Thailand’s Battle Against Informal Debt: A Modern-Day Slavery Comparison

(CTN News) – At the national level, Thailand Prime Minister Srettha Thavisin has prioritized the fight against informal debt, which she has characterized as modern-day slavery.

Interest rates for informal loans frequently exceed the 15% legal limit, and many people are caught in both debt cycles. According to Prime Minister Srettha, the conservative estimate for the government’s informal debt is 50 billion baht.

At a news conference last month regarding the national agenda and initiatives to address informal debt, he stated: “The government, in cooperation with administrative organizations and the police, would operate as an intermediary to ensure equitable treatment for creditors and debtors… It is only fair for individuals to break free of these debt traps once the government has restored the economy.

Low income levels, patchy economic recovery, and certain behavioural patterns among Thais that further plunge people into debt all contribute to the complexity of the debt problem.

Danucha Pichayanan, secretary-general of the National Economic and Social Development Council (NESDC), has stated that young adults who are drawn to the buy-now, pay-later (BNPL) system—which is extensively advertised both online and offline—need particular consideration.

According to the “Thailand Buy Now Pay Later Market Report 2022,” even though 96% of Thai BNPL customers haven’t skipped payments yet, this behaviour can cause debt problems for households down the road.

More than half of the millennial and Gen Y generation will likely use BNPL if their monthly income is less than 15,000 baht (US$439.44). Thais love to shop for clothes and jewellery at BNPL stores.

The Bank of Thailand reports that Thailand’s household debt-to-GDP ratio is the 12th highest globally and one of the highest in Asia, behind only Hong Kong and South Korea.

Household debt reached 16.1 trillion baht (US$471 billion) in the second quarter of 2023, according to the NESDC. This represents a 3.6% year-on-year increase and accounts for 90.7% of the country’s GDP.

According to Sompob Manarangsan, president of the Panyapiwat Institute of Management, reducing poverty and improving people’s economic standing are the key to reducing informal debt.

He sings the praises of China’s heroic anti-poverty initiatives, which, particularly during President Xi Jinping’s tenure, have helped to bring 800 million people out of poverty.

Sompob claims that China’s strategy to combat poverty is twofold: first, a widespread economic shift to raise average earnings, and second, more focused assistance to address areas of extreme poverty.

Sompob also emphasizes fiscal measures as being critical in alleviating poverty. To expand coverage to the most vulnerable population, he stresses the importance of policies that raise tax income and direct state expenditure.

As reported by the Bangkok Post, he asserts that the present and all previous Chinese leaders have a shared background in rural development.

The attempts of the Finance Ministry to broaden access to formal financial sources for low-income earners and informal workers are nano-finance and pico-finance, according to Pornchai Thiraveja, director-general of the Fiscal Policy Office.

This measure will discourage loan sharks, and underground lenders will be encouraged to join the legal lending system.

There were 68 nano-finance organizations as of September 30th, lending 2.05 million accounts, a total of 38.8 billion baht (US$1.136 billion). Of this amount, 2.58 billion baht (US$75 million) was attributed to non-performing loans.