Topic black creditcourse principles of financial market

Is there any difference between official credit from banks or finance companies and usury?1.. Article 201 of the 2015 Criminal Code of Vietnam stipulates Trang 4 IntroductionThe Vietnam

VIETNAM NATIONAL UNIVERSITY – HCM CITY UNIVERSITY OF ECONOMICS AND LAW FACULTY OF FINANCE AND BANKING

TOPIC: BLACK CREDIT

Course: Principles of Financial Market Lecturer: Nguyen Hoang Anh

GROUP TOKEN MINERS

October 30, 2023

LIST OF MEMBERS

Name Student Code Member

contribution

Level of completion

Table of Contents

Introduction

Literature Review

I What is usury? Is there any difference between official credit from banks or finance companies and usury?

1 What is usury?

2 Is there any difference between official credit from banks or finance companies and usury?

II Why does usury develop strongly in emerging countries?

III Consequence of Usury

IV Several case studies of usury all over the world and in Vietnam

V Regulations/ Policies to prevent usury activities

1 Article 468 of the 2015 Civil Code of Vietnam states

2 Article 201 of the 2015 Criminal Code of Vietnam stipulates

Conclusion

Reference

The Vietnamese consumer finance market has a golden opportunity for development with ideal conditions, such as a developing economy, a 95-million-strong population, 52 per cent

of whom are of working age, and income increase, along with significant shifts from savings

to shopping, and from cash to consumer credit

The development of consumer finance is motivation for the growth of the economy, accelerating the circulation of goods on the market, allowing people to approach credit, especially customer groups under the banks’ lending standards, restricting black market credit, and supporting low-income people from improving their life

Usury is a frequent occurrence in consumer credit markets and particularly affects low-income households Although the term usury conjures images of a greedy individual consciously acting to exploit the weak bargaining position of another by deceitful and even fraudulent means, we consider it as a systemic issue: as a problem of social discrimination, where belonging to a group which is statistically discriminated against leads to entrapment in

a chain of usurious credit and financial contracts

“Usury” and “black credit” are concepts that are no longer unfamiliar to many people in the present era These phenomena are becoming more and more frequent in society Usury is the practice of lending money at extremely high interest rates Black credit is the practice of lending money without the supervision of the state What are the severe penalties for usurious lenders? … In this study, we are about to talk more about these issues

Literature Review

I What is usury? Is there any difference between official credit from banks or finance companies and usury?

1 What is usury?

Usury is the practice of lending money at an interest rate that is deemed excessively high

or surpasses the legally allowed rate Unregistered and unregulated credit entities engaged in usurious activities often impose interest rates that far exceed those offered by established banks and financial institutions, leading to exorbitant borrowing costs The definition of what constitutes usury varies from one country or region to another, depending on their unique characteristics and regulations

To illustrate, in Vietnam, usury is defined as instances where lenders charge an annual interest rate of 100% or more Borrowers have the advantage of obtaining substantial sums of money quickly and with relatively less emphasis on the actual value of collateral, provided they consent to the steep interest rates

2 Is there any difference between official credit from banks or finance companies and usury?

Several fundamental distinctions exist between usury and lending through traditional banks or financial institutions These disparities encompass aspects such as interest rates, procedural protocols, legality, and transparency

a Interest rates:

The interest rates of banks and financial companies are significantly lower than those of illicit credit companies Banks and credit companies operate under state supervision, so their interest rates must be reasonable and approved by the state, typically ranging from 6-24% per year In contrast, usurious lending companies charge exorbitantly high-interest rates, often fluctuating between 108-360% per year

b Procedures:

The procedures for usurious lending by illicit credit companies are extremely streamlined and straightforward They do not require collateral or proof of income, and funds are disbursed immediately or within a few hours This is in stark contrast to the loan procedures at banks To secure a loan from a bank, borrowers must navigate numerous procedures and provide documents to prove income or offer collateral The lower the interest rate, the more complex the loan procedures become

Borrowing from illicit credit companies lacks legality as it does not operate under state and legal control In contrast, borrowing from banks or financial companies is highly legal due to their regulation by the state and law

d Transparency:

The information about loan conditions and fees for usurious lending is often not transparent or clearly disclosed on websites or documents Banks or financial companies always have to clearly present the loan conditions, interest rates, service fees, and terms to help borrowers understand before signing a commitment

II Why does usury develop strongly in emerging countries?

Emerging economies are countries with a higher level of economic development and usually industrialize faster They differ from developing countries in that they no longer rely primarily on agriculture, have made impressive progress in infrastructure and industrial growth, have rising incomes, and are experiencing rapid economic growth

There are many factors contributing to the development of usury in emerging countries:

A portion of the population cannot access the formal credit market

These are cases where borrowers do not have bank assets, have low credit scores, lack collateral, etc This forces them to rely on usurious lenders with high-interest rates Emerging countries are countries with fast-growing economies, so many people tend to invest in the economy to keep up with its development However, not everyone has enough capital to invest, so lenders such as banks will support them However, not everyone can get a bank loan or access a bank to borrow money, and at this time, black credit companies will act

as a “bank” to lend them money There are many reasons why borrowers have to resort to black credit companies, such as insufficient credit scores at banks, lack of collateral,… Or even because some people do not have the conditions to access banks

For example, in Brazil, the average interest rate in commerce, for installment transactions, increased from 60.10% in March 2013 to 72.73% in January 2021 The revolving credit card interest rate increased from 192.94% in March 2013 to 257.10% in January 2021 These figures show the strong development of usury in Brazil Although the interest rates mentioned are bank interest rates, however, such high interest rates may create favorable conditions for the development of usurious lending activities

People’s awareness of the risks of usury is still low

Many people in developing countries do not recognize the dangers of usury, and they do not understand the terms in the loan agreement

Discover more

from:

Document continues below

Distributed

Database

Trường Đại học…

23 documents

Go to course

Relational Calculus

None

5

Lab 06 - Subquery-doc

None

8

Chuyển đổi số Chuyển

đổi số và… 100% (2)

27

AI Application - hay lắm coi đuy

Chuyển

đổi số và… 100% (1)

13

Trading HUB 3 Xác suất

thống kê 96% (28)

36

Despite the economic development, the awareness and vigilance of the people against usury is still very low Usury lurks under many forms, one of which is anonymous under the form of fast lending through mobile applications This is a form that can help usury access people very easily, in this measure, the terms in the contract are not clear or deliberately make the borrower misunderstand the contract From there, many individuals will lose their caution and be attracted, trust the black credit lenders

These are some of the consequences of usury In Tirunelveli, a district in the state of Tamil Nadu in India, there are many cases of suicide due to the inability to repay usurious loans A family, consisting of parents and two children, self-immolated in an office in Tirunelveli district due to constant harassment by creditors and the lack of action by the authorities to stop them

The enforcement of laws to prevent usury has not been effective

In some emerging countries, there is no clear definition of the interest rate limit Even if there are laws to combat usurious lending practices, they are not effectively and transparently enforced Moreover, lenders can exploit legal loopholes to evade legal regulations

In the article ‘Usury Crimes in Post-Crisis China: The Underlying Economics and Beyond’, the authors discuss three types of illegal usury crimes: student loans that put college students into debt; ‘naked’ loans that target female students and use nude photos as collateral; and ‘formula’ loans that deceive people with valuable assets, such as real estate These forms

of lending exploit legal loopholes to evade regulations The consequence of this usury is that borrowers fall into debt, are unable to repay their loans, and may even lose their assets This not only causes difficulties for borrowers but also creates serious social problems

Bank/financial company loans cannot meet the needs of businesses

Due to the difficult conditions and procedures for borrowing from banks/financial companies, businesses cannot always borrow In urgent situations, businesses must choose between usurious loans or continue to wait for their bank loan applications to be approved, which is extremely difficult

In India: According to a World Bank report, small and medium enterprises (SMEs) in developing countries like India often struggle to access capital from banks or financial companies Major reasons include stringent lending conditions, complex procedures, and long waiting times for approval Therefore, many businesses opt for usurious loans to meet urgent financial needs

Economic growth and the demand for credit

As emerging countries undergo rapid economic and industrial development, the need for borrowing increases China is one of the largest and fastest-growing economies in the world, with a GDP growth rate of 6.1% in 2021 However, China also faces challenges in credit, as commercial banks tend to prioritize lending to large state-owned enterprises over small and

File giáo trình bản pdf HSK 2

Giáo trình chủ nghĩ… 100% (11)

8

medium-sized private enterprises According to a World Bank report, about 65% of SMEs in China do not have access to formal financial services

III Consequence of Usury

Financial activities always pose great risks to the financial system, affecting social security and individual financial consumers Subjects affected and risks from black credit activities include:

1 Group 1:

Banking risks Shadow financial banking (including black credit) is often subject to the same types of financial risks as the commercial banking system but is not strictly controlled Many black credit operations are financed with short-term funds taken from banks and will take huge risks when customers rush to withdraw money massively or customers are unable

to pay, crashes involving bank employees

2 Group 2:

The risk of violation, abuse and reduction of legal efficiency from black credit is very high, especially without collateral When borrowers fail to pay their debts on time, or become insolvent, they shall be collected, in the form of illegal misappropriation of assets; being

"terrorized" in spirit, health, even life-threatening, destabilizing social order and safety In addition to the above consequences, black credit is a type of credit that operates without any specific regulations, is not subject to the management and control and management of state agencies Therefore, when the risk of insolvency occurs, the subjects of black credit handle themselves arbitrarily and illegally

Borrowers:

Find it difficult to repay the loan due to the high-interest rates

Debt trap: Usury can lead to financial instability for borrowers, as they may struggle

to repay the loan and end up defaulting This can result in a cycle of debt and financial hardship

Financial insecurity: Leading to decreased quality of life and increased stress for borrowers

3 Group 3:

towards the units that always earn the “lender” more money, while the borrowing units must commit to

repaying the loan in addition to the benefits, whether the loans are for consumption or investment, and whether the loan made a profit or lost money during its investment The institution of interest makes the capitalist and wealthy people greedy and lazy too They earn easy money by advancing their extra money based on interest while doing nothing concrete They remain unconcerned whether the receivers of the loans earn profit or make loss The whole burden lies on the borrower He/she must pay the lender the loan principal plus a fixed percentage as a reward for his/her money This makes the lender lazy and greedy and this is the attitude which hampers the process of development and progress

The return on usurious financing is guaranteed and unaffected by the success of the investment, there is no motive for the financier to allocate financial resources to the most cost-effective application This will ensure the financial resource’s survival with the “borrower” as long as he is obligated to pay the interest and provide the required guarantees to the financier This means that the lender is not interested in how the borrower's funds are invested, and co-financing forces the lender to constantly look for better investment opportunities The economic impact of usury therefore affects how resources are allocated and flow to businesses

One of the most significant economic effects of usury is

the occurrence of economic and financial crises and business cycles, which some economists have linked to usurious financing because usury gives the richest a larger share of the value

of the output and impoverishes the masses of consumers who make up the majority of society When consumers are unable to purchase goods, goods accumulate in markets and the economy enters a downturn

Economists pointed out that the way commercial banks offer loans to investors does not correlate to the society’s aims that the central bank is working on in another reason for economic cycles Commercial banks boost lending when the economy tends to inflate, exacerbating the problem, and loans decline when the economy tends to contract, perpetuating the problem and not aligning with society’s interests in both circumstances Overall, the negative impacts of black credit outweigh the potential benefits, and individuals should be cautious about engaging in such lending activities It is important to seek out reputable, regulated lenders and to carefully consider the terms of any loan before agreeing to it

IV Several case studies of usury all over the world and in Vietnam

Practical surveys show that, along with the development of the economy, the demand for loans of people and businesses is increasing, while official credit cannot meet the loan needs