Bank Of Thailand Considers Nano-financing for Grass-roots People

Oct 2014
Thaïland, October, 25 2014 - The Bank of Thailand (BOT) said "nano-financing" could provide added protection and fairness for consumers along with better management of informal loans outside the financial institution system through the increase of clarity and transparency, as nano-finance would encourage people to offer and get loans from within the formal system.

The Finance Ministry has devised the "nano-finance" concept to help non-bank lenders to extend money to grass-roots people, or those who don't have access to capital, as commercial banks are having cost difficulty in providing such loans to micro-borrowers. It plans to submit a proposal to promote nano-financing to Deputy Prime Minister Pridiyathorn Devakula before the end of this month.

Currently the smallest form of loan that financial institutions can offer is "micro-finance", which has a maximum loan amount of Bt200,000, at an interest rate of 28 per cent, while the nano-finance idea would offer Bt100,000-Bt120,000 and the interest rate would be higher at 30-36 per cent.

"Commercial banks have tried to extend to smaller branches but they have failed to reach customers with smaller financial needs. This has resulted in borrowers getting loans from outside the financial system where interest rate is unregulated and there is no protection of the law. Nano-finance can help ease this problem," said Chirathep Senivongs na Ayudhya, BOT's spokesman.

"However, the nano-finance concept is not related to the reduction of debt as that is linked to demand for loans. But it can provide fairness, transparency, and clarity while encouraging the advancement and long-term development of the concept of micro-loans. This will be beneficial for financial stability in the long run as grassroots people will gain more knowledge on the concept of interest rate," he added.

He explained that each province already has such operators who have local knowledge on the customers' ability to repay their loans, which is a crucial part of the loan concept and they can be encouraged to provide loans formally by providing them with some kind of incentive. The Finance Ministry and the BOT are currently studying the concept.

"Once we know who is providing the loan and who is receiving the loan, the improvement will be in terms of conduct where authorities can provide financial knowledge to both lenders and borrowers," he said.

Chirathep also said the central bank is not worried about the slight increase in non-performance loans and the high household debt, since commercial banks have high reserves and the nano-finance concept actually wanted to encourage people to take loans to invest and increase their income by getting people inside the financial system so that they could be educated about financing.

The BOT revealed that as of the second quarter of this year, commercial banks had a reserve ratio of 169.2 per cent, which is higher than the 100 per cent required by the law along with a Bank of International Settlements ratio of 15.9 per cent, which is higher than the minimum requirement of 8.5 per cent set by the BIS.

In terms of issuing the Bt800-billion government bonds to refinance government debt, mainly accumulated from the rice pledging scheme, the BOT said they were not worried that retail investors might be tempted to borrow money in order to buy the bonds, as the money will eventually circle back into the system. The details of its maturity and cost would be provided once related agencies have determined the government's ability to repay their debt by calculating their current and future income and expenditure.


Source : The Nation

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