Commercial banks said they would have to restructure if they were to provide microfinance services as envisioned under the central bank's plan for the industry.

The Financial Master Plan II of the Bank of Thailand, which will be implemented from 2010 to 2014, aims to increase grass-roots people's access to loans. To this end, commercial banks are encouraged to operate microfinance businesses.

Prasarn Trairatvorakul, president of Kasikornbank, said that the bank would lend personal loans of Bt300,000 to Bt500,000 to each borrower, as loans any smaller would not generate returns sufficient to cover operating costs. He said the bank had to pay salaries of more than Bt10,000 per person per month, but gained net interest margin of only Bt4,000 per year for lending Bt100,000, or about Bt360 per month.

"Special institutions are necessary for lending to very small businesses, such as Grameen Bank in Bangladesh, which relies on local people in each community for operation and control, so they can save operating costs," said Prasarn.

To successfully lend on such a tiny scale, the bank would have to reorganise its structure, he said.

Kannikar Chalitaporn, president of Siam Commercial Bank, agreed that banks would have to reorganise to provide microfinancing. This is no easy task, she said.

Rather, maintaining existing businesses will ensure business growth, given that the bank does not anticipate any negative impacts from higher competition as a result of the Financial Master Plan, Kannikar said.

"If we embarked on microfinance right now, we might be able to lend, but we wouldn't get any money back. Therefore, a special type of organisation must be established for this particular responsibility," she added.

The Financial Master Plan II is separated into three phases. The first - to be implemented in 2010 and 2011 - will focus on merging finance companies and allowing subsidiaries of foreign banks to open two more branches in the country. Retail banks will be allowed to upgrade to commercial banks but will be required to have minimum capital of Bt10 billion.

In the second phase, (2012-2013), foreign banks' subsidiaries will be allowed to open an additional 20 branches in the country and increase the number of ATMs to 20.

In the third phase (2013-2014), the central bank will consider if there are any financial services that are still not adequately provided by Thai commercial banks. If there are, it may allow foreign banks' subsidiaries to provide these services.

Source: The Nation
 0 comments

November 19, 2009
The Bank of Thailand (BOT) announced that they are now creating new guidelines to close the financial gap between commercial lending and the poor. The guidelines will be announced soon. The BOT said that if banks choose not to open a microfinance program, they can appoint an agent to represent them in the community. The agents would take care of client to reduce the risk level and to reduce the cost of operating. The new guidelines will also discuss the option of allowing grocery stores, such as 7-11 to act a retail agents. The BOT will also remove the interest rate cap on loans. Banks will be able to decide interest rate limits themselves and according to the risk of the client. As a way to help people qualify for loans, the BOT will also allow group collateral. The goal is that the new microfinance loans will be short-term and easy to repay.
The BOT also expects a lot of collaboration in the microfinance sector between experts that could lead to joint ventures. All microfinance activities are supposed to start in early 2010.

Translated from Thailand Post Today
 0 comments

The Finance Ministry and Bank of Thailand see the potential of Thailand Post, which offers postal services, to become a player in microfinance, a key channel under financial industry reform.

Nov 14, 2009
"Thailand Post can partner with banks and do this business," said Bandid Nijathaworn, deputy central bank governor.

Microfinance is one of the key areas that phase II of the financial sector master plan approved by the Cabinet last week wants to promote so small businesses and low-income earners can gain access to financial services.

But the question is, who wants to enter such a business with its high risk and lack of background information on borrowers? Commercial banks do not do this business due to higher risk.

Thailand Post's advantage is that it has many service points throughout the country, Bandid said. However, this state-owned enterprise does not specialise in banking so if it wants to enter microfinance it has to tie up with financial institutions.

Finance officials also said Thailand Post and other new players could enter the business by applying for a licence from the ministry and central bank. The ministry wants to control informal lenders that often charge exorbitant interest rates. It also plans this month to launch a debt-refinancing programme for customers of underground lenders.

There are 1,177 post offices and 3,321 licensed post offices in the country.

Bandid thinks there is more room to expand microfinance since state-owned banks and several savings cooperatives have limited capacity for lending.

The Government Savings Bank (GSB) and the Bank for Agriculture and Agricultural Cooperatives already offer microcredit to small business, farmers and lower-income indi?viduals.

Vorapol Socatiyanurak, vice chairman of the National Economic and Social Advisory Council, said he had advocated Thailand Post to go into the microfinance business like Japan Post.

Japan Post, a government-owned corporation, has been running postal and package delivery, banking and life-insurance businesses. It is claimed to be largest holder of personal savings in Japan with about US$2 trillion (Bt66 trillion).

Thailand Post workers could be retrained to do microfinance, he said.

Thanong Bidaya, a former finance minister, said GSB's microfinance operation, known as the People's Bank scheme, was not yet fully successful.

"Operating costs and interest-rate charges are still high as well as non-performing loans," he said.

Grameen Bank in Bangladesh, a micro-lender, has proven more successful due to lower operating costs, higher rate of debt repayment and its own financial sustainability, he said.

Muhammad Yunus, the founder of Grameen Bank, was awarded the Noble peace prize for his ability to assist the poor to access credit.

Lersak Chuladesa, GSB president and CEO, said the bank would continue its People's Bank scheme, but would not need partners.

About 400,000 people have accessed this kind of loan, taking out an average Bt30,000-Bt50,000, he said. The interest rate is 0.5 per cent per month for loans up to Bt30,000 and 0.75 per cent for up to Bt100,000.

Source: The Nation
 0 comments

10 motorcycles, lists of borrowers seized

21/11/2009
NAKHON RATCHASIMA : Local police have rounded up 38 debt collectors in a campaign to stamp out loan-sharking.

The operation comes on the heels of a financial scheme launched by the government on Thursday to help the poor break free from illegal lenders and their exorbitant interest rates.

Dechawat Ramsompob, acting chief of Police Region 3, said the arrests were part of the bureau's crackdown on "loan leeches".

He said the drive would cover all the eight provinces under the bureau's jurisdiction, which is in charge of the lower Northeast.

The suspects were arrested in several districts including Muang and Pak Chong. Ten motorcycles and lists containing the names of debtors were confiscated in the raids, said Pol Maj Gen Dechawat.

He said the suspects were hired by illegal lenders to collect the debts on their behalf from the borrowers.

Police would like to see them prosecuted and tried in court. But if convicted, they could only be fined 900 baht each.

The crackdown will continue until all the illegal lenders are nailed, Pol Maj Gen Dechawat said. "Some of them admitted they offered the loans but denied there were takers," he said.

Police are seriously cracking down on the loan sharks. They shouldn't be allowed to use force or intimidate borrowers to pay, he said.

"These illegal lenders demand a 200% interest and collect it on a daily basis.

"For example, people who borrow 1,000 baht are required to pay a daily interest of 50 baht.

"This makes the lives of borrowers really difficult," he said.

There are at least 100 major loan sharks in the lower Northeast alone, said a police source.

Most of the illegal lenders are known to have close affiliations with police or other senior authorities who help them evade criminal charges.

The crackdown on underground lending is unlikely to bear fruit if borrowers refuse to offer their full cooperation.

The source said the borrowers not only need the money but also feel intimidated by the lenders' influential network.

"The lenders have the borrowers' consent when they charge high interest rates. Borrowers are reluctant to cooperate with police as they fear for their safety," said the source.

The source noted that during an economic slowdown, the business of illegal lending tends to pick up.

Source" Bangkok Post
 0 comments

Police Target Violent Moneylenders

Nov 20,2009

Under a new government project to settle "offsystem" debts between lowincome earners and loan sharks, police are making arrests of those with potentials to use violence against their clients when they fail to repay.

In Chon Buri, four people were yesterday arrested for giving loans at the extremely high interest rates of 60 per cent a month. They admitted to the crimes and implicated a man identified as Damnern Srithongkham, as the leader of their loan service.

The suspects have been charged with demanding illegally high rate of interests and operating a loan service without permission. They are Chakhrit and Komes Sanohsab, Arthit Pluemphol and Phithak Khuedee.

Meanwhile, some debtors are sceptical about the ambitious project to settle the "off system" debts, saying they doubt if money will ever reach them or if the state would fund such an ambitious project.

An ageing security guard, who identified himself only as Surachai, said he borrowed money from a loan shark because he lacked documents and collateral to qualify to for a bank loan.

He said the move would be a blessing for poor people like him and many of his friends, but he doubted the government's sincerity and ability to raise a huge amount of money to fund such a project.

The project was inaugurated yesterday, before moves to register people around the country from December. The basic qualifications for people to take advantage of the scheme is an income under a certain level, with debt of no more than Bt200,000 and being "determined to repay all debts".

A dessert vendor, who asked not to be named, said she welcomed the philosophy behind the policy. But she wondered what verification methods could be used between illegal money lenders and government mediators to settle debts.

"Who will decide on the actual amounts of debts? And who will verify the amounts if the money lenders just lie [about the actual debt amounts]"

But one money lender, who said he never used violence against creditors who failed to pay debts or made payments late, welcomed the project. He said it would benefit him if his clients could repay him with low interest money subsidised by the government.

Apart from factory workers and small time vendors, he said most of his clients were workers on salaries whose requests for loans were turned down by banks.

Source: The Nation
 0 comments

Govt launches scheme for cheap refinancing

20/11/2009

The government yesterday kicked off a scheme to free the poor from the clutches of loan sharks.

Demonstrators pass along bundles of envelopes containing details of registered debtors during a rally at the Finance Ministry to demand the government help them pay off loan sharks. PATTARACHAI PREECHAPANICH
Prime Minister Abhisit Vejjajiva said illegal money-lending posed an obstacle to the government's plan to bolster the economy and build a strong nation.

"As many as 1 million people are trapped in debts, especially debts obtained from outside the system.

"Even those who are financially healthy would find it hard to meet those interest requirements," he told a seminar attended by public sector executives.

His office was flooded with complaints about loan sharks.

"Illegal money lending is not just a personal or a family problem," he said.

"It is also related to national security, law and order, law enforcement, underground influence, violence and crime."

Previous attempts to tackle loan sharking fell flat because they were not comprehensive.

Under the government's scheme, the Finance Ministry would provide soft loans, and other agencies such as the Interior and Justice ministries, the Royal Thai Police and the Anti-Money Laundering Office would be asked to support the scheme.

"Underground lending is closely related to dark influence. These agencies will help transfer debts so the scheme can proceed," he said.

Under the scheme, about 1 million households would be offered soft loans with a limit of 200,000 baht each to pay off loan sharks.

Six government banks would join the scheme and offer an annual interest rate of 12% in the first three years.

The Government Savings Bank, however, would offer a special rate of 0.75% per month, or 9% per year, for the duration of the loan scheme.

The interest rate on the soft loans is low compared to that charged by loan sharks, at about 20-40% a month.

Finance Minister Korn Chatikavanij said participating debtors would receive training in career development and book-keeping to ensure they could pay off loans and avoid a new debt trap.

Justice Minister Pirapan Salirathavibhaga insisted the scheme would not put debtors in danger.

"It is about asking the [unlicensed] creditors who are breaking the law to lower the interest rate to the maximum default rate at 15% per year," he said.

A centre would be set up to receive information about illegal lending. It would work with the Interior and Finance ministries.

He threatened legal action against the lenders who intimidated or forced their clients to pay debts.

"It is also a criminal offence to deduct interest from the loan in advance. That is extortion," Mr Pirapan said.

The Department of Special Investigation and Amlo would examine illegal lenders' assets and have them seized.

The minister also called for revision of the law governing the interest rate charged by credit card operators, claiming it was unfair. He said credit card operators charged interest and fees in excess of 15%.

"There is a misunderstanding that the credit card business is a business of commercial banks and uses a special law," the minister said.

"I have talked to Mr Korn about pushing for an amendment of the credit card business law to ensure it's fair."

Interior Minister Chavarat Charnvirakul said cooperation from local leaders was needed to negotiate with creditors and enable refinancing.

"We will send officials to talk creditors into joining the scheme. If they do not join, that's fine, because we have other measures to help," he said.


Source: Bangkok Post
 0 comments

New rules may encourage banks to get into microfinance to help keep the poor out of the clutches of loan sharks.

Nov 16, 2009
Those little pieces of paper pasted on power poles around the city mean nothing to most people who have bank accounts and can get credit. But for many others who have no regular income and collateral and are desperate for a financial lifeline, the notes can connect them to underground lenders that are their beacons of hope.


We believe there are business models that can allow banks to charge high interest rates and manage risks - DR BANDID NIJATHAWORN Deputy governor, Bank of Thailand
Loan sharks are easy to fund but hard to repay. Interest may end up being two or three times the principal, not counting stiff penalties for missed payments. But as banks overlook them, the poor have no other choices.

It is estimated that around 7 million people are shut out from both banks and existing microcredit institutions, despite government attempts to improve grassroots finance. The village fund programme introduced eight years ago offered one million baht apiece to nearly 8,000 communities. But each programme accepted just 50 borrowers of up to 20,000 baht each.

"Once the money was allocated, the fund closed to new members, despite the fact that some villages contained 2,000 to 3,000 people. The funds later sought to merge with village savings entities to embrace new members," said Natee Klipthong, secretary-general of the National Village Fund. He said the total credit pool of the funds now stood at 130 billion baht.

The Government Savings Bank also lends to small entrepreneurs such as vendors or motorcycle taxi drivers. But it assesses their cash flow strictly so not many people qualify.

Many villages have set up thrift funds that pool savings for members to borrow. Members then allocate part of the return as a dividend and welfare fund for the community. But such co-operation cannot be found everywhere.

With the lack of legal and efficient institutions to lend to the poor, such as Grameen Bank in Bangladesh, underground lending continues to flourish.

The Bank of Thailand, under its new financial development framework, will push commercial banks to offer microfinance for the poor, said Bandid Nijathaworn, a deputy governor. It will ease rules to cut operating costs of microfinance operations.

The central bank requires banks to separate microfinance from other operations. It will allow them to lend to a poor individual on a joint guarantee - Grameen Bank uses this method - to compensate for lack of collateral.

Banks could hire local people to act as agents to collect data on borrowers and offer loans via grocery stores or service stations instead of opening branches. Banks will be free to set interest rates they think are appropriate.

The key problem for the poor is lack of access to credit, rather than ability to repay. Still, banks have overlooked the potential, Dr Bandid said.

"We believe there are business models that can allow banks to charge high interest rates and manage risks. In the past, people were forced to loan sharks that charged painfully high interest rates. We want to give opportunity to people to borrow and repay."

The central bank also plans to give licences to overseas banks that have microfinance expertise in the next three years, he said.

Bank executives agree an opportunity exists to reach out to the poor, even if it's not a profit-oriented business.

"We can do this as a kind of social contribution but this doesn't mean we will get nothing in return. We might get relatively lower interest rates, but the risks are minimal," said Nophadon Ruengchinda, executive vice-president of Thanachart Bank. "The borrowers may join hands to ensure that their loans won't turn sour."

Mongkol Leelatum, CEO of Thai Credit Retail Bank, says microfinance has a mass market but it calls for a different business model in which banks must be in closer touch with communities to see who has potential, and also to help them train for occupations.

"Currently, no commercial banks are ready to do it. If we really are to do it, we can," he said

Source: Bangkok Post
 0 comments

Nov 09, 2009 (ASTV NEWS)

The Bank of Thailand (BOT) is strongly encouraging local banks to get involved in microfinance. The push is so strong that the BOT appears to be ready to give the banks a 3 year head-start. While the new microfinance regulations are only in draft form, banks have been given permission to start microfinance program without waiting for approval. New players must wait until 2012 before receiving permission.


Commercial banks in Thailand are being encouraged to look around the world and develop new programs that are currently in use in other countries. Programs in Bangladesh, India, Indonesia and Kenya were highlighted as good examples that could be transplanted into Thailand.

The BOT hopes that by making microfinance commercially available, strong competition will make organizations more efficient and effective...thus reducing overall costs for the borrower.

Source: ASTV News
 0 comments

Nov 4, 2009

Today the Economic Cabinet approved the Financial Sector Master Plan Phase II (FSMP Phase II), jointly proposed by the Ministry of Finance (MOF) and the Bank of Thailand (BOT), reflecting the importance placed on the setting of goals and strategic direction for continuous development of financial institutions system. The FSMP Phase II is to be implemented during 2010 – 2014, following the implementation of the FSMP Phase I during 2004 – 2008.

The microfinance community has been anxiously waiting for this document to be revealed to the public. Numerous press releases by government officials have suggested that it would strongly promote the microfinance sector in Thailand.

The Master Plan has several goals including promoting financial access to various groups of the population. “For example, new entry would be permitted for service providers with expertise and proven success in microfinance. In this connection, the MOF and the BOT would consider new licenses on a case-by-case basis, subjected to rules and conditions stipulated. Meanwhile, there would be measures to support the role of the government and SFIs in filling the gaps left open by commercial service providers.”
Further in the document, the Master Plan hopes to benefit society in the following ways:

- Improving access for users to a broad range of financial services that is appropriate for their needs, especially through the promotion of microfinance to help reduce
burden from resorting to informal market.

- Strengthening of grass-root communities through knowledge sharing between successful microfinance experts and local grass-root micro institutions, which would
lead to greater financial strength and financial immunity for all groups of the Thai society.

The document appears to be very focused on helping the current formal financial sector to expand its outreach into poorer communities. Meetings and consultations with banks will occur in November and implementation is expected to start soon after.

Source: Ministry of Finance
 0 comments