Business
Businesses turn to black market for capital
  • | vef, dtinews.vn | April 02, 2013 05:37 PM

Businessmen have resorted to illegally borrowing capital at extremely high interest rates, often known as “black credit", leaving them to sink deeper into difficulty.

 

Crimes related to black credit surged in the last two years 

Tran Minh Toan, who is involved in a mining business in Tuyen Quang Province, had to seek out a local lender to borrow money when his mining licence expired. He said, "It takes some money to get a new licence and I still have daily business expenditures to deal with. I’ve been in debt for half a year now."

People have turned to the black market because the procedure is simple, they do not even need to offer collateral and can receive the money immediately. However, if the swinging interest cannot be paid in time, they will face serious trouble.

Toan said his interest rates was raised once so he borrowed VND3 billion (USD144,000) from several lenders to ease the interest deadlines. "This is the last resort. Not only do I have to find partners to improve the business situation and pay staff wages, but I also have debts to worry about," Toan said.

Nguyen Manh Thang, an owner of a steel company in Vinh Phuc Province said when the economy was in recession, he was willing to let his full payment be prolonged until after the construction completed. However, Thang is in debt to others.

"I have to pay the suppliers before the final deadlines and I have nothing else to be used as security for loans so I came to the black market," Thang said. He said sometimes he wanted to shut down operations but he still has loans.

An employee of a company in Hanoi said, "Borrowing money from local lenders is quite common since the banks tightened their lending activities. Borrowing money on black market has its perks but it's dangerous. Firms are ignoring the danger now because of the slump."

Crimes related to black credit have surged in the last two years. Since 2010 until late 2012, Vietnam had over 100 cases of insolvencies totalling nearly VND4.5 trillion. People often borrow money from many lenders and use such money to give loans. Taking advantages of the loop holes, the lenders can apply rates of 30% per month or more without issuing a legally binding contract. The General Police Department for Crime Prevention and Suppression said they did not have strict enough sanctions to deal with such crimes.

Explaining about the wide spread of black credit in the past two years with Vietnamnet, lawyer Truong Quoc Hoe said firms came to the black market to pay debts to partners and especially banks loans. "Because most contracts are legal, if lenders can't use gangsters to recoup the loans, they can sue the borrowers in court," he said.

Many business owners have had to sell their belongings at cheap prices after being threatened. Nguyen Van Dai, owner of a company in Hanoi had to divorce and escape to South Korea because he could not pay his debts. However, his family is still harassed daily.

Meanwhile, VnEconomy reported that since early 2013, many banks cannot give out loans and suffer from weak liquidity. Some banks such as Vietcombank decided to lower deposit rates from 8% to 7.5% in the hope that depositors would withdraw the money.

"Banks want to make loans but they can’t because many firms are in bad financial situations, and firms that have healthy credit are reluctant to borrow despite the lower interest rates." said Nghiem Xuan Thanh, Director General of the State Bank of Vietnam Office.

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