Creating an Enabling Environment for Microfinance - The Role of Governments - Experiences from Thailand

This paper looks at Thailand and the 'Bank for Agriculture and Agricultural Cooperatives' (BAAC), a major provider of rural- and microfinance services, and the role of the Thai Government in creating an enabling environment for microfinance.

The paper examines:

• The macro-economic environment of Thailand, with its favourable growth rates, low inflation, poverty reduction through improved export market for rural products, infrastructure and bank branch networks;
• The country's financial sector and the entities that function within it;
• The governance, ownership and interventions of BAAC.

With reference to BAAC, the paper finds that:

• Policy changes have initiated major restructuring and have also led to innovations in financial services delivery;
• BAAC has a service-oriented mindset;
• Profitability is becoming an important criterion of measuring its branch performance;
• It grants a number of government secured-loans and has a new market segment - cash flow-based lending.

The paper concludes that:

• There is a paradigm shift in Thailand, with BAAC now focusing on economic viability and sustainability, as well as on the outreach of financial services.
• Although BAAC has managed to resist political pressure with regard to borrower selection and lending decisions, its autonomy has been affected by the government-directed debt-suspension program.
• Some positive changes are:
  • The placing of BAAC under the prudential regulation of the Bank of Thailand;
  • The implementation of the decentralized branch controlling system;
  • Pro-active rural savings mobilization.