The Bank of Thailand (BOT) has threatened to shut down non-bank companies if they are proven to be involved in illegal lending, which is widespread around the country.

Weerachat Sribunma, director of the BOT's Legal and Litigation Department, said on Thursday he believed some non-bank companies were involved in illegal lending and were charging high interest rates.

He said the central bank would also seize card-reading devices from any shop where its employees have been involved in illegal lending. It will file lawsuits against the shops as supporters of fraud, should their involvement prove significant.

As a maximum penalty, companies will be shut down if their executives are found to be involved in illegal lending.

"I believe that some non-bank companies have participated in illegal lending, but it is difficult to find any evidence. If they are discovered, they might be closed down for a lack of social responsibility in causing debtors to fall into trouble," he said.

The BOT has found that illegal lending is widespread around the nation. As of end-March, it had levelled charges in 32 cases, of which 31 led to punishment; the other case is currently being prosecuted.

Taking advantage of regulatory loopholes, wrongdoers offer different products with "innovations". Card issuers and shops have been accused of joining in the illegal lending.

Marketing strategies have also changed rapidly. For example, advertisements have shifted from "quick-cash credit" to "financial adviser".

"We have found thousands of places [where illegal lending takes place], and university students have also taken part in the lending," said Weerachat.

In a typical case, he said, a consumer who holds a non-bank card wants some cash. He is introduced by an intermediary and goes to a specific shop, pretending to buy a product such as a TV. His card is slipped through a card reader, at which time he owes the full product value. But he receives a smaller sum from the intermediary than he owes the non-bank company.

The intermediary then sells the product back to the shop at an agreed price, while the shop receives the full amount from the non-bank company equal to the product price.

Illegal lending has become more complicated in order to avoid legal charges, and the former quick-cash credit has been changed to product purchase.

In this type of case, cards issued by non-bank companies are not involved. For example, a consumer who wants Bt10,000 in cash would have to buy, say, gold ornaments worth Bt10,000. But he obtains only Bt7,000 from an intermediary, who sells the gold back to the shop, which also makes a profit from the transaction.

Some consumers are lured to borrow money with land as collateral with a value higher than the debt. In these cases, creditors who provide loans for at least 10 debtors will be charged as illegal credit fonciers.

As of the end of last month, the BOT had filed lawsuits in five cases involving this type of illegal credit.

Chanchai Boonritchaisri, BOT senior director of the Legal and Litigation Department, said illegal loans would remain rampant as long as most people could not get access to legal credit.

But the number of illegal loans might be reduced if the Finance Ministry seriously promoted a micro-finance policy and consumers followed the sufficiency-economy philosophy promoted by the current government, he said.

Anoma Srisukkasem

The Nation