VietNamNet Bridge – Despite being banned by the law, “black credit” still develops all across the country as it requires simple procedures and easily meets people’s quick demand for capital.  

Poor residents in Quang Ngai forced to repay their debts after getting compensation from Dak Drinh hydropower project.

Although borrowing and lending among local people is legal, capital mobilisation with interest rates 10 times higher than the maximum rate allowed in the banking system, often known among locals as “black credit,” is banned by the law.

The lending is usually conducted via acquaintances and the mutual trust between lenders and borrowers, which was formed either directly or via a third person.

In such case, there is a "mastermind borrower" who often tries to create the appearance of being extremely rich, saying that they are successful businesspersons, so that others feel safe lending to them.

Many people have lent their own money or tried to raise money from others to lend the "mastermind borrower" in order to earn high interest. The "mastermind borrower" then re-lends the money at extremely high interest rates to those who are in desperate need of money for consumption or debt settlement.

Using “black credit”, borrowers are not required to use any assets as collateral but can easily and quickly get money to satisfy their need. Lending is recorded by handwritten contracts or verbal agreements that include basic information about the borrowers like name, address, commitments and signature.

However, the interest rates are really exorbitant, depending on the acquaintance between the lenders and borrowers. Normally, interest rates range from VND3,000 to VND5,000 (USD0.14-USD0.23) per every million dong per day. This means that if a person borrows VND100 million (USD4,719), they would have to pay interest of VND500,000 (USD23.60) per day. This interest rate equals VND15 million (USD707.88) per month or 180% per year.

If the borrower fails to pay the interest, that amount would be added to the principal, driving up the interest as a whole. In some cases, those who fail to settle their debts have faced danger to their lives.

Consequences

“Black credit” has widely developed across the country, affecting not only the rich but also many poor people as well. Recently, there have been several major cases of insolvency as a result of “black credit”.

Nguyen Van Trung and his wife, Ta Bich Lien involved in a major insolvency case in Lang Son City.

Recently, poor people in Lien Son Commune in Quang Ngai Province were forced by their creditors to repay their debts right after they got compensation from the investor of Dak Drinh hydropower project. This is because many locals have borrowed money at high interest rates to satisfy their consumption demands or settle their debts. They then failed to pay the interest, driving up their loan principal and interest as well.

Dinh Van Lat, a local man, received compensation of VND500 million (USD23,596) but was quickly ruined as he had to pay the debt from his car purchase.

Dinh Van Luc’s family was still poor despite getting a large amount of money from compensation as he had to pay off his VND100 million (USD4,719) debts from “black credit”.

All these unfortunate people just borrowed money without being aware of the high compound interest they have to pay.

A major case of insolvency in Lang Son City where Nguyen Van Trung, 46, and his wife, Ta Bich Lien, 40, have been charged for extorting a total of VND309 billion (USD14.6 million) from dozens of individual creditors, has stirred up public concerns.

Many poor people were attracted by the lucrative interest rates offered by the couple and lent them money.

Ha Thi Lieu, who has suffered for years from chronic kidney disease, collected money from her relatives and friends to lend the couple with a hope of earning an interest rate between 9% and 15% per month. They were greatly shocked when they became aware that the couple went bankrupt and attempted to flee.

“I don’t know what to do or how to get by as I lent them everything I had and now they’re bankrupt,” Dao Thi Hang, a local lender in Lang Son City said.

Another case of insolvency related to “black credit” in Dien Bien Province’s Muong Cha Township, has shaken the poor and silent village when the"mastermind borrower"committed suicide after going bankrupt. The case has put hundreds of lenders in a deep trouble as they may never recover their debts.

Lawyer Nguyen Thang Canh from Hanoi Bar Association blamed the situation on the lack of a strict legal framework.

According to Vietnam’s Civil Law, those who provide “black credit” at interest rates 10 times higher than the rate regulated in the banking system should be fined an amount of money equal to one to ten times the interest they applied or must undergo non-detained labour re-education for no less than one year.

“Such regulation is not strict enough to be a good deterrent. Importantly, a legal framework is not yet available to force offenders to be held accountable, as lenders don’t include any interest rates in their lending contracts. Therefore, relevant authorities find it hard to charge them,” Canh noted.

Source: DTriNews