Financial strain on workers ahead of the New Year has prompted many to use loan sharks, risking falling into a never ending debt trap.

T was a worker at the Linh Trung Export Processing Zone in HCM City. In the second week of the last lunar new year, he took his own life, leaving behind his wife, two young kids and debts of VNĐ60 million (US$2,660) plus the monthly interest.

He had borrowed money from a moneylender who charged a monthly interest rate of VNĐ200,000 per million đồng or 240 per cent a year. This meant T had to pay VNĐ12 million monthly in interest, much more than the some VNĐ10 million combined the couple earned in a month.

T is not the only tragedy involving loan sharks. Tran Thi Dung, Chairwoman of the Union of the Kollan company in Linh Trung EPZ told the  Lao Dong (Labour) newspaper that high-rate moneylending was common among the workers. One third of cases involved lô đề (illegal Vietnamese lottery gaming), she said, while the rest happened due to poor financial planning.

“In times of sickness or shopping time for Tết (the Lunar New Year) for example, many just don’t have any savings and are forced to borrow money,” Dung said.

Using high interest rate urgent loans or using ATM cards as collateral were the two most common cases among industrial workers. Many were beaten or threatened with death as they could not pay off the monthly interest.

Moneylending is also booming in Hanoi as pawnshops have sprung up all over workers’ housing areas.

Along the thoroughfare leading to Bau village in Kim Chung Commune where many workers of the nearby Thăng Long Industrial Zone live, there were up to three big pawnshops nearly every two kilometres. Smaller alleys contained another three to five pawnshops, scattered deep inside the village. Posters advertising loans without collateral were glued side by side on the walls.

According to some pawnshops, the interest rates for loans with collateral assets rose in the days before Tet. From VNĐ1,500-2000 a day for a million đồng loan, the interest now ranges from VNĐ3,000 to VNĐ4,000.    

The rates increase for loans without collateral, at about VNĐ5,000 to VNĐ7,000 a day for a million đồng loan.

Bình Duong Province Labour Federation Deputy Chairman Nguyen Thien Phuoc said that authorities have made efforts to instruct workers in need of money to come to credible loan sources like the Capital Aid Fund for Employment of the Poor or other aid funds of the local unions.

“However, we have to admit that the workers’ loan demand is too high for those funds to satisfy them,” he said.

VNS