By Helen O’Gorman | @HelenOGorman
Would you ever use a loan shark to borrow money? If you have a bank account, a credit rating, an address and an identity card, the chances are you will never need to. Many people in Asia, however, have no choice and the consequences of using illegal and unscrupulous lenders are catastrophic, resulting in spiralling interest payments, violence and, tragically, slavery. Thankfully, providing access to fair and transparent lending schemes is slowly gaining ground in Asia
In Northern Thailand, loan sharks prey on the stateless groups living along the Thai/Burma border. The Children of the Forest project in Sangkhlaburi, north western Thailand, works with stateless children and mothers and have seen the horrendous consequences of dealing with loan sharks.
“Many of the Burmese refugee camps are just across the border in Thailand, set in dense jungle where mosquito borne diseases such as malaria and dengue are rife,” said one worker. “If someone in a family without papers catches dengue and requires hospitalisation they must pay the hospital in full as they cannot access the cheaper health care offered to Thai identity card holders. Without the funds to pay, people turn to the local money lender who demands swift repayment and adds high interest. When the family cannot meet the payments, which is often the case, a so-called friend of the lender will step in and offer the eldest child in the family a job in Bangkok, in exchange for clearing the debt. They may even throw in the first month’s salary as a goodwill gesture to the parents. In most cases, the ‘friend’ is a child trafficker who sends children to work in bonded labour or into sexual exploitation.”
This happens simply because the family had no choice but to turn to an unregistered, illegal money lender. Organisations like Children of the Forest are able to step in and rescue children if they have the right information and are there at the right time to intervene.
According to the World Bank, approximately 2.5 billion people, have no access to the supervised banking sector, leaving them open to exploitation by illegal lenders. Global campaigns to promote financial inclusion – bringing fair and transparent financial services to the world’s poor – are taking off in Asia, as well as in Africa and South America. Financial inclusion is a global, G-20 endorsed campaign which aims to improve livelihoods and ultimately, to squeeze out the loan sharks who prey on the poor. The inclusion campaign is relatively new – its founding Principles were developed by the G-20 in 2010 – but it is working on improving the ability of the global poor to save, borrow and protect themselves from crime and natural disaster by developing new financial systems.
Financial inclusion means providing appropriate saving and lending services of small amounts on a large scale. It calls for innovative solutions that reach local communities without the burden of strict regulations, which exclude the poor from the banking sector. It means finding a compromise for the people who lack formal identification, have no fixed abode and may not know their date of birth.
The amounts of money earned, saved and transacted by those in need of financial inclusion are small, which makes them unattractive clients for traditional banking services. The risk/reward ratio does not make sense. So, smaller banking-lite services, such as mobile-money, micro-lending, some pre-paid debit cards and financial education projects are already working towards providing fair services to those who need them.
The Sold Project in North Thailand runs a scheme providing educational scholarships to families. The money is held in an account by the project and can only be used to pay for education, schooling, clothes and transport. The families can access their scholarship account to follow their spending.
A Sold Project worker told us: “This works really well. People are happy if the scholarship account has more money and add money to it themselves. They are encouraged to apply for other scholarships and loans and not rely on us.”
Providing some small amount of financial education and a secure savings option changes how people manage money, and in this case, changes the lives of future generations.
Back in July, police officers in Phuket took a swing at illegal lending, arresting five enforcers of a loan shark ring which had been charging 20 percent interest per month and intimidating people who did not pay on time. The same thing happens across the continent. Where there are people in need and little government oversight, someone will step in to corner the market.
The arrests in Phuket show that Thai police are paying attention, although their reputation has not always been one of pure intentions. Often, they provide the best debt collection services. You can sell your loan to the police, minus a 20 per cent cut and allow them to recoup the monies owed, using their influence and uniform to make bad debtors cough up.
With a little more awareness, however, the campaign for financial inclusion could be hugely effective across Asia, reducing the misery brought about by poverty and creating brighter futures for Asia’s youth.