Credit Bureau for All

Recently, the government launched a new programme to eradicate underground debt, at the same time encouraging borrowers with underground debt to refinance their obligations. Would-be participants were invited to register at the Government Savings Bank from December 1st until 30th, 2009, at which time the Chief Control Department will filter the debt types and distribute each debtor to a government bank determined to be responsible for them. Six government banks will participate in the programme; the Bank for Agriculture and Agricultural Cooperatives (BAAC), the Government Saving Bank, the SME Bank, the Islamic Bank of Thailand, the Krung Thai Bank and the Government Housing Bank.

In my opinion, the debt eradication programme is a good policy and important to help people trapped in underground debt for a long time. However, I see it as a short term solution for existing underground debtors only, rather than looking long term at measures to help prevent a reoccurrence of underground debt dependence upon finishing the programme. As yet there is no government solution proposed to prevent those with no current underground debt from becoming underground debtors in the future. A long term solution is still the most important one.

With the underground debt eradication programme retaining focus on problem solving more than problem prevention, the cause of the underground debt problem is still not directly resolved, that certain people cannot borrow formally in the financial system because they have no collateral or are informal workers. The government has no measure to help people officially borrow in the financial system, thus they depend on underground loans in which interest rates are very high. 

Therefore, I wish to suggest a long term solution to prevent this problem occurring so that people do not have to be underground debtors. My idea is to create a “Credit Bureau for All”, that is, not just for some people who can engage in bank transactions, but for all people, whether those who have already been in underground debt or for those who have not. It will allow the government to keep track of their financial records and to know their financial status. It will also enable all people to officially borrow from formal financial institutions, no matter what their social status or the condition they are in.

The way to operate this policy is to work with the six government banks as main hosts. These banks should all have an interlinked data network connected to a citizen database from the Department of Provincial Administration, as part of the Ministry of Interior, so that the government can have comprehensive financial information on all of its citizens in a form that can be easily and readily utilized. 

The government may announce the registration of its citizens with a government bank of their preference after starting a first job or receiving a first salary. The State can regulate this measure in a law stating that all citizens must notify their birth registration within 15 days, with non compliance to this regulation within a limited time period, meeting with fines and penalties.

The state must publicize this new policy with its citizens and educate them about the benefits of being in the programme, such as “all citizens” who have financial records in this “Credit Bureau for All” can access loans with an interest rate from the government bank. Loan payback periods and interest rates are determined by each person’s payback ability and credit record. For example, loan interest rates might decrease and payback periods be prolonged for those with good credit records. 

The government could start a pilot project in some area in order to test the system, and also set up some budget to help people who participate in the project before it is implemented countrywide. It would be important for financial data to be collected, and all operations run gradually because the financial data will be huge. It should be verified in order to prevent false claims for a low interest loan from a government bank.

Dr Kriengsak Chareonwongsak
Senior Fellow, Harvard Kennedy School , Harvard University
kriengsak@kriengsak.com, kriengsak.com, drdancando.com