Let's Make The Right Kind Of Loans This Time : Thai Micro-Credit Scheme

[webfact]

EDITORIAL

Let's make the right kind of loans this time

By The Nation

A new micro-credit scheme has the potential to transform lives, but only if the money isn't wasted on mobile phones, gadgets and televisions

The recent announcement that the Cabinet has given approval to the creation of a micro-credit scheme is welcome news, as it will offer another channel for the country's low-income earners to explore opportunities in their quest to uplift themselves.

It is hoped that this initiative will help potential borrowers avoid the perils of dealing with shady loan sharks. But given Thailand's long history of illegal lending, this is not guaranteed, and one can only hope that the proposed micro-credit bank will have a wide and positive impact.

Too many small business deals in Thailand are made without thought given to the potential pitfalls. Too often, small businesses don't even know who really owns the property that they are renting. And when the real owners exercise their legal rights over their property, operators at the end of the line get the short end of the deal. We have seen clashes over such issues on the streets in Klong Toey market, as well as at the weekend market at Chatuchak.

The new micro-credit bank, which will be capitalised at Bt50 million, will provide loans of up to Bt10,000 to individual entrepreneurs, at low interest rates, according to Information and Communications Technology Minister Chuti Krairiksh.

The funds will come from Thailand Post's internal cash flow as well as loans from the Government Savings Bank. The first loan to a customer is expected to be made in February next year, but the interest rate has yet to be announced. It is expected that it will not exceed 28 per cent per annum, which is still a bit hefty but not as bad as the shady lenders in neighbourbood sois.

Thailand Post will pilot the credit service at 10 branches across the country. The bank will seek partners to enhance its operation and will offer complete financial services within two years. The target customer group is the 14 million or so people who currently borrow from loan sharks.

According to one estimate, last year, of the 38 million people of working age, from 20 to 59, an estimated 18 million lacked access to formal loan services. The amount of money loaned to each individual under the new scheme may be small compared to commercial lending, but this concept is no small potato.

In some parts of the world, micro-credit as a tool to help lift people out of poverty has become so popular that the United Nations declared 2005 the International Year of Micro-credit. In 2006, the Nobel Peace Prize went to Bangladesh's Professor Yunus and his micro-credit organisation for their work with the poor.

Besides offering the lowest interest rate possible, the government should also consider providing financial counselling to potential borrowers. If the recent history of Thailand is any indication, Thai people, rich or poor, are not exactly disciplined when it comes to handling money. Frivolous spending runs across all social classes in this country, regardless of race, religion, gender or income bracket.

In previous administrations, a similar scheme was made available but it did very little in terms of poverty relief, capacity building or productivity. The Thaksin governments more or less used it as a vote-getting scheme by offering Bt1 million to each village. Most people who got loans purchased personal items like mobile phones and motorbikes. After a while, Mother Nature took her toll on these purchased items, but interest rates never die. And by year's end, to make the books look good, district and village chiefs were told to squeeze the borrowers in their area of responsibility to pay all the money back. To do that, they had to go into town to borrow from money-lenders in order to pay back the village loan. Thus began a vicious cycle of debt.

It is hoped that the current proposal will not lead down the same rocky path. Serious thinking is needed, but we can't afford to be too rigid on this matter. Ten thousand baht to some people can mean a new beginning in life, but for others its just a dinner party at a fancy restaurant.

-- The Nation 2010-12-15

[nong38]

Seems a good idea but most thais seem to have a fear of banks, dont trust them and have never used them,therfore, they will probably stick with what they now and life will go on as it always has done,

[asiawatcher]

THB50M will not go far and yes, it will go to consumer goods and trinkets such as the latest mobile phones! Nice try but the Pareto Principle will most likely apply - 80% will be wasted and possibly 20% do some good.

[ozsamurai]

28% interest 'nuff said....... this is not serious, just a smoke screen. 'See we have an option from paying loan sharks' pay our loan sharks instead. Phish!

[jayjay0]

Well it sounds good. Before one could form a intelligent opinion on it they would have to see what the safe guards are. If it is going to be run like the Thaksin plan a complete waste.

[billd766]

28% interest 'nuff said....... this is not serious, just a smoke screen. 'See we have an option from paying loan sharks' pay our loan sharks instead. Phish!

As far as I can remember in BKK the rates the loan sharks charged was 20 baht per 1,000 baht

per day

Edited December 15, 2010 by billd766

[SamritT]

Loan = OK. Payback = no OK.