The scale of Thailand's informal debt has captured the government's attention, prompting it to declare the matter a national agenda issue and roll out a nationwide programme for debtors to register for help.
In the first week of registration for the scheme, more than 75,000 debtors enrolled -- with their accumulated debt exceeding 3.8 billion baht owed to a diverse group of 47,000 creditors.
The government's estimate of informal debt stands at some 50 billion baht but the problem may be bigger.
Labelling unregulated lending as "modern-day slavery", Prime Minister Srettha Thavisin is set to unveil measures to help debtors on Tuesday. Also expected is a strategy to take on formal debt.
Deputy Finance Minister Julapun Amornvivat said the government has put together a plan to address not just informal debt, but the issue of debt across multiple sectors -- from SMEs to state employees such as police and teachers -- and non-bank debts like leasing.
He said the government has set an overall goal for how much debt it aims to clear, but it is still in the process of collecting the figures.
The specifics will be revealed on Tuesday by the prime minister and the details should give the public a clear understanding of how the debt relief plan will be implemented, he said.
Debt relief plans announced by the Government Savings Bank (GSB) and the Bank for Agriculture and Agricultural Cooperatives (BAAC) are only part of the mechanism, he said.
"We use normal financial tools in tackling debt, with no state budget used. Let's wait for the details," he said.
Julapun: 'Plan covers multiple sectors'
The debt dilemma
A source in the Pheu Thai Party said the previous governments led by the now-defunct Thai Rak Thai Party and Pheu Thai did not prioritise the debt problem and focused on job creation instead.
However, the severity of current debt problems is alarming due to various factors, including economic fallout from the Covid-19 pandemic and global economic conditions.
As a result, a committee overseeing individual debt issues, chaired by the prime minister's chief adviser, Kittirat Na Ranong, has designated it as a national priority and decided both formal and informal debt must be addressed simultaneously to tackle the problem.
The panel's idea involves revising laws beneficial to debtors, with the aim of providing relief and support to individuals struggling with debt.
First is removing a requirement for guarantors for those seeking loans from the Student Loan Fund (SLF) to make it easier for students to access financial support while eliminating the debt burden for guarantors in case the borrowers fail to repay.
Next is the debt owed by state officials, namely teachers and police.
The government will make sure they have at least 30% of their salary left after debt payment. Also, pay increases and splitting the monthly salary payment for civil servants into two instalments are also in the pipeline to help them better manage their finances.
Credit card debt is also a pressing concern. While it is not backed by collateral, borrowers who default on credit card payments face legal action and asset seizures. The issue including the statute of limitations will be studied further.
Even as the government is taking steps to address formal debt, that's not the end of the problem for those who have turned to unregulated lenders. In this case, the government will focus on mediating between debtors and lenders.
"Here what's we have in mind: if borrowers have paid more than the principal of the loan plus 15% annual interest, the debt is considered fully repaid.
"If the borrowers think they have paid much more than they owed originally and want a return, they will have to prove it. If the lenders feel they are not paid what they are owed, they must also prove their point. If they can't prove it, the debt is considered resolved," said the source.
Holistic approach
The source said there are three steps involved in addressing informal debt: mediating between debtors and creditors; restructuring debt; and providing financial resources for debt repayment.
In the mediation process, local administrators and police will be involved while specialists from the Finance Ministry will help with debt structuring. The GSB has soft loan programmes for informal debt and career support while the BACC has a debt relief package for farmers.
"The government is confident that more than 60% of debt will be solved with no spending from the state's coffers. We mobilise resources and enforce the laws. The debt must be repaid, no matter what, but the interest must be fair. With job creation and the promotion of financial discipline, it should be a sustainable approach," said the source.
Suttipong Juljarern, permanent secretary of the Interior Ministry, said the ministry's job is to register debtors and amounts of debt and invite both parties to talk.
He said the previous administration took on informal debt but it was not fully solved due to strict requirements such as income and collateral for obtaining loans to repay informal debt.
"The Srettha government must have seen the limitation and urged state-run banks to come up with more relaxed conditions. But those who join the scheme and intentionally fail to repay will face action," he said.
On Friday Mr Srettha, who doubles as the finance minister, outlined the government's policy and measures to deal with informal debt as he chaired a meeting of senior officials from the Interior Ministry and police.
He admitted that tackling informal debt is a challenge especially in the mediation stage, adding the authorities might consider a "harsh approach" to step up pressure on creditors to enter the process.
"Unregulated lending is a complex problem that no single state agency can solve comprehensively. I'm urging all of you to work together -- be it police, local administrators, or the Finance Ministry. Exercise your power properly to better people's lives," he said.
Suttipong: Ministry will register
Pol Maj Gen Theeradej Thamsuthee, commander of the Metropolitan Police Bureau's Investigation Division, said a crackdown on illegal lending is a challenge because both parties willingly entered into the agreements.
"The issue here is that borrowers can't get access to traditional financial resources, so they turn to unregulated lending. Police are brought in after threats. But there are cases where debtors have no intention to repay and are ready to use legal threats to bargain," he said.
Theeradej: 'Tough to end illegal loans'
Special fund mooted
Asst Prof Nada Chunsom, an academic from the School of Development Economics, NIDA, welcomed the government's efforts in tackling informal debt but emphasised that authorities should also give help to those unable to make any payments at all.
She suggested a special fund for debtors should be considered for those who cannot get access to financial sources. Solving informal debt should not be about suspension of payments, but the focus should be on transferring unregulated debt with high interest rates into the system.
By using this approach, debtors will pay lower interest rates, allowing them to retain funds for potential investment or spending after fully repaying the debt, she said. According to her estimate, informal debt may amount to 100 billion baht. But she said the government can implement the proposed fund in a pilot phase, initially targeting debt in the range of 10-20 billion baht.
She said the method allows for checks on how it is going before implementing it more broadly to address a larger share of the informal debt. The government, she said, must also ensure borrowers have "financial literacy" to prevent them from taking on informal debt.
"And legal action must be taken against illegal lenders who charge extremely high interest rates, threaten or assault their borrowers. Lending apps should also be looked into, so the DES ministry, not only local administrators and police, should be roped in," she said.
Some 36% of household debt is for consumption, which indicates an insufficient income. She said the government should explore ways to reduce the cost of living and so individuals' needs to obtain loans.
Nada: 'Help those with no money'