The Bank of Thailand (BOT), the country’s central bank, has recently allowed commercial banks to engage in microfinance, whereby there is no collateral requirement, a credit limit of THB 200,000 (USD 6,000) and an annual interest rate cap of 28 percent [1]. BOT Assistant Governor Pimpa Thawarayut has reportedly said that at least three banks have expressed interest in expanding into the microfinance sector, largely because there is no minimum income requirement for borrowers [2]. But Thai newspaper Bangkok Post indicates that the interest rate cap has dissuaded commercial banks from engaging in microfinance, as it restricts their pricing options and involves lending to people though to be riskier [1].

The involvement of commercial banks in microfinance is seen as a way of reducing operating costs and improving competition, with an ultimate goal of greater financial access for the Thai population, according to banking officials interviewed by Bangkok Post. The new guidelines will be effective until 2014 and also include unspecified details regarding local savings cooperatives and lending to small and medium enterprises (SMEs) [1].

The two MFIs in Thailand that report to the US-based nonprofit Microfinance Information Exchange (MIX) as of December 2008 serve 4,600 active borrowers with total assets of USD 1.33 million and an aggregate gross loan portfolio of USD 1.05 million.

By Rohan Trivedi, Research Associate

About The Bank of Thailand (BOT):
The Bank of Thailand (BOT) is the country’s central banking authority and regulator of monetary policy. BOT is tasked with regulating and supervising all financial institutions operating in Thailand. In 2007, BOT undertook a restructuring of the banking sector in an effort to provide opportunities for both commercial banks and retail banks to conduct microfinance services.

Source: Microcapital