Community bank roll-out aims to fend off loan sharks

A plan to create 3,500-7,000 community banks is currently being considered by the Ministry of Finance and is expected to be submitted to the cabinet for approval within two months, vice minister to the Prime Minister’s Office Kobsak Pootrakool said yesterday.

Speaking at a conference at the Thai Institute of Justice (TIJ), Mr Kobsak said increasing the number of “community banks” in districts and rural areas will discourage people from taking out highinterest loans from unscrupulous lenders such as loan sharks.

The community banks will require members to register with the computerised systems of the Government Savings Bank (GSB) and the Bank for Agriculture and Agricultural Co-operatives (BAAC). Mr Kobsak said these banks will be responsible for operating the community banks.

By registering customers digitally, the community banks will be able to accurately monitor the spending patterns of people in rural areas, Mr Kobsak said.

Mr Kobsak said the salaries and working hours of community bank employees may be decided upon by the community banks themselves.

“When they have the proper channels to do so, citizens will be able to pay back their debt,” he said.

“Once that happens, Thais will start to perceive that banks are more accessible overall.”

People from rural areas often lack access to commercial banks either because they are too far away or seem more geared to people with high incomes, Mr Kobsak said.

This inability to access finance has caused several Thais to seek quick money from loan sharks, whose interest rates can be as high as 20% or 30%.

Figures from the International Monetary Fund said 80% of Thais had accumulated household debt in 2016, valued at an estimated 11.5 trillion baht.

“Poorer people often say they don’t want to step inside banks because they don’t feel it’s their sort of place,” he said. “That is why many people aren’t able to legally obtain loans, and that’s why they fall prey to loan sharks.”

He added that people struggling to make ends meet are most at risk of turning to loan sharks when a family member falls ill, or when hit by a natural disaster.

Mr Kobsak proposed at the conference that there be more community-based financial institutions, or “community banks”, operated by district members themselves.

This would, according to him, provide relief to those swamped by debt by giving them a job and discouraging them from seeing loan sharks.

“Every affected district needs to have at least one community bank,” Mr Kobsak said.

“It would be easier for those affected because everyone in the community knows each other well.”

In a bid to drive down rampant borrowing, the Bank of Thailand deputy governor said the bank is set to announce tighter regulations governing unsecured loans this month as part of its effort to discourage consumers, particularly low-income earners, from accumulating further debt.