loan sharks, says a senior official.

A draft ministerial regulation is being prepared to that effect.

However, Somchai Sujjapongse, director-general of the Fiscal Policy Office, said only microfinance loans will carry that rate, as this type of credit is aimed at offering a working chance to individuals.

Microcredit loans are different from revolving cash card and credit card loans, which are classified as personal loans, he said. These microfinance loans can be extended to individuals within a range of 30,000 to 100,000 baht each.

Thai civil law has long prohibited anyone from imposing interest exceeding 15% per year, while only financial institutions are allowed to collect more than 15% per year, as prescribed by the Interest Rate for Loans from Financial Institutions Act of 1980.

However, financial institutions have so far offered hardly any lending services to very small business operators, particularly street vendors and wet market traders, as they lack financial and accounting track records.

As well, financial institutions feel that lending to these groups is not a worthwhile investment given the high risk, and this compels them to borrow from loan sharks instead.

Mr Somchai said the ministry may need to set a ceiling rate, a maximum lending amount for each borrower and the minimum registered capital of microfinance lenders.

But companies to be set up under the new ministerial regulation are not allowed to offer money deposit services to the public, he said.

The ministerial regulation is expected to take effect this year.

The draft ministerial regulation, which is based on the Interest Rate for Loans from Financial Institutions Act, empowers the finance minister, with advice from the Bank of Thailand, to set interest rate charged on lending at more than 15% per year.

Earlier, Krirk Vanikkul, the Bank of Thailand's deputy governor for financial institutions stability, threw his support behind the Finance Ministry's idea.

About the author

Writer: Wichit Chantanusornsiri
Position: Business Reporter