Opportunities for the Growth of
Financial Services to MSMEs
1. MSMEs Access to Financial Services
- 83 % of Thai population have access from
the formal sector
- The rest from semi-formal or unorganized
sources
- Focusing on access to credit :only 43%
have access from the formal sector; out of
this, only 31% from commercial banks,
SFIs, and non-bank financial institutions.
The rest from cooperatives and unorganized
sources.
- Access to credit for MSMEs is a crucial
issue, not access to financial services in
general.
2. SMEs Access to Credit
- The high growth of the Thai economy since the
1980s has enabled a large number of SMEs to grow rapidly
to become large companies.
- Their impressive growth has attracted commercial
banks to compete for their businesses. The SMEs that
lagged behind were either left out or found it more difficult to
obtain loans from commercial banks.
- The economic crisis of 1997 changed banks’ view
on SMEs completely.
- Many of the large companies were severely hit by
the crisis and had to undergo long restructuring process.
- Extensive regulatory and legal reforms following the
crisis improved the borrowers’ discipline and creditors’
confidence
- As a consequence, well performing SMEs became more
attractive for the banks.
- At the same time, large companies that fully
recovered from the crisis turn to the capital market for
funding as an alternative to commercial banks.
- Loan approval ratio for SMEs.
● Q4/2009 SMEs approval ratio 24.9%, Overall 31.4%
● Q4/2010 SMEs approval ratio 22.5%, Overall 6.9%
● Q1/2011 SMEs approval ratio 12.0%, Overall 29.4%
- Loan performance of SMEs
● Q1/2011 SME NPLs = 5.5%, overall NPLs = 3.9%
● Q1/2011 Commercial banks loan outstanding =
THB 8.3 trillion, of which about THB 4 trillion are
held by SMEs
- The regulatory and legal reform following the crisis was
indeed an important turning point to improve the credit
worthiness of the borrowers, large and small: amendment of the
insolvency law, the adoption of accounting and reporting
standards, the establishment of a credit bureau, etc, are
examples of the reform.
- Various government supports also help: The establishment
of institutes to provide advisory services to SMEs in collaboration
with business schools; the promotion of OTOP (one tambon-one
product, a program encouraging rural communities to create
innovative products), and supporting SMEs to participate in local
as well as international trade fairs.
- The collateral law, yet to be presented to parliament, will
further enhance opportunities for SMEs to gain access to bank
credit, as new assets will be recognized by the law as collateral,
and creditor rights will be protected more effectively.
3.
Lending to the unbanked groups.
- Although the vast majority of the Thai
population have access to various financial
services, access to credit remains limited.
The high economic growth over the past
decade has left a huge income gap between
the rich and the poor.
- Low-income groups are unserved or
underserved by social and public services to
improve their education, health, skill, and the
ability to earn higher income.
- Access to financial services has gained more
serious attention from leaders around the world,
from G20 to several developing economies. ABAC
took the initiative to promote financial inclusion as a
development goal. ABAC’s recommendation was
accepted and endorsed by APEC finance ministers
in 2010.
- In 2001, the Thai government launched a
Village Fund Scheme to provide micro-credit to the
unserved and unbanked rural villagers.
- Through this scheme, village households
obtain loans of THB20,000 -50,000 each (USD
1=THB30) to acquire more land, buy new
equipment, or start a new business.
- But because the scheme was implemented
in haste, the lending procedures and the financial
literacy of the villagers had not been put in place
for efficient implementation. Consequently, many
borrowers could not pay back and became heavily
in debt.
- Without a serous effort to educate the
village fund managers and the villagers, the
sustainability of the fund remains vulnerable.
- New initiatives are put forward by the
government to expand credit to the grass-root
people: promoting the post service to expand their
operation to include granting micro-credit to the
underserved groups, relaxing operational practices
of commercial bans to encourage their involvement
in micro-credit activities.
- Commercial banks specializing in retail and
consumer lending have shown their interest, but
they need level playing field to compete with stateowned infinancial institutions, particularly the
Village Fund that enjoy government financial
support and are not subject to the same
regulations.
- An interest rate cap of 28% is imposed on
micro-credit, a regulation that banks feel would
impede a flexible market operation.
- Commercial banks should be allowed to set
up subsidiaries specifically to operate micro-credit
business. This would allow the subsidiaries to
operate with smaller capital, under similar regulatory
requirements as other government-owned
institutions.
- The Village Fund should be re-invigorated,
with improvement in lending procedures, extensive
training in financial literacy, including financial
management to prevent the villagers from falling into
the debt trap.1010
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