The Economist magazine reports that the Thai government has increased efforts to reduce predatory informal lending and bring more citizens into formal credit markets. In moving to raise limits on loan interest rates, it hopes to free citizens from the dangers of loan sharks and allow more non-banking, regulated lending entities to service the credit needs of low income citizens. However, despite good intentions, such reforms may not protect low-income borrowers as much as first assumed. Citizens are also at risk of predatory lending in formal credit markets. Indeed, Thailand’s reforms may bring criminal usury out of the shadows into the low-end formal economy (although legitimizing and regulating black-market lending is still a worthy result). India and other countries have demonstrated that even established lending entities do not always provide the best deal for their unsophisticated borrowing clients.
China-Mekong is well aware of the challenges faced by borrowers even in formal, regulated low-income credit markets. So much so that, in cooperation with China-Mekong partner Yunnan University Law Center, we have launched a program to provide free legal services to microcredit borrowers in order to help them navigate the workings of low-end formal credit markets. Under China-Mekong’s Law Clinic for Microcredit, Microinsurance and Microsurety, law students, under the guidance of experienced licensed lawyers, provide free legal advice to microcredit borrowers on best loan terms, the borrower’s rights and obligations under loan and guarantee documents, and some business planning assistance. Under the law clinic, law students get training and practical experience advising real clients; the latter usually disadvantaged groups and individuals normally unable to afford a lawyer, to level the negotiating playing –field. It seems this innovative model of training law students and helping underserved communities will soon gain traction in Thailand and perhaps the broader Greater Mekong Subregion.