This website is dedicated to the promotion of micro-credit/microfinance in Thailand.
The hope is that by sharing information and experiences, microfinance practitioners in Thailand
can improve their programs and services to their clients.
The micro-credit / microfinance sector in Thailand is very small due mainly to the fact that the Thai government is also heavily involved. A few small non-governmental organizations also offer various types of services and programs.
July-Oct 2009 - Microfinance Training of Trainers Course »An online training program for people interested in microfinance. Course materials are in English and in Thai.
Micro-credit is the extension of very small loans (microloans) to the unemployed, to poor entrepreneurs, marginalized people and to others living in poverty who are not considered bankable. These individuals lack collateral, steady employment and a verifiable credit history and therefore cannot meet even the most minimal qualifications to gain access to traditional credit. Micro-credit is a part of microfinance, which is the provision of a wider range of financial services to the very poor such as insurance and savings.
Micro-credit started in Bangladesh where it has successfully enabled extremely impoverished people to engage in self-employment projects that allow them to generate an income and, in many cases, begins to build wealth and exit poverty.
The concept of micro-credit has become so popular that the United Nations declared 2005 the International Year of Micro-credit. In 2006, the Nobel Peace Prize also went to Dr. Yunus and his organization for their work with the poor.
A microfinance institution is an organization that offers financial services to low income populations. This includes NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions (some that have transformed from NGOs into regulated institutions) and parts of state-owned banks such as the Government Savings Bank and BAAC.
A lot of NGOs and foundation also offer micro-credit in Thailand. However; most also offer other non-financial development activities and prefer not to be called a "financial institutions". Yet, from an industry perspective, since they are engaged in supplying financial services to the poor, we call them MFIs.
The typical microfinance clients are low-income persons that have little or no access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. nv Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income.
Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change.
Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.
The poor already save in ways that we may not consider as "normal" savings--- investing in assets, for example, that can be easily exchanged to cash in the future (gold jewellery, domestic animals, building materials, etc.). After all, they face the same series of sudden demands for cash we all face: illness, school fees, need to expand the dwelling, burial, weddings.
These informal ways that people save are not without their problems. It is hard to cut off one leg of a cow that represents a family's savings mechanism when the sudden need for a small amount of cash arises. Or, if a poor woman has loaned her "saved" funds to a family member in order to keep them safe from theft (since the alternative would be to keep the funds stored under her mattress), these may not be readily available when the woman needs them. The poor need savings that are both safe and liquid. They care less about the interest rates that they can earn on the savings, since they are not used to saving in financial instruments and they place such a high premium on having savings readily available to meet emergency needs and accumulate assets.
6. Why do MFIs charge such high interest rates to poor people?
Providing financial services to poor people is quite expensive, especially in relation to the size of the transactions involved. This is one of the most important reasons why banks don't make small loans. A 5000 baht loan, for example, requires the same personnel and resources as a 200,000 one thus increasing per unit transaction costs. Since most poor people are also in rural areas, micro-credit programs must also spend additional money to travel to clients.
The microfinance institution could subsidize the loans to make the credit more "affordable" to the poor. Many do. However, the institution then depends on permanent subsidy. Subsidy-dependent programs are always fighting to maintain their levels of activity against budget cuts, and seldom grow significantly. They simply aren't sustainable, especially if other micro-credit operations have shown that they can provide credit and grow on the basis of “high” rates of interest—and along the way serve far greater numbers of clients.
Evidence shows that clients willingly pay the higher interest rates necessary to assure long term access to credit. They recognize that their alternatives—even higher interest rates in the informal finance sector (moneylenders, etc.) or simply no access to credit—are much less attractive for them. Interest rates in the informal sector can be as high as 20 percent per day among some urban market vendors.
In Thailand, MFIs charge interest rates that are considerably lower than what neighbouring countries charge. The average interest rates in Thailand are surprisingly low compared to neighbouring countries. Rates in Thailand usually range from 10-20% per year while Cambodia and Vietnam have interest rates around 30-50% per year. This is due primarily to the fact that the government heavily subsidizes the rates. Most experts in the micro-credit industry think that government involvement in micro-credit can have two negative effects:
Government subsidies can distort markets and usually limits growth.
The programs could potentially be used for political purposes.