BURNING ISSUE
Handled well, village funds could be the answer to our economic woes
CHULARAT SAENGPASSA

BANGKOK: -- IN THE FACE of economic gloom, the current government is pinning its hopes on the so-called revolving village fund scheme. But can a system that looks so much like a populist measure cure economic woes?

Led by General Prayut Chan-o-cha, the government has announced lately its decision to pump Bt59 billion into about 60,000 village funds across the country. It has explained that as loans are given for livelihoods, start-ups or business expansions, the overall economy should become stronger.

But will such an initiative really make a difference?

The concept behind the move, after all, is not entirely new. The Thaksin Shinawatra-led government launched the village-fund scheme in 2001. Right from the start, so many critics have described it as "populist".

The concerns expressed by the critics were not groundless. Years of implementation reveal less than half of the 70,000 village funds have proven successful.

Village-fund committees are usually not very strict about reviewing applications from loan applicants. It is quite an open secret that some people have received loans and used them for things other than what were listed on their loan applications.

Central agencies are unable to closely supervise all the 70,000 village-fund committees. That explains partially why loans have already become non-performing loans. So, can Thais expect to see the current government successfully spur the economy after the village-fund initiative is unveiled?

Last week, so many people picked up their loans under the initiative and openly admitted they were going to use the money to repay loan sharks.

The National Village and Urban Community Fund Office, so far, has explained that the initiative by the current government has already included stricter measures.

For example, only well-performing village funds will have the right to participate in this initiative, which offers interest-free periods for two years and just one-per-cent interest after that.

The office has pointed out that it has assessed village funds based on their potential and repayment ability. Only about 60,000 village funds are qualified to get loans under the initiative launched by the current government.

The government also says this initiative will accept applications and hand out loans only till December 31.

A 2013 research shows village funds have the potential to transform themselves into village banks if they get good and capable executives, strict compliance with their founding principles, and effective communication needed to ensure villagers really understand the purpose of such funds.

"Village funds give people the quickest access to funds for their occupation," Thanawat Polvichai from the University of Thai Chamber of Commerce's Centre for Economic and Business Forecasting said. He said the village fund scheme in principle could pave the way for the establishment of community banks, if those involved in the implementation had the right knowledge, approach and attitudes.

Some village funds have been doing remarkably well after all. More than 2,100 village and urban community funds in Surin province, for example, have blossomed and now have more than Bt3 billion in circulation.

Most of the village funds here have already registered themselves as legal entities too.

Their success story shows that the village fund scheme is not just a populist policy, if implemented properly.

If village-fund committees are strong and efficient, not just locals but also Thailand as a whole would enjoy benefits. Villagers have convenient access to funding, a soft loan that comes with a very low interest rate.

With the low interest rate, they have a better chance of seeing their start-ups take off well. If their small businesses are doing well, the country's economy will be vibrant. If their small businesses become solid, the Thai economy will be strengthened too.

So now that the government has already decided to pump a big amount of money into the village-fund scheme, let's hope it has measures to ensure successful implementation.

Success would show that the village fund scheme is not just a populist idea but also a practical and sustainable economic solution.

Source: http://www.nationmultimedia.com/politics/Handled-well-village-funds-could-be-the-answer-to--30269757.html


-- The Nation 2015-09-29

Can Thais handle money well , will it go to where its needed i doubt it.

Bhaahaa.. Haha.. Haha! Well handled government funds? Well handled directly into village headman or government officials pockets!

Money handled well by Thais. A very preposterous notion.

Such negativity. Gravity works well when funds are "controlled": From the hand, and with the pressure from the Earth's rotation, moon pull and air pressure, the funds go down to their pocket.

Village-fund committees are usually not very strict about reviewing applications from loan applicants. It is quite an open secret that some people have received loans and used them for things other than what were listed on their loan applications.

Take a walk around my village, see a really nice house on estate like grounds, there lives a politician.

Farmers have mortgaged their land to the bank, borrowed from the village fund and loan sharks. my neighbour having received threats from the loan sharks sold his land at a low price through a broker, after paying the brokers fee, the bank, and loan sharks he's flat broke and now makes a living selling fruit at the market.

Unfortunately it will be only as good as the people running it. Or in charge of it. When Thai people get money in their hands anything and everything can happen.

Am I more wealthy if I move $5 from my right pocket to my left pocket?

the one family per village that will be rich & happy, will be the headman's family who can finally buy a new house, benz

wooooooooooot ? the money should be for people in need?

Openly corrupt! This society is only going down.

They cannot "closely" monitor the money? As fiscal financial policy, it has failed at the outset.

Why not hire a team of professors from each province, Economics and Agricultural professors, and have them make recommendations that have to be followed for the loans?

Example -- "plant tea here, corn here, barley here, build duck farms here and here"....and use local materials here to make this product, there to make that product"....

It's not rocket science, it just requires coordination and a final assessment to spread different products across different areas... The Japanese did this -- it worked. In a fairly big way. Defaulted loans were below 5%, which is phenomenal.

Throwing good money after bad.

Well, doing the math, it works out to about 980,000 baht per "village".

Not sure how that is determined, but I've ridden the back roads of my wife's village in Prasat (Surin) & I'd guess there are, say, maybe 2,000 inhabitants, or 500 families of 4 = each family will get ~ 2,000 baht.

That's nothing.

Then again, it may allow the head-man to stock a few ponds with some more fish......Of course he'll keep half of it.......you know, as a reward for doing his job, like the BIB do.

Didn't work in the past.....won't work now..........but...anything to gain popularity!

When has anything in Thailand been handled well?

Handled well, village funds could be the answer to our economic woes

Nice headline, but not even close.

This is a low impact program designed to help reduce the misery of a small proportion of poor people in Thailand. How well it achieves that aim is debatable.

But it is not a strategic investment in the economic future of Thailand. Just the ways that the funds are managed guarantees the money will be spread around in uneven and non-strategic ways.

When has anything in Thailand been handled well?

Hmmm......I was at a massage parlor and........

Read at your peril. This is fact-based, or attempts to be.

A 2012 report by researchers at the World Bank found that the "benefits far exceed the costs" concerning the Thai Village and Urban Revolving Fund (VRF), which was started in 2001. (This was during the administration of you-know-who, and it was enormously popular among working Thai people, which has accounted for a good deal of lasting popularity of you-know-who.)

Households showed the greatest rise in income when VRF loans were combined with loans from the Bank of Agriculture and Agricultural Cooperatives (BAAC). The paper thus recommended the continuation of both programs rather than discontinuing aid provided by the BAAC.

It was initially envisioned that the program would benefit small business almost exclusively. (The village fund is the second-largest microcredit program in the world.) Instead, small farmers also accounted for a great deal of the borrowing, partly because the short term of the loans fit their needs to purchase planting supplies for the growing season.

By 2002 village fund committees had been set up in 92% of Thai villages. The committees were allowed some discretion in setting interest rates, maximum loan amounts, and terms of loans. Some required or encouraged deposits as a prerequisite to lending. The committees process loan applications, loans are repaid with interest. The value of village fund loans remained steady from 2006-2012, even without cash infusion from the government. The report stated that the funds go disproportionately to the poor, and "do not appear to be subject to elite capture". The village committees don't actually handle the money; they pass on the loan approval to the Government Savings Bank (in urban areas) and the BAAC (rural areas). A borrower must open an account at either bank (a minimum amount of 100 baht) in order to receive the loan, which is deposited to their account. Committees were formed at meetings where at least 75% of the village was present; a committee is comprised of around 15 members, half of whom must be women.

Currently, 75% of the village funds (59,800 out of 79,200) are rated grade A or B, and qualify for additional injections of government funds. Transparency is the main criteria for grading the funds.

The remaining funds (lower than B grade) are being considered for the injections of one million baht (made in 3 installments) from the government, but a push is being made for forcing compliance to transparency rules and standards.

High household debt, a drought, global recession, and low farm prices are contributing factors to difficulties in the rural economy. The funds have 13 million members and cash flows of 200 billion baht. Delinquent loans total 2 billion baht.

A previous post in this forum pointed out that the non-poor are more highly indebted than the poor in Thailand (42% for the poor; 58% for non-poor).

http://www.thaivisa.com/forum/topic/852573-thai-opinion-the-unfortunate-link-between-purchasing-power-and-indebtedness/

(Some of the latter info comes from the Website That Shall Not Be Linked To. Most info presented here comes from the links below.)

http://documents.worldbank.org/curated/en/2012/03/15933309/appraising-thailand-village-fund

http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2009/07/21/000158349_20090721132749/Rendered/PDF/WPS5011.pdf

Lastly, it bears pointing out that global capital, faced with declining profit rates, has pushed a program of credit in order to boost consumption. This is no accident, and is a global phenomenon. The average UK household, for example, will exceed 10,000 pounds in debt by the end of 2016. Also, loans were sometimes used in Thailand for education and health expenses, rather than revenue-producing investment. This is perhaps unfortunate, but it is also understandable from a human perspective.

http://www.theguardian.com/money/2015/mar/23/average-uk-household-owe-10000-debt-by-end-2016

"Success would show that the village fund scheme is not just a populist idea but also a practical and sustainable economic solution."

On a macro-economic level - No, it is not a sustainable solution.

The fund scheme is only a stopgap idea designed to immediately increase GDP to show that the Junta is doing something to improve the economy. But that will be like only a raindrop in the ocean.

Somkid admits that as part of a larger populist stimulus package, the economy will grow only by 0.4% for 2015. Meanwhile, the direct spillover impacts from China’s economic slowdown could cut Thailand’s growth rate by 0.2%.

Hmm so rice scheme was "malfeasance and negligent behavior" but this pumping of money to villages is perfectly okay? maybe because 1. government gets no product back, other than buying "good will" 2. Village headman will be dispensing the cash, rather than payment directly to the farmers.

It does not matter if the plan is a new plan or an original plan or an old plan that is reenacted....the whole affair will become grossly corrupted sooner or later...usually sooner than most people would realize.

Once there is big money / big budgets involved all the reamers and schemers come out of the wood work and start to manipulate and corrupt the whole affair while all the more people down the line have to participate in a corrupted flow of money rather than the original plan and course of action.

Unfortunately it spreads to all levels including the little guys that the plan was supposed to benefit as they almost have no choice or they will not get the money that was due to them if they wait patiently and honestly.

Good intentions run amuck and doomed to go sideways....no doubt about it.

Cheers

Prayut needs to meet a few villagers and find out what many Pooh yai baan are really like. Most effectively buy their positions through booze parties and worse at election time, with the incentive of status plus (for some/many?) multiple opportunities to cream off money from services and monies received from higher funding authorities. Same same as governments at the tambon, amphur, changwat and national levels in that latter respect.

Would be better to reserve part of those funds to put up a decent independent audit function to check the levels of 'leakage' and jail a few crooks into the bargain

Have money.... Spend Money

No have money......borrow money.....spend money