Should I hire a domestic helper who has taken out a loan or is in debt?

When you’re considering hiring a domestic helper in debt or with a loan, it’s critical to understand the broader context of their financial situation. Often, the financial struggles faced by a domestic helper do not reflect their ability to perform their duties. Instead, these challenges highlight the tough scenarios they encounter while trying to do their job as a domestic helper.

By recognizing the reasons behind a domestic helper’s debts, employers can foster a more supportive and empathetic working environment. This understanding creates a positive atmosphere in the household, enhancing the relationship between the employer and the domestic helper.

Why do so many domestic helpers face debt problems?

Domestic helpers often face significant financial pressures that can lead to debt. Considered economic migrants, domestic helpers are often the sole breadwinner for their family back home. Unfortunately, many domestic helpers are still taken advantage of by unethical employment agencies and training centers that charge them illegally high fees that they must work for months to repay.

Based on several survey data, domestic helpers send 50-60% of their monthly salary on average to support 4-5 family members. From high placement fees to unplanned expenses, in addition to the cultural expectations of supporting extended families, the financial pressure can often push foreign domestic helpers to borrow money from friends and take out high-interest loans. Repayment can take months and oftentimes, involve bullying and threats if the domestic helper has borrowed money from loan sharks.

Finally, a lack of financial education complicates their ability to manage these debts. Domestic helpers may have limited knowledge on financial management, banking services, and the risks associated with borrowing money. A 2020 article published by the Asian Development Bank explains why domestic helpers in Hong Kong have a high incidence of debt. We elaborate about why domestic helpers borrow money in this article.

How common is it for domestic helpers to be in debt in Hong Kong?

The borrowing market in Hong Kong presents numerous challenges for domestic helpers. While it’s possible to secure a savings account for domestic helpers in Hong Kong, they have limited access to conventional credit sources which makes them vulnerable to money lenders.

In Hong Kong, money lenders do not impose any cap on the loan amount that a domestic helper can borrow from a single lender. The legal interest rate can be as high as 36% along with rigid repayment schedules. Oftentimes, important safeguards such as means testing or debt service coverage ratio (DSCR) checks are not conducted. This leads to exploitation and debt traps for domestic helpers who usually resort to taking out loans because their savings cannot sufficiently cover their financial needs.

A 2019 study by Frost & Sullivan found that 83% of migrant domestic workers in Hong Kong are in debt. That is around 4 out of every 5 domestic helpers! This figure is considerably higher than in Malaysia (65%) and Singapore (34%), highlighting the challenging financial conditions particularly faced by domestic helpers in Hong Kong. This high incidence of debt not only reflects the difficult financial environment but also underscores the need for systemic changes to protect these workers from exploitative lending practices.

What should I do if I find out that my prospective domestic helper has taken out a loan or in debt?

Finding out that the domestic helper you are trying to hire has outstanding loans can be concerning. It is natural for employers to ask for more information about the domestic helper’s financial status, but more often than not, it is difficult to determine whether the domestic helper’s debt problems are under control.

• During the interview, it would be fair to ask the domestic helper about their financial obligations.
• Be transparent about your reason for asking since it’s possible that the topic of money is culturally sensitive for some domestic helpers.
• Bear in mind that just because the domestic helper is debt-free now does not guarantee that they will not take out loans in the future while under the employment contract with you.

If you are moving forward with the hiring process, focus on the domestic helper’s ability to repay their debts.

• Ask them the loan value and interest amounts in Hong Kong dollars, including any outstanding loans in their home country.
• Understand where the borrowed money went – is it used for actual expenses or illegal fees?

Most of a domestic helper’s debt is due to paying exorbitant amounts of money charged by unscrupulous agents for “entry” or “training” fees. Knowing what the domestic helper debt is for can indicate how vulnerable the domestic helper is to dishonest agents and money lenders who are likely to take advantage.

What should you consider when hiring a domestic helper with debt?

While knowing a domestic helper’s debt can help build trust, employers should emphasize on the action steps they are both willing to take to overcome the domestic helper’s financial challenges.

Ability to handle debt issues

As an employer, we strongly recommend you to “hire for attitude, train for skills.” If the potential hire has a well laid out plan to repay their loan, this can indicate that they are responsible and proactive about their money. Loans are also used for a productive investment such as education, property purchase, construction, or starting a business, especially for domestic helpers who come to work in Hong Kong with clear financial goals and priorities.

To ensure fairness and legality, all financial agreements, whether they are loans or salary advances, should be documented in writing. Bear in mind that Hong Kong’s laws explicitly prohibit employers from charging interest on loans to domestic helpers.

If a domestic helper is subjected to harassment from debt collectors, employers can support them by documenting the incidents and contacting the appropriate authorities for help. This approach not only provides immediate financial relief but also fosters a stable and supportive working relationship.

Ability to accept help

Some domestic helpers encounter negative shocks or unexpected expenses that force them to borrow money. When the debt burden becomes too big, it is crucial to approach the situation with sensitivity and practicality.

Both employers and domestic helpers must consider if outside help is necessary, such as receiving professional help from financial planners and legal authorities when there is a breach of privacy.

Organizations like HELP specialize in handling workplace issues through counseling and 1-on-1 assistance for employment, loans, criminal or immigration matters. Enrich also provides financial education services that equip domestic helpers with the necessary tools to manage their finances effectively and escape the cycle of debt.

Ability to guide and support

While employers are not recommended to directly settle the domestic helper’s debt, you can still play a supportive role by verifying the legitimacy of the debts.

If the domestic helper presents genuine loan receipts and signed contracts, you can consider assisting with these payments under a clear and mutually agreed repayment plan. This plan should outline an affordable repayment amount that the domestic helper can manage with her current salary.

Furthermore, conversations about budgeting can help them see their financial burden in a different perspective, since employers can offer an outsider view and specific knowledge on available support. Fair Employment Agency offers “Introduction to Money Management”, an online course designed for domestic helpers who want to make the most out of their stay abroad. Available in English, Fair Employment Agency offers this money management course free-of-charge through the online education platform of Uplifters, a charity that provides online money management courses to domestic helpers in Hong Kong and Singapore.

Is it okay if I choose not to hire a domestic helper with debt?

It is natural to consider not to hire a domestic helper with outstanding debt if you have been made aware of it during the process. However, domestic helpers take out loans due to their specific financial needs, given the dangerous loan landscape available to domestic helpers in Hong Kong.

We understand that concerns about a domestic helper’s financial issues vary based on employer’s attitudes toward money management. Therefore, we encourage you to reconsider the many different reasons behind a domestic helper’s outstanding debt after reading through our suggestions above. Employers should exercise care when terminating an employment contract with a domestic helper found to have debt.

How do I handle the potential challenges faced by my family in case the domestic helper cannot repay her debt?

It is common for money lending companies to call the borrower, the guarantor or the reference person when the borrower defaults on payment. When the employer and domestic helper have mismatched expectations or miscommunication about these debt issues, it often escalates to termination or disciplinary action. Therefore, the risks of hiring a domestic helper with loans become too significant for some employers to bear.

Keep in mind that you should never feel pressured to pay off the domestic helper’s debt.

Whether they have incurred debt due to unfair loan sharks or due to their own irresponsibility, domestic helpers must seek professional help to break free of their debts and patterns.

Encourage an open environment where domestic helpers feel comfortable discussing their financial situation.

Seeking advice promotes transparency and trust. These actions not only assist domestic helpers in managing their current financial challenges, but it also empowers them to make informed decisions, enhancing their overall financial well-being and work satisfaction.

Keep evidence of harassment that infringes on your rights.

Money lenders often use aggressive tactics to threaten the domestic helper at their place of work, which is at the employer’s residence. Where possible, keep records of received calls and messages that can help police make a case for illegal activities.