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|Customers are advised to turn to legal lenders with their loan requests, especially as the Lunar New Year approaches|
Criminals lending money with exorbitant interest rates have long been a problem in Vietnam. Without access to formal banking services, poor people often resort to loan sharks when they need quick money for business, hospital fees or other personal uses. If the debtor defaults on their loans, loan sharks will do whatever they can to collect the money, including violence, harassment, and kidnapping of the debtors and their families.
Two weeks ago, the issue once again came into the spotlight as police officers in the northern-central province of Thanh Hoa arrested an unlicensed group of creditors who work together under the company name Nam Long Financial Group. Considered the largest loan shark group ever in Vietnam, Nam Long Financial is present across the country. The group charges interest rates from 172 to 205 per cent per annum, and in cases of emergency, rates can shoot up to 1,043 per cent per annum.
Besides violence towards borrowers, Nam Long Financial also implemented medieval rules on its employees. Debt collectors pledged to cut off their fingers if they could not retrieve money, and the group was detained after it tortured a 19-year-old employee to death. At the time of arrest, Nam Long Financial was found to have VND510 billion ($22.2 million) of outstanding loans from 200 borrowers.
Last week, officials of various provinces in Vietnam met to discuss the Nam Long Financial case and other loan sharks. Phan Anh Minh, deputy director of the Ho Chi Minh City Public Security Department, pointed out that the city recorded three deaths related to loan sharks in 2018. At least 320 people related to 60 loan shark groups are under scrutiny. Minh estimated that on average, police officers in the city deal with four cases related to loan sharks per month.
“We have to act because it is near Lunar New Year and loan sharks are becoming more brazen than ever. From simple acts of harassment, such as splashing smelly paint on walls, to outright violence and torture, loan sharks will use all tricks to collect their dues,” said Minh.
All street corners of the city sport advertisements of loan shark services, promising “quick loans for students” or “financial help with no collaterals.”
In response to these recent arrests, Prime Minister Nguyen Xuan Phuc said at the December 3 cabinet meeting that Vietnamese authorities must focus on the loan shark problem as Lunar New Year approaches. “This is a serious issue that requires close attention and immediate reaction from the local authorities,” said the prime minister.
Some lawyers said that the loan shark issue cannot be solved within a day or two. Although they fully support this crackdown on moneylending criminals, lawyers pointed out that the blame should not be placed entirely on the lenders. Specifically, debtors seek out loan sharks without a clear repayment strategy in mind. Borrowers often understand, but choose to ignore the dangers linked with these illegal groups because they need the money quickly and do not have collaterals to back up a loan.
According to Nguyen Thanh Cong, member of the Ho Chi Minh City Bar Association, in some cases, debtors are confident that their business activities can reap much larger returns and they will be able to repay all the exorbitant interest rates soon.
“However, when things do not go as expected, these people are trapped in a vicious circle of debt. This is an example of how high-interest lending and borrowing will always exist in any society, because supply will follow demand,” said Cong, suggesting higher sentences for loan shark groups, as well as public education on the dangers of illegal moneylending.
In recent years, various consumer finance firms have also been set up to serve the financial needs of unbanked people. Despite the ongoing debate about their interest rates and debt collection methods, these consumer finance firms are hoped to help Vietnam reduce its chronic loan shark problem.