The Loan Shark in ASEAN: Can Nanofinance With Qardhul Hassan Deal With It? Lesson Learned From Bank Wakaf Mikro in Indonesia

Introduction

Loan shark evolves in almost every country. Investopedia defines a loan shark as “a person who – or an entity that – charges borrowers interest above an established legal rate. Often loan sharks are members of organized groups offering short-term loans who use threats of violence for debt collection”. Cambridge Dictionary underlines as “a person who charges very large amounts of money for lending money to someone”.Haller & Alviti (1977) highlight as “the lending of money at an illegal rate of interest and without holding claim to some physical possession of the borrower as collateral.”

Packman (2014), Mayer (2012, 2010) explain that loan shark originated from land sharks, a name for unscrupulous traders who hiding around ports in 19th-century America. It is estimated that the first mention of moneylenders was made in a copy of the Chicago Tribune in 1888 in an article about the condition of Minnesota farmers who were victims of moneylenders. This epithet is an Americanism popular discourse, one of a family of slang metaphors to the predatory behavior of the shark. Though any sharp lender may be described disparagingly as a loan shark, from the beginning this particular phrase was associated with a set of expensive small-loan products that had come into existence around the Civil War.

Leong, Li, & Xu (2018), Musari (2016d, 2017, 2019), Coy (2017), Mayer (2010), Haller & Alviti (1977) mention the practice of loan shark is categorized as social ill, illegal moneylending market, illegal lenders, informal financial institution, and racketeer lender. It serves an unmet need, unbanked people, low income and desperate families, who do not have enough financial resources or credit profile to access the formal banking system, even if often in a heartless and exploitative way. The loan shark is brave enough to provide cash in very fast service and flexible for them but with high interest. They could seem friendly at first but borrowing from them will bring consequences and many risks of high-interest lending.

As a humanitarian problem faced by many countries in the world, loan shark flourishes in both developed and developing countries. In England, loan shark in Glasgow who charged people interest rates of more than 719,000% faces having his assets seized under proceeds of crime legislation. In Leicester, Police hunt loan sharks riding Britain's rising tide of debt. In South America, a Colombian loan shark network is operating in more than three-quarters of Mexico’s states marking its growing presence throughout Latin America. Mexican authorities found a Colombian loan shark network of over 1,800 foreigners dispersed throughout Latin America. In Kentucky, a woman who was a victim of loan shark reminds, “You don't have to be poor to be a victim of payday loans… They were everywhere.”

Although there’s never been consensus on what’s a limit for interest rates by the loan shark, generally it is exorbitant. At least, refer to Mallick (2009, 2012), Hossain (2002), Hossain & Knight (2008), Irfan, Arif, Ali, & Nazli (1999), Tiwary (2017), Khandelwal (2010), Deshpande & Arora (Eds.) (2010), the loan shark’s interest rates in Bangladesh, Pakistan, and India charge very high than formal financial sector, particularly in rural areas. The victims in some areas even to suicide.