Interest in peer-to-peer lending technology has seen an upward trajectory in recent years, particularly in Asian markets such as China and Singapore. In this growing market, creditors and debtors are able to connect with one another through an online platform, thereby disrupting the need for intermediaries such as banks and traditional lending platforms. This is particularly significant for unbanked individuals who are unable to access financial services such as loans due to not having a credit history or a lack of service providers who are able to cater to their needs. Businesses can also benefit from peer-to-peer technology, being able to take advantage of faster access to capital as well as attaining a greater range of potential investors.
To respond to this emerging trend, the Bank of Thailand began drafting regulations on peer-to-peer lending in September 2018. On April 2019, the Bank of Thailand has clarified the Kingdom’s regulations surrounding peer-to-peer lending, highlighting the boundaries within which operators are to function. The definition of a peer-to-peer platform provider, as stated in the legislation, is that of a person or entity that delivers an electronic system or network for lending between peers. It goes further by defining a lender as an individual or juristic person that offers a loan via an electronic system or network.
Platform providers
The Bank of Thailand has been particularly meticulous in laying out the framework for peer-to-peer lending platform providers. According to the legislation, platform providers must adhere to the following conditions:
- They must be a private or public company that has been registered and incorporated in Thailand;
- At least 75% of the company’s total shares must be held by Thai nationals;
- The company must maintain paid-in capital of no less than THB 5 million throughout the duration of its operations; and
- The platform should not be a financial institution.
The legislation further reiterates that directors must be of good character, indicating that they must not have been charged with criminal activities, corruption, and/or fraud. It also stipulates that directors must be qualified to hold their position on top of not having any outstanding debt with financial institutions.
Creditors
The Bank of Thailand defines lenders as either natural or juristic persons who are knowledgeable about peer-to-peer loans and the risks associated with them. The legislation states that lenders should conduct assessments to determine a client’s suitability prior to providing loans in order to mitigate risks. It further specifies that creditors are limited to lending no more than THB 500,000 per year; however, certain creditors, which include institutional investors, joint ventures, juristic partnerships, and other qualified investors are exempt from the prescribed credit limit in accordance to the Notification of the Capital Market Supervisory Board.[1]
Borrowers
Unlike lenders, the Bank of Thailand limits the definition of borrowers to natural persons. In order for them to qualify as a borrower, the legislation states that they must fulfill the following criteria:
- They must not be a director, administrator, or authorized personnel of a peer-to-peer lending platform provider; and
- Borrowers must also have the capacity to perform and repay their debts.
Credit limits, according to the legislation, largely depend on the borrower’s income or cash flow as well as the purpose of the loan. For example, a loan taken out by a borrower for business purposes cannot exceed THB 50 million in the case that their loan is collateralized. Moreover, the legislation highlights another the case where an additional business loan is required by a borrower on top of their existing loan which can be granted depending on their capacity to repay their obligations.
On the other hand, limits for personal loans taken out by borrowers for non-business purposes are assessed based on their income; therefore, if the borrower earns less than THB 30,000, they will not be able to take out a loan exceeding 1.5 times their average monthly income. Likewise, if a borrower’s average monthly income surpasses THB 30,000, they can be given a credit limit five times their income. Moreover, their loans should not be supplemented by personal loans from three other creditors.
Interest rates for loans taken from peer-to-peer lending platforms, regardless of their type, are capped at 15% per year in accordance with the Civil and Commercial Code of Thailand.
Custodians
The Bank of Thailand does not permit platform providers to hold money, property, or securities that belong to either lenders or borrowers. Peer-to-peer lending platforms must therefore commission authorized custodians sanctioned by the Securities and Exchange Commission (“SEC”) or banks to provide escrow accounts.
Closing comments
Through this legislation, the Bank of Thailand hopes not only to clarify regulations surrounding peer-to-peer lending activities, it also hopes to contribute towards the growth of alternative financial services in the Kingdom, specifically for individuals who are unbanked or whose needs cannot be serviced by traditional financial service providers. Prior to this legislation, regulations surrounding peer-to-peer lending activities were legally ambiguous, hindering many companies and projects from obtaining proper licenses from the Bank of Thailand and/or the SEC.
With clearer regulations, peer-to-peer lending platform providers now have a much clearer framework to legally operate in the Kingdom. In order to ensure that companies or projects are fully compliant with these regulations, it is strongly recommended to consult a law firm like Silk Legal for a legal opinion that is most applicable to each circumstance.
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[1] “Notification of the Capital Market Supervisory Board No. Tor. Chor. 21/2562 Re: The Determination of Offering Equity Through Crowdfunding,” Security and Exchange Commission Thailand (15th May 2019), (available at http://capital.sec.or.th/webapp/nrs/data/8152s.pdf).
