Many Loan Sharks in Vietnam Recently Defaulted due to Econimic Hardships

A significant number of black market credit organisations (loan sharks) operating in major cities, particularly Ha Noi and HCM City, have recently defaulted, dealing a heavy blow to depositors and the national economy. It is said that victims of the black market credit default come from all economic sectors, including enterprises, financial entities and small retailers.

According to financial expert Dinh The Hien, the default was mainly caused by greed.

"High interest rates of 7.5 per cent per month, 6.5 times higher than current commercial bank rates, added to the problem," Hien said.

A case in point included Ms Hung My Phuong (alias Phuong Den - Black Phuong) from HCM City, who promised to pay an interest rate 7.5 times higher than normal at almost 90 per cent per annum.

In financially pressing times, such lucrative promises attracted a large number of desperate depositors.

Le Dat Chi, a lecturer at the HCM City University of Economics, said that it was impossible to gain from 7-10 per cent monthly interest rates.

"Only the most successful of businesses would be able to gain returns based on a rate of 20 per cent per annum," Chi added.

He cautioned that anyone who managed to mobilise and maintain capital from a high interest rate (between 7-10 per cent per month), was probably a swindler.

"Feasible projects could easily access concessional interest at commercial banks, which cancel out the need for ridiculously high rates." Chi said.

However, in his opinion, Dr Le Tham Duong, a lecturer at the HCM Banking University, denied that people who mobilised money from high interest rates were in fact swindlers.

He said that in most cases, people were engaged in legal business activities in desperate need of financing. When such businesses turned sour however, people were forced to borrow money at high interest rates to stay afloat or get themselves out of tight corners, trapping them in a vicious circle that led to default.

Dr Duong explained that loan sharks have been around for a long time.

"When there is demand, there is supply," he said, adding that some people need money while some are willing to lend it at lucrative interest rates.

In his opinion, Duong blamed the recent default on a lack of micro finance organisations capable of providing small businesses with funds to operate.

"Micro businesses are facing a lot of difficulties in accessing credit from commercial banks. The only way for them to mobilise capital is through short term, high interest rate black market credit which gives birth to loan sharks," he explained.

Colonel Dinh Van Toan, deputy director of the Ha Noi Police told Tien Phong (Vanguard) newspaper since early 2011 crimes reported in the fields of finance and banking have been on the rise, particularly fraud in capital mobilisation which is strongly linked to the issue of black market credit.

He cited a case in the outlying district of Dan Phuong, where a man called Quang Quyen was able to raise over VND300 billion (S$19 million) from desperate customers.

However, Toan said that when the case was brought to light, the loan shark merely said that transactions resulted from negotiations between two civil parties.

"When the case was referred to us, and following intensive investigations, we concluded that it had been more than just a simple civil agreement and that it had to be brought to court," he said.

Under current Vietnamese laws, black market credit (in whatever form it might take) is illegal.

Only registered credit organisations will be allowed to provide banking credit, pursuant to Article 163 of the Penal Code dealing specifically with loan sharks.