MICROFINANCE INDUSTRY REPORT Thailand - Banking with the ...

3. Challenges and OpportunitiesCurrently, there are still a few constraints forMFIs in Thailand. However, it is hoped that theimplementation of new Microfinance Master Planshould ease many of these constraints and openup more opportunities for the new players. The keyconstraints are as follows:i. Subsidised creditsThe above discussion reveals that access tosubsidised low interest rate credits for the poorremains a problem in Thailand, but is different frommany other countries. The problem is chiefly theproliferation of too much subsidised credit frommultiple sources. Such credit is often used for nonincomegenerating items and activities, which leadsto an inability to pay existing debts. Therefore overindebtednessoften results from poor clients seekingnew and more loans, and most of the time, withhigher interest rate from private money lenders, torepay their earlier debts. Thus, this leads to deeperindebtedness as the cycle would continue.To make things worse, apart from injecting moresubsidised lower interest loans for the poor, theThai government helped to lift these overwhelmeddebt problems of the poor by introduced debtrestructuring, a debt moratorium, and debtforgiving programs. These are very sensitive anddelicate tools to apply in microfinance, becausethey send the wrong signal to poor borrowersthat deferring payments on their loans or evendefaulting are acceptable practices.From the microfinance perspective, the practices ofthe Thai government are considered to be unfair toother MFIs and are unconducive to promoting anattractive environment for others players to enterinto this market. Such practices are also hinderingthe growth of the microfinance sector in Thailand.The Thai government should therefore reconsiderthe broad impact of such policies, which canhamper both poor borrowers themselves and themicrofinance industry as a whole.ii. Sustainable interest ratesInterest rates charged by most semi-formal MFIs inThailand span a wide range; from 10 percent to 24percent per annum. Although the BOT had lifted allinterest rate ceilings for formal financial institutionsin 1992, it still stipulates a 15 percent per annuminterest rate on personal loans from NBFIs andprivate individuals, capped at 28 percent per annuminclusive of all related fees. For credit card services,banks usually charge additional penalty interest onlate payment, which increases the total interest rateto the maximum level of personal loans. As such,Thailand is likely to be one of the very few countries,if not the only country, where interest rates chargedby MFIs are lower than banks.Because of high competition from subsidised lowinterest rate credits provided by the government,it is difficult for non-government MFIs to increasetheir credit interest to a sustainable rate. It is hopedthat soon-to-be implemented regulations will openup the microfinance market and the governmentwill assume a more regulatory role and level theplaying field in order to attract more investors andplayers into the country’s microfinance industry.iii. Reliable informationInformation asymmetry has been one of the keyconstraints in microfinance industry around theworld. It is common practice for borrowers toseek loans from multiple sources. But the lack ofappropriate market and customer credit informationin the microfinance business makes it difficult foran MFI to determine whether a loan applicantalready has a loan outstanding with other financialprovider(s), or whether he/she is blacklisted for badrepayment records or defaulted on prior loans.There is, however, some hope in this regard.The BOT is considering, as part of the upcomingMicrofinance Master Plan, to set up a separatemicrofinance credit bureau in conjunction tothe current existing credit bureau office. Even ifthis occurs, it is expected several years would berequired for any microfinance credit bureau tobecome fully functional.Banking With The Poor Network 19