Opportunities for the Growth of Financial Services to MSMEs

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Opportunities for the Growth of Financial
Services to MSMEs
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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.
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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
creditorsconfidence
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- 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
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- 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.
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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.
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- 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. ABACs
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.
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- Through this scheme, village households obtain
loans of THB20,000 -50,000 each (USD 1THB30) 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.
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- 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
state-owned infinancial institutions,
particularly the Village Fund that enjoy
government financial support and are not subject
to the same regulations.
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- 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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THANK YOU