VietNamNet Bridge – It is estimated that the outstanding loans provided by “underground lending system,” or “black credit” accounts for 30 percent of the outstanding loans provided by the banking system, or roughly $50 billion, according to Vo Tri Thanh, Deputy Head of the Central Institute for Economic Management (CIEM).

Black credit has been provided everywhere to any individuals and businesses who have capital demand. The invitations for black credit can be read on the ad pieces posted on Internet, electricity poles, bus stations, or delivered directly to motorbike drivers or foot passengers.

The average offered lending interest rates are very high, about 60 percent per annum and higher. Meanwhile, banks offer to pay at 11-12 percent.

However, despite the high interest rates, black credit remains attractive in the eyes of borrowers, because the lenders do not require any collateral for the loans.

Especially, it does not take borrowers much time to follow the procedures to get the loans, the thing they have to do if contacting commercial banks. One just makes a call to the given phone number and waits. Someone would come with a contract to be signed. After that, the money would be delivered to the borrowers.

In Hanoi, the ad pieces on lending money can be seen in abundance on the streets of Le Thanh Nghi, Giai Phong or Cau Giay. The black credit service providers offer loans with the fixed interest rates of VND1,500-2,000 for every VND1 million per day, or 54-72 percent per annum. These are the lowest interest rates for overnight loans with collateral.

In case borrowers don’t have assets to mortgage for the loans, they need to show student card, identity card or residential book and pay the interest rates of 0.8-1 percent a day, or 292-360 percent per annum.

Ngo Thi Hoa, Chief Accountant of a company, said the company is lucky enough to be able to borrow money from a bank. Meanwhile, the bank doors’ have been shut to many other businesses, which has forced them to seek capital from the underground market.

A businessman who asked to be anonymous, revealed that he had to borrow money from a loan shark at an exorbitant interest rate. The director needed to pay bank debts on schedule in order to be able to get new loans.

Therefore, he decided to access the black credit for overnight loans, which he then paid to the bank. After the bank disbursed the new loan, he used the money to pay the loan shark.

“I would rather  do that to obtain capital than leaving my machines and my workers idle,” he said.

To Hoai Nam, Secretary General of the Small and Medium Enterprises’ Association, has also noted that black credit has boomed recently, since commercial banks turn their doors close to small businesses. Only the businesses with “good profiles,” i.e. the ones who pay debts on schedule, can get bank loans.

Thanh has warned that if the cash flow cannot be control, the black credit bubble, if bursting, would cause big damages to the banking system and the whole economy.

Meanwhile, Dr. Nguyen Tri Hieu believes that it would be better to set a legal framework to cover the unofficial credit channel, because not all the non-official transactions are illegal. He thinks it is necessary to point out which non-bank transactions are legal, which are illegal and how high the lending interest rates can be.

Phuoc Ha