How Flawed Is Thailand's Micro-Finance System?

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How flawed is our micro-finance system?

By Wichit Chaitrong

The Nation

More loans to the poor: are we heading in the wrong direction?

Most political parties have promised small firms and low-income groups access to financial services, but the funding is likely come from taxpayers' pockets.

The Pheu Thai Party has pledged to offer more money - close to Bt100 billion - to double evolving village funds initiated by the Thaksin government, which had handed Bt80 billion to 80,000 villages and communities, each getting Bt1 million.

The Democrat Party has promised to upgrade more village funds to community-bank status and will assign the Government Savings Bank (GSB) and the Bank for Agricultural Cooperatives (BAAC) to provide more loans to the funds.

Such promises have drawn criticism from academic circles and many economists have warned that credit subsidy will add to the public-debt burden.

"I wouldn't agree if the new government gives all 80,000 villages more funds than the Bt1 million each," said Pornchai Thiraveja, acting director of the Financial Inclusion Policy and Development Bureau. Each village has its own economic environment so solutions to their problems might not be the same, he argued.

As of the end of last year, evolving credits of 79,255 villages and communities were Bt124.73 billion.

"I suspect that most of these villages have only figures but not real money available," said Pornchai.

Outstanding loans to small business and low-income groups is estimated at Bt3 trillion, compared with total outstanding loans of Bt11 trillion. It's not only politicians but also officials at the Finance Ministry and Bank of Thailand have tried to promote micro-finance services, as they want all to access financial services.

Bt2.1-trillion Micro-loans

According to the central bank and the Finance Ministry, commercial banks and state-run banks have combined micro-loans of Bt2.1 trillion. Evolving village funds, credit unions and savings cooperatives have loaned Bt1.17 trillion, while independent savings groups have lent Bt33 billion.

The GSB and BAAC have played a greater role in micro-finance services, representing 65 per cent of loans lent by commercial banks and state-run banks. Other state banks like Krung Thai, Small and Medium Enterprise Development Bank of Thailand, Islamic Bank of Thailand and Government Housing Bank have also played important roles.

Commercial banks, including branches of foreign banks and non-banks, have lent only Bt188.28 billion.

The government recently gave Thailand Post the green light to set up banks designed to provide financial services to the poor.

The central bank last week issued rules on micro-finance for commercial banks. It defined micro-finance as a loan not exceeding Bt200,000 per borrower, with interest not exceeding 28 per cent per annum. No minimum income for the borrower has been stipulated.

From politicians' point of view, micro-finance schemes have been successful.

Goanpot Asvinvichit, who heads Chart Pattana Puea Pandin's economic team, said that "as a former chief of GSB, I witnessed the success of village funds".

However, critics have slammed it as a waste of public money and a source of corruption. The UK-based Economist Intelligence Unit ranked Thailand 50th out of 54 countries in its survey of the global micro-finance business environment in 2010, while Cambodia was ranked much higher, at 16th.

It criticised the Thai government for intervening too much in micro-finance services, thus adversely impacting competition and micro-finance development. Other countries that rely much on the market mechanism were praised by the Economist.

-- The Nation 2011-05-30

[Ricardo]

Along with the various proposals for micro-finance, there needs to be more education on budgeting & book-keeping & how to run a small business, to help borrowers generate the profits to repay these small-loans, IMO. Then boosting the funds-available might help generate more growth.

Establishing better land-rights would also help, as would granting citizenship to the many people, who were born here but can't obtain it without paying 'fees' to their local officials, whoever gains power will have a lot of work to do !

[hungryhippo]

Maybe someone could give me a history lesson but didn't this happen all before when Taksin was in government before?

1) Offer loans to farmers using their land as collateral

2) farmers can't pay back loans and their land is taken away

3) The rich buy up all the land

The same thing is pretty much going to repeat itself.

[antsrule]

One thing I really like about Thailand is the market financing system where a few people get together and loan each other capital to purchase stock. The great thing about it, no banks , no government, no single person controlling the purse strings.

There are no winners in these political "loan" scams except the banks. The reason is that governments produce money based on loans and no money is created to pay interest. Interest money does not physicaly exist therefore some borower will lose. This problem does not arise in self-funded loans such as is done in Thailand. Sure the rates are high but the money is there from sales to pay it back. The people are the winners all around. Borrowers have stock to sell and lenders make a nice profit. There is no middle man with a high salary working in a big expensive building to suck up as much money as possible. There is just the people helping each other and profiting together.

American banks have seriously damaged the world economy because they think they can continue to extract money from the poorest of their people. They are not alone, a major Canadian bank earned the equivalent of 12,000,000,000 baht in the first quarter of this year on fees and late charges alone. Not only do late charges come out of the pockes of the poorest people but the bank brags about their profits. Your banks are only marginally better because the King (and your lovely ex-bank governor, bless her heart) recommended the elimination and reduction of inter bank fees (LLTK). Wow the banks sure whined about that but lo and behold, the profits keep coming in.

Tell your politicians to stuff their hollow promises as neither they nor the banks will provide any benefit to the farmer. Promises to raise the farmers selling price for rice to 15,000 baht per ton are flat out lies that cannot be delivered without robbing other poor Thais. The world price may improve, not because of the politicians but more likely the weather, which means less rice is driving the price but not benefiting the farmer who, obviously, has less rice to sell. The only way to improve the farmers lot is to get rid of middle men. It is the only way!

Incidentally, when you see that communications executives are the richest people in the world and that your phone bill is always a lot more than you expected, you need to realize that these people are the biggest thieves of all. I am sorry that Thaskin is one of these people because Thai's working poor need strong representation but not from the very person who gouged the public so he could reach such useless levels of wealth. He may be a good man but he has no business representing the poor and disenfranchised. Good business people do not make good politicians because they expect people doing what they say. Businesses are not democratic.