Prime Minister Srettha Thavisin has declared dealing with informal debt and the problems it creates a national priority, likening the situation to a form of modern-day slavery.
Many people are in a cycle of formal or informal debt, with the interest rate for the latter often exceeding the legal limit of 15%.
The government estimates there is 50 billion baht worth of informal debt, with Mr Srettha noting this is a conservative estimate.
"The government, in collaboration with administrative organisations and the police, will act as an intermediary to ensure equitable treatment for both creditors and debtors," he said at a press conference on the national agenda and efforts to confront informal debt last month.
"When the government has revived the economy, people should be able to escape these cycles of perpetual debt."
The government estimates there is 50 billion baht worth of informal debt.
Debt creation behaviour
Apart from low income levels and an uneven economic recovery leading to debt problems, Thais have certain behaviours that cause them to sink deep into debt, both in the formal and informal systems.
Borrowers requiring special attention are young adults fond of the "buy now, pay later" (BNPL) system, exacerbated by both online and offline marketing, said Danucha Pichayanan, secretary-general of the National Economic and Social Development Council (NESDC).
As of 2022, there are an estimated 360 million people worldwide using BNPL services.
By 2027, it is expected there will be 900 million BNPL users, an increase of 157%.
In 2021, the BNPL market was valued at US$120 billion.
BUY NOW, PROBLEMS LATER
According to the "Thailand Buy Now Pay Later Market Report 2022", the BNPL market was valued at 55-65 billion baht.
Even though 96% of Thais who use BNPL services have not defaulted on their debt repayments, it is likely to lead to household debt problems in the future, noted the report.
More than half of Gen Y and Millennials with a monthly income of less than 15,000 baht are likely to use BNPL, according to the report. In Thailand, jewellery and clothing are the items most likely to be purchased using BNPL.
Thailand has one of the highest household debt-to-GDP ratios in Asia, behind only South Korea and Hong Kong, and ranked 12th globally, according to the Bank of Thailand.
According to the NESDC, household debt tallied 16.1 trillion baht in the second quarter of 2023, up by 3.6% year-on-year, accounting for 90.7% of the country's GDP.
Mr Sompob says fiscal measures play an important role in reducing poverty.
LOOK NORTH
Sompob Manarangsan, president of the Panyapiwat Institute of Management, said solving the problems associated with informal debt must start upstream by improving the economic status of people, helping to lift them out of poverty.
He said China's achievement in poverty alleviation was unprecedented and set an example for the rest of the world, with high growth levels bringing 800 million people out of poverty, particularly under President Xi Jinping's leadership.
China had no citizens living below the poverty line as of 2-3 years ago, said Mr Sompob.
He said Beijing's approach to poverty reduction was based on two pillars, with the first broad-based economic transformation through new opportunities to raise average incomes. These efforts include a focus on four key areas: industrial development, improving agricultural productivity, human capital, and sustained public investments in infrastructure.
The second pillar was recognition that targeted support was needed to alleviate persistent poverty. Support was initially provided to areas disadvantaged by geography and a lack of opportunities, then later to individual households.
The goal was to achieve common prosperity through high-quality development, said Mr Sompob.
Equitable distribution of income only occurred when the country's income increased, meaning GDP must expand, he said.
Over the past 10-20 years, Thailand's GDP has expanded at half the level of Southeast Asian economies, excluding Singapore.
Mr Sompob said the Thai economy is exhibiting an uneven recovery, which can be common in developing countries.
"Thailand's GDP grew slower than other Asean countries following the 1997 Asian financial crisis," he said.
Income redistribution was a particularly important policy deployed by developed economies such as Japan and South Korea to address inequality, using government mechanisms such as antitrust law and tax reform measures to reduce poverty and improve income distribution, said Mr Sompob.
He said fiscal measures are also important in reducing poverty, including policies to increase government revenue and targeted state spending to expand coverage of the vulnerable segment.
Mr Sompob said one common factor among all past Chinese leaders is experience in rural development, including the current leader.
Access to finance
Pornchai Thiraveja, director-general of the Fiscal Policy Office, said nano-finance and pico-finance are part of the Finance Ministry's efforts to widen formal financing sources to low-income earners and informal workers, helping them avoid loan sharks and encouraging underground lenders to enter the formal lending system.
With minimum registered capital of 50 million baht, nano-finance operators can lend nationwide, but only for occupational purposes, with a lending limit of 100,000 baht per borrower and a maximum rate of interest, indemnity, service and other fees of 33% a year.
According to the central bank, 68 nano-finance firms lent to 2.05 million accounts, with total outstanding loans of 38.8 billion baht and non-performing loans (NPLs) accounting for 2.58 billion baht, as of Sept 30, 2023.
With minimum registered capital of 5 million baht, pico-finance operators can lend for general purposes, but only in the province where they registered for operation.
They are limited to lending 50,000 baht per borrower with a maximum rate for interest, indemnity, service and other fees of 36% a year.
So-called pico-plus operators are permitted to offer higher loans to borrowers, with a lending ceiling of 100,000 baht per borrower, but they are required to have at least 10 million baht in registered capital.
As of Oct 31 this year, the total applicants for pico-finance who were granted permission and began providing the service was 1,132 in 75 provinces (except Ang Thong and Sing Buri provinces).
From December 2016 to September 2023, pico-finance firms lent a combined 36.4 billion baht to 3.79 million accounts, with total outstanding loans of 7.09 billion baht and NPLs of 1.60 billion baht.