THEY start their debt counselling early in Govan. In the classroom. The raw, eagle-eyed faces of tough innocents, fourth years at St Gerard's secondary school, listen intently to a visiting money advice worker.

A flip chart lists the traditional sources of credit: bank, building society, catalogue companies and so on. 'What's missing?' asks Brenda Vincent, the local Money Matters worker, whose office is next to the Govan shipyards.

'Moneylenders,' shout the bolder pupils.

'And what happens if you can't pay your moneylender?' Brenda asks them, 'Where do you go then?'

'Naewhere,' flashes one quick wit, 'You're in hospital.'

'You get a doin',' explains a classmate. 'You get a chibbin'.'

A chibbing, in Glasgow, is a slashing - usually across the face - with a knife.

'So the money you owe to the moneylender,' says Brenda, trying to steer the discussion back round to how debts are ranked in order of importance, 'Is it a priority or a non-priority debt?'

Shouts of 'priority, priority' come from every corner of the room.

Their response perfectly illustrates the sanction which ensures that illegal moneylending - loan sharking - remains such a profitable business on the back streets of Britain's poorest communities.

Fear, the knowledge of what might happen if you don't pay back, runs deep in loan sharking. The fear is far more extensive than the violence and guarantees not only that the illegal moneylender gets his extortionate rates of interest, but also that few people report the loan sharks.

Yet this is a crime that the law meekly describes as a consumer credit offence, and enforcement is left in the hands of local authority trading standards departments. Not surprisingly, loan sharks are rarely prosecuted.

Under the 1974 Consumer Credit Act it is illegal to lend any amount of money for interest without a licence issued by the Office of Fair Trading. The maximum sentence is two years' jail, or a pounds 2,000 fine. But only in Strathclyde Regional Council is there any investigation worth speaking of. A team of Glasgow-based trading standards officers specialise in the investigation of loan sharking, but even this small squad can only devote part of its time to pursuing illegal moneylenders.

Bruce Collier, director of Strathclyde's consumer and trading standards department, says: 'We were staggered to realise we know of at least 150 operations taking place within Strathclyde. And we're quite confident that that's only the tip of the iceberg.

'Two years ago we took an illegal moneylender out, who kept excellent books and records. It was clear he was taking somewhere in the order of pounds 100,000 in interest, and not lending any more than about pounds 3,000 to pounds 5,000.'

One of the biggest group of borrowers in Glasgow is the down- and-out population. Its members drift into the hostels, where they find loan sharks such as Paul McCabe, a 30-year-old, thick-set Glaswegian, waiting for them.

Until McCabe's conviction earlier this year for 'operating a moneylending business without a licence', he and his collector, Jimmy Mullin, would hang out in the foyer of the Bell Street hostel, openly lending and collecting.

McCabe's ploy for getting unhindered daily access to the hostel was simple: he rented a room and passed himself off as a resident. After his arrest he was evicted by the hostel management, but simply moved his operation into nearby pubs.

By all accounts - mostly from borrowers anxious to remain anonymous - McCabe didn't have any trouble with bad debts. He has 10 convictions for assault.

McCabe charged a simple but punitive rate of interest. Usually it was 25 per cent per week, so on a pounds 50 loan, pounds 62.50 would be repayable the next week. On occasions the rate was doubled.

Or a borrower could choose to pay back the pounds 12.50 interest alone. Until such time as he or she was able to repay the capital sum, the interest would be a weekly pounds 12.50. Miss a week, though, and the interest is added on to the capital owed, thus inflating the weekly rate of interest owed.

If a hostel resident wasn't able to repay the pounds 50, but kept up the interest payments, the loan would cost him pounds 650 over a year, at the end of which time he would still owe the pounds 50.

Needless to say, few borrowers are able to keep up the regular repayments, let alone pay off the loan capital. They sink further and further into debt, which is precisely the aim of the loan shark.

Strathclyde's trading standards officers are able to investigate and prosecute only a few loan sharks each year. Normally the Glasgow courts sentence the sharks to prison. But not always. Paul McCabe got off lightly. Misinformed about the maximum fine, the court fined him pounds 400, allowing him to pay it off at pounds 5 a week.

The evidence against McCabe had showed that in one hostel alone a collector working for him was handling between pounds 700 and pounds 800 a week.

Mr Collier says: 'In taking that first loan, they sow the seeds of their own despair. They are locked in. The moneylender wants them to keep paying. The interest rates literally run into millions of per cent APR.'

When a loan shark forecloses on a bad debt, someone gets hurt. But bad debts are encouraged in the early days of the loan.

Willy Henderson, a former small-time loan shark who once worked Glasgow's Broad Street hostel, explains why. 'What you do is to keep away for a week, or something like that, for it to build up. Once it's built up, you go and ask for the money.'

After a moment's thought, he adds, with a serious note in his voice: 'You've got to do that to build your capital up.'

He lived in the same hostel as most of his borrowers, his bleak room only brightened by framed jigsaw puzzles with views of rural England. 'You're doing them a favour, because that's the only way they're going to get money. Only other way is they're gonna go out and rob. Some people cannae go out and rob anything.

'It's a service, and people appreciate it. They can't go to the social security and get a loan, a crisis loan. They only give it to certain people.'

This service with a smile is only suspended when repayments falter. 'You only enforce the loan if they mess you about. That's the only way. I wouldn't like anybody to make a mug of me.'

Mr Henderson recalls one bad debt. 'He owed us pounds 25. And was coming fly with us. Fly, meaning, 'You're not getting the money.' So I just smacked him in the mouth.'

The borrower paid up. 'You let that guy take that money and everybody will start jumping on the bandwagon and not paying the loan back. Naebody likes doing any violence.'

But if a borrower retaliates with violence, the stakes are upped. 'You give him more than he gave you. If he produces a knife, I'll produce one.'

Underneath Mr Henderson's pillow, in his hostel room, he kept a fearsome meat knife. His ability and readiness to use it shouldn't be doubted. Several years ago when someone punched him, he returned to the pub with a two- pronged cheese knife and slashed them repeatedly across the face. The victim had 27 stitches and was scarred for life. Henderson got a nine-month jail sentence.

John Trimble, 30, is a tailor's cutter who has been unemployed for 11 years and lives in Glasgow's Haghill area. He borrowed pounds 50 from a loan shark to help pay off an outstanding electricity bill. He began to miss payments, and the sum he owed began to grow. With a wife and four children to keep, the level of repayments demanded soon outstripped his ability to pay.

The sharks were waiting for him one evening. They dragged him into the entrance hall of a dimly lit tenement block. Two held his arms while the third slapped him across the face. ' 'That's for no' paying,' they told me. 'Start paying, else something serious is gonna happen.' '

Within a few weeks Mr Trimble suffered another beating. On the third occasion that he failed to make payments, the loan sharks visited his tenement flat. When his wife, then pregnant, told them John was away, they pinioned her to the door frame and held a knife blade to her throat, warning her to tell her husband that if he didn't pay his debts, something would happen to his family.

Mr Trimble borrowed pounds 350 from his grandmother and repaid the debt.

So why didn't he go to the police? 'If you phone the police you're talking about getting your jaw rattled, broken legs, broken arms. You're talking about blades and baseball bats.'

And Mr Trimble is no pushover. He's heavily built, and spends every spare moment in training with the Territorial Army, where he is a qualified weapons instructor.

'Something should be done about it. Maybe gie us more police protection. But I don't see it happening in Glasgow because a lot of people won't open their mouths about it,' he says.

In theory, the moment there is any violence associated with loan sharking it becomes a police affair. But as long as the loan shark can remind people quietly that they know what will happen if they don't pay, it will remain a matter of trading standards and consumer credit offences.

'It's difficult to know how you measure evil,' says Mr Collier. 'If you measure it on the basis of people having serious injuries, people being brutalised, young mothers being driven to prostitution to pay the loan sharks, children sometimes literally starving because of the amount of money they are taking out of the household budget - that's evil to me.

'The basic issue is poverty. The way to deal effectively with the loan sharks is to regenerate the communities. We have to provide alternative sources of credit, and solutions to people's poverty.'

The fourth years at St Gerard's school are already well aware of that. 'Do you feel money's a problem in Govan?' the advice worker asks them.

'Naebody's got any money in Govan,' raps back one youngster, incredulously. 'There's nae jobs in Govan.'

Which may be why one of them suggested he wanted to be a moneylender when he grew up.

The author is the director of 'Loansharks', a documentary to be shown on Monday, 9pm, in Channel 4's Cutting Edge series.

Jim White is on holiday.

(Photographs omitted)