Thailand Economics - Rural Finance

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Rural Finance

Beginning in the late 1960s, the government gave top priority to increasing credit availability to the agricultural sector despite the fact that agricultural performance had been excellent during the previous two decades. The emphasis was on providing credit to agriculture at below market interest rates and channeling credit to poor farmers. In 1975 the central bank imposed a mandatory credit allocation system, under which a required minimum of 5 percent of all outstanding bank loans were allocated to agriculture. This quota was increased to 7 percent, then 9 percent, and finally to 13 percent by the mid-1980s. Moreover, all new rural and provincial branches of banks were required to lend 60 percent of their local deposits in the area served by the branch, with one-third of that amount reserved for farmers.

In 1966 the government established the Bank for Agriculture and Agriculture Cooperatives to supply credit for the development of the agricultural sector. In the 1980s, it became the most important single source of credit for farmers, and it had a wide coverage of 62 branches and 514 field units located throughout the country; more than 2 million farm families were reached directly and indirectly via the cooperatives and farmers associations. Noninstitutional sources, such as agriculture and savings cooperatives, supplied 50 percent of agricultural credit, and commercial banks and the agricultural banks each supplied 25 percent. Finance for nonagricultural activities in the rural sector, which provided 50 percent of rural income, was largely neglected.

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