MICROFINANCE INDUSTRY REPORT Thailand - Banking with the ...

More documents

Recommendations

Info

iv. FraudThough fraud is a common concern among MFIsand cannot be eliminated entirely, it can certainly bemitigated. It is not uncommon among semi-formaland independent MFIs in Thailand for managers todisappear with a large sum of their operating funds.Several more focused development impact studiesalso found that most of the clients being reached byformal and semi-formal MFIs were wealthier peoplein the communities. It is also not unusual to findmany of these wealthier groups were in leadershippositions of the community or committees offinancial services projects. It is possible thereforefor these wealthy groups to secure large loans atbetter interest rates, and then to lend that sum outto poorer people at higher rates, especially thosewho are in need of money and/or having difficultiesaccessing loans or getting timely loans from othersources.Standardised and proper management systemscan help prevent and reduce fraud incidents inthe microfinance industry as it did for all formalfinancial institutions.v. Lack of appropriate legal entity for MFIsThe microfinance business is different fromthe traditional financial business transactionsundertaken by commercial financial institutions(both bank and non-bank) that provide variousfinancial services or the BAAC or cooperatives, not tomention foundations and associations or businessoperations. Therefore, there is no appropriate legalentity that is suitable for microfinance operationsunder current laws in Thailand 15 . The best supportformat currently is the non-bank lending company.However, it requires a minimum registered and paidup capital of THB 50 million (≈USD 1.4 M) underexisting law and is quite high for many existing MFIs.From the CIs’ point of view, the currentcomplicated top-down regulations are burdeningmanagement rather than supporting the growthof CIs. As in the case of saving-for-productiongroups mentioned earlier, operating without acooperativetitle gives them much more flexibilityto better serve their members at lower costs andreduce unnecessary work.The MOF and the BOT has planned, under thecountry first Microfinance Master Plan, to relax severalfinancial regulations, along with new regulationsfor microfinance players. It has to consider whetherany conditions or factors in the plan will supportand allow MFIs in carry out their full potential. TheMOF and BOT also need to consider how the newregulations will affect the whole financial system.Nonetheless, microfinance must still exist to meet theneeds of those who do not have access to financialservices and must rely on informal debt, which resultsin higher interest rate.vi. Institutional capabilityThe high turnover of management amongcooperatives and dependency on individualleaders among savings groups have been mattersof concern for the future performance of manyMFIs. Dealing with these challenges as well as withthe design and implementation of microfinanceproducts and services raises many questions aboutthe technical mechanisms and the institutionalcapabilities required, including but not limited to,qualified staff and ability to design products withclient participation. Closure of MFIs for any of thesereasons can create negative impact on poor clientsin the communities they aimed to serve.The BOT plans to promote technical assistanceunder the first Microfinance Master Plan so as toincrease the institutional capability of existing semiformaland self-help MFIs.15 See institutional options for microfinance activities in Thailand at www.microfinancethailand.com/docs/institutional_options.pdf.20 microfinance industry report - THAILAND
vii. Fund management and investmentopportunitiesMFIs have faced many challenges in fundmanagement, even with capable professionalmanagement personnel. While some MFIs use theextra income for additional lending activities, otherssee themselves trapped by the limited investmentopportunities they face under the governing laws aswell as a lack of the required knowledge and skills.Foundations and associations, which are the legalform of most NGO MFIs, are subject to a 15 percenttax on interest received from savings; furthermore,foundations are not permitted to do business.The current Cooperative law also preventscooperatives from offering loans to non-membersand limits investment opportunities on excess fundsin hands. Hence, many cooperatives and savingsgroups have substantial amount of unused funds,while others lack funds to respond to unmet creditdemands among their members.Future Prospects of the MicrofinanceMaster PlanThe Microfinance Master Plan will relax somefinancial regulations to attract commercial banks andnew players into the industry. Is is hoped that theseproposed changes will not only increase financialaccess to low income families, but contribute to anarrowing of the national income gap.However, it is normal to have mixed opinions fromthe perspective of current MFIs. While commercialbanks are more open to the prospect, developmentfocused MFIs are concerned that the profitorientation of commercial banks might overtakethe focus on social responsibility and communitydevelopment aspect of MFIs.. International NGOMFIs are looking forward to the relaxation ofregulations but CIs and SGs are concerned aboutlosing the flexibility they currently have if they areforced to operate under the new law. Many are alsoconcerned about ceding control to the professionalcommercial banks or foreign expert MFIs they mighthave to link up with in order to survive.The liberalisation of financial institutions can bea double-edged sword, resulting in both gainsand losses, depending on how prudently theseinstitutions exercise their new-found freedom inhandling portfolios. MFIs must bear in mind atall times that greater liberty carries with it morerisks which, if not well-managed, may backfire tooutstrip any initial gains. Nevertheless, increasedcompetition with respect to interest rates andcredit availability pushes financial intermediaries toimprove and professionalise their services.Banking With The Poor Network 21
Page 1: MICROFINANCE INDUSTRY REPORTThailan
Page 4 and 5: i. Contentsii. Foreword 3iii. Ackno
Page 6 and 7: iii. AcknowledgementsThe Microfinan
Page 8 and 9: 1. Country Profile - Thailand1.1 Co
Page 10 and 11: 2. Characteristics and Experienceso
Page 12 and 13: 2.2 Key PlayersThe key players in e
Page 14 and 15: models and ideas, as well as conduc
Page 16 and 17: an accumulated weakness that has a
Page 18 and 19: any return on the funding. A few al
Page 20 and 21: Apart from providing savings and cr
Page 24 and 25: 4. References>> Bank of Agriculture
Page 26 and 27: EDITED BY JAMIE BEDSONTHE FOUNDATIO
Page 28: The Banking With the Poor Network S

MICROFINANCE INDUSTRY REPORT Thailand - Banking with the ...

Create successful ePaper yourself

Delete template?

Save as template?