Thailand: Nanofinance to Fight Loan Sharks
Thailand, October, 13 2016 -
The Bank of Ayudhya (BAY) has branched into nanofinance, aiming for loans outstanding of 170 million baht by the end of 2017. 'Nano' means a 'very small amount' and 'finance' means 'providing money for something'. So, the basic idea is very small loans, such as the typical emergency loan that families sometimes need to deal with school or medical expenses.
NANOFINANCE TO FIGHT LOAN SHARKS
Nanofinance is a type of microfinance. Microfinance provides loans to low-income individuals and other people who have difficulty borrowing money from banks (see here).
Nanofinance aims to provide loans to the people who have the most difficult time qualifying for loans from banks, competing with (and hopefully displacing) the loan sharks who loan money to poor people at very high interest rates when banks reject them and sometimes use violence to get the money back.
The Abhisit Vejajjiva government (2008-2011) pursued aggressive anti-loan shark policies and the current nanofinance idea started to gain momentum after the coup in 2014 (see here).
Some 29 companies have obtained nanofinance licences already in Thailand, extending total loans of 622 million baht to 26,000 borrowers
BANK OF AYUDHYA'S NEW BUSINESS
Krungsri Consumer, the unsecured lending arm (unsecured loans) of Bank of Ayudhya, introduced Tao Kae Tan Jai, a revolving nanofinance loan product, last month.
Borrowers are charged 36% interest. A maximum loan of 100,000 baht will be offered to each borrower who qualifies. The company also requires a minimum monthly repayment of 5% of the loan principal.
Borrowers who have good repayment track records for more than six instalments will receive 10% cash back on interest.
In addition, for at least one year they will receive an additional credit line of up to 100% and cash cards that can be used for cash advance withdrawals at all ATM terminals.
It has loaned 2.8 million baht to 62 clients since the roll-out of the new product. Krungsri aims for nanofinance borrowers to reach 5,500 accounts by the end of this year.
CAPPING NON-PERFORMING LOANS AT 6-8%
"Given that nanofinance business carries high risk, we will focus on asset quality and cap the non-performing loan [NPLs] ratio at 6-8%, or two times the company's bad personal loans," said Ms. Nayanee Peaugkham, the managing director of Ayudhya Capital Services.
NPLs and operating costs are the key factors for this business segment.
If the company can control both factors at satisfactory levels, the business is projected to survive, she said.
Demand for nanofinance loans is strong and the company's approval rate for the product is 60% of applications.
Initially, Krungsri's nanofinance credit is available only in high-potential locations including Bangkok, the capital's suburbs, and Chon Buri province.
FUTURE BUSINESS EXPANSION IF NPLS CAN BE CONTROLLED
If the company manages to control both NPLs and operating cost as targeted, it will expand coverage to other big provinces next year, said Ms Nayanee.
Krungsri adopted its nanofinance business model from Indonesia-based Bank BRI.
Tao Kae Tan Jai is focused on small business operators with a clear residence who have run the business for at least one year.
Food and beverage, clothing and accessories, beauty salons, and general service businesses are the finance product's target clients.