Reducing vulnerability to loan sharking in Serbia.

Loan sharking, the practice of lending money with unrealistically high interest rates taking advantage of the debtor’s recklessness or difficult economic situation, has a long history in Serbia. The practice, sometimes also referred to as usury, is not new. Back in 1927, the Serbian daily newspaper Politika wrote that people blame loan sharks for poverty because they lend money at draconian annual interest rates of as much as 48% to 96%. At the same time, these lenders earned vast amounts of money and became politically influential in the country without paying taxes.

Milan Stefanović, executive director of the Centre for Civil Society Development PROTECTA.

Loan sharking flourished in the 1990s. As a rule, loan sharks were dangerous characters from the criminal underworld or men returning from the war. They often extorted people and threatened them with violence or kidnapping if the borrowed money was not returned. There is a well-known example of former military serviceman who gained his initial capital by reselling foreign currency in the 1990s, and later lent money to people by concluding an agreement in which the debtor’s real estate was used as collateral. As a result, he became the owner of many shops, houses and apartments before he was shot dead in 2009. In another case, a man was arrested (and is now serving jail time) when one of his victims tried to kill himself because the loan of €9 000 that he had taken out jumped to €42 600 in a year and a half.

Today, money is loaned quite openly in Serbia at an unrealistically high interest rates. A billboard of a company that offers citizens cheque cashing and quick loans in euros has been standing in a Belgrade mall for several years. Next to it is a pawn shop that offers similar services. At several bus stops in Belgrade, there have been advertisements offering loans with an interest rate of 6.5% for employees and 10% for pensioners. One reason that seniors are targeted is that it hard for people over 60 to get bank loans.

It is challenging for criminal justice institutions to prove loan sharking, because victims seldom file criminal charges due to embarrassment and fear. Even when institutions initiate criminal proceedings, it is not easy to prove loan sharking because the deals are usually prepared and made behind closed doors. There are no witnesses or evidence of financial transactions. Prosecutors generally learn about loan sharking when investigating other serious crimes, such as extortion, kidnapping, murder or rape.

We talk with Milan Stefanović, executive director of the Centre for Civil Society Development PROTECTA, which is a civil society organization from Nis. PROTECTA has been active for more than 20 years in its community to identify social problems and guide young people to positive social action. Stefanović explains their motives to fight loan sharking, the different forms of loan sharking in Nis and Serbia and what happens to the victims, as well as what the organization is doing to address these issues.

What is loan sharking?
It is a social problem that destroys entire families and causes economic, social and psychological damage to the victims, their family and friends. It is not just a crime. Individuals borrow money from loan sharks to solve a minor problem, hoping to return money easily and quickly and believe that the interest rate will not be too high. But loan sharks have an interest in loans not being paid back quickly: the longer they wait, the more they earn, and they may even confiscate the victim’s property. At the start, loan sharks are usually kind and act as allies who want to help. But they soon show their true colours. They become predators and, as such, want to make as much profit as possible. What starts out as a minor problem can ruin someone’s life.

What motivated PROTECTA to fight loan sharking?
First, a close friend fell victim to a loan shark. In just a few months, he lost his job and his family. In the end, he fled from Serbia. Then, at a conference, I heard how civil society organizations in Bulgaria, Romania and Italy are fighting loan sharking. Given the modest experience of civil society in Serbia, we decided that PROTECTA could be a civil society pioneer in the fight against loan sharking.

How widespread is loan sharking in Nis?
There is no accurate data. It is difficult to calculate because loan sharking, like corruption, takes place in private. The victims and their families are often ashamed and hide that they even borrowed money. However, last year I began asking people if they knew anyone who had borrowed money from loan sharks. Unfortunately, everyone knew of a victim. For me, that was enough to conclude that the problem is widespread. And the problem may get worse because of the pandemic. This type of crime always flourishes in times of crisis. People lose their jobs, especially in the service industries. Chances to travel abroad and find temporary work are limited – all of this leads to borrowing money from loan sharks.

Is loan sharking more present in Nis than in other parts of Serbia?
The problem exists in poor communities, such as the south of Serbia, because poverty creates a need for loan sharking. It is also a problem in places where there is an active property market. People who are building a house or seeking to rent an apartment are more likely to take money from loan sharks. It is important to note that some national minorities, especially Roma, borrow quickly and easily from loan sharks. After borrowing, they often get involved in criminal activities for loan sharks to pay off the debt. They even go abroad to steal.

What is the profile of people who borrow money from loan sharks?
There are generally three groups – business people, drug users and people on the margins of society. Business people in the construction business are sometimes looking for fast and easy money. There was a case in Nis where the company’s owner committed suicide because he could not repay the debt. Drug users are vulnerable if they need money to pay for gambling debts or to buy drugs. People on the margins of society are vulnerable if they need to borrow money to buy medicine, send family members for treatment or pay for electricity.

Why do people turn to loan sharks instead of banks?
In some cases, people have already taken out a loan from a bank or are not creditworthy. In other cases, people are self-confident and believe that borrowing money from loan sharks can enable them to make a quick profit. They think they will repay the debt quickly, but don’t realize how rapidly the debt will increase because of high interest rates. There are also cases where people sell their property, take money from loan sharks and invest in building construction. But because of the pandemic or lack of a building permit, construction stopped for several months and the debt increased. In the end, the property speculation failed, and they ended up with an economic loss rather than a profit.

On average, how much money do people borrow from loan sharks, and what is the interest rate?
In Serbia, people usually borrow between €1 000 and €10 000, while business people tend to borrow from €100 000 to half a million euros. Debt can grow up to ten times.

When the debt is not repaid on time, what happens?
Most often, loan sharks confiscate the victim’s property. Apartments, shops and cars – victims are sometimes surprised since they have not read the fine print before signing the contracts. Loan sharks are well connected with lawyers and notaries, so the arrangements are proper and certified. In that way, the entire property of the debtor is legally taken. That said, there is also extortion or violence. The media usually report on such cases.

Why do debtors seldom press charges against loan sharks?
Mainly because of fear. They do not feel enough support or protection from the state institutions if they decide to report loan sharks. Indeed, they think the situation will worsen. They usually report it only when they fear physical violence.

Who are the loan sharks? How do people who need money contact them?
Police claim that, in the 1990s, loan sharks were people from the criminal underworld or returnees from the war who secured their loans using intimidation and violence. Today, the situation is different. Loan sharks are individuals who have money and want to make even more, and quickly. They are often known to the police, but not because of serious crimes. The rule from the 1990s that loan sharks had direct ties to organized crime no longer always applies. There are also examples where ordinary people who are not known to the police lend money. People often find loan sharks based on a recommendation or information from a neighbour, a cafe owner or a betting shop. It is easy to get information on who is loaning money because loan sharks do not only advertise their services by putting fliers in mailboxes, but they also advertise in the media.

Would you say loan sharks work as an organized group?
Loan sharks generally work as solo players. One or two operate in each part of the city. It seems they have divided up the territory, but that is not enough proof that they are organized. You could say that they are organized in the sense that they have a good overview of the local situation. Instead of waiting for clients, there have been cases where loan sharks have intentionally targeted people who have houses, apartments and shops in good locations in order to trap them into debt and confiscate their assets at a later stage.

With the support of the GI-TOC’s Resilience Fund, civil society organization PROTECTA raises awareness of the dangers and consequences of borrowing from loan sharks.

PROTECTA provides free legal assistance to people who have problems with loan sharking. How would you describe the profile of your clients?
About 70 people have contacted us since 2020. They are mostly men between the ages of 30 and 40, addicted to gambling and other dependencies, as well as individuals who have borrowed money due to poverty. Most of the time, family members call us to check that we are competent and how we can help them.

Why is it important to raise the profile of this issue?
It is too late if we are only dealing with the consequences of loan sharking, as the prosecution or the police are currently doing. By that point there has already been violence, heavy debts, the victim’s property was taken and all the stresses that come with this. Prevention is vital to keep people out of this trap. By getting involved at an early stage, we can enhance prevention and work with young and socially vulner­able people to warn them of the dangers and help them, for example with the contracts.

Why are you focusing on high schools in Nis?
We received information from the clinic for addiction diseases in Nis about cases where young people aged 18 and 19 were borrowing from loan sharks because of gambling. In addition, we already knew that young people easily enter into such arrangements because they do not think about the consequences. We do not hide the facts from young people. We are talking about violence and murder, as well as suicide. We are trying to warn them in time to prevent them from becoming victims of loan sharks.

What are the next steps for PROTECTA?
We want to fight loan sharking at the national level because we have received requests for legal assistance from people all over the country. The first step is to strengthen similar civil society organizations in other parts of Serbia. The second step is to set up a centre that will provide psychological support to individuals and their families due to problems with loan sharking. The mental issues that victims face are just as strong as the economic ones. Debt bondage creates mental-health problems that destroy entire families. Partners are divorcing and parents are giving up their children. Psychotherapy allows the family to stay together and prevents re-borrowing.

Without the Resilience Fund, we would not have been able to provide free legal aid to victims, which is essential. The GI-TOC has enabled us to recognize the problem in our community, raise awareness and make people more resilient to loan sharking through training and advice.