Thailand sets maximum rate for microfinance at 36%

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MicrofinanceThailand’s ministry of finance has set the lending rate for its upcoming microfinance programme at36 per cent annually or 3 per cent monthly, The Nation reported.

The comparably low rate aims at reducing underground debts and luring companies into operating microfinance services, which are expected to commence by the end of 2013.

Finance Minister Kittiratt Na-Ranong said the microfinance rate of 3 per cent per month “would help satisfy demand for loans to increase business liquidity”. Credit is limited to 100,000 baht ($3,115) per person. He said the microfinance option arose from discussions between his ministry and the central bank on how to battle loan-sharking while allowing easy access to legitimate credit sources.

Often, people who run very small businesses cannot access funding in the regular banking system, as they lack sufficient collateral. Therefore they turn to loan sharks who charge enormous interest rates of 10-20 per cent per month, extracting payments on a daily or monthly basis.

The ministry will allow microfinance operators to apply for licenses at the Bank of Thailand. Interest rates will be higher than those charged by regular financial institutions or credit cards, given the high risk of default, but will undercut the loan sharks.

Under the ministry’s programme, microfinance operators are required to have registered capital of no less than 10 million baht ($322,580). Unlike commercial banks, which mainly raise money through people’s deposits, microfinance operators will mobilise capital from their shareholders and promissory notes, as required by the Securities and Exchange Commission. Each microfinance operator will be limited to a specific geographic area. The Fiscal Policy Office is in the process of determining these areas.

Krungthai Bank and CFG Services (Money on Wheels) are already players in the microfinance segment.

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Reading Time: 2 minutes

Thailand’s ministry of finance has set the lending rate for its upcoming microfinance programme at36 per cent annually or 3 per cent monthly, The Nation reported.

Reading Time: 2 minutes

MicrofinanceThailand’s ministry of finance has set the lending rate for its upcoming microfinance programme at36 per cent annually or 3 per cent monthly, The Nation reported.

The comparably low rate aims at reducing underground debts and luring companies into operating microfinance services, which are expected to commence by the end of 2013.

Finance Minister Kittiratt Na-Ranong said the microfinance rate of 3 per cent per month “would help satisfy demand for loans to increase business liquidity”. Credit is limited to 100,000 baht ($3,115) per person. He said the microfinance option arose from discussions between his ministry and the central bank on how to battle loan-sharking while allowing easy access to legitimate credit sources.

Often, people who run very small businesses cannot access funding in the regular banking system, as they lack sufficient collateral. Therefore they turn to loan sharks who charge enormous interest rates of 10-20 per cent per month, extracting payments on a daily or monthly basis.

The ministry will allow microfinance operators to apply for licenses at the Bank of Thailand. Interest rates will be higher than those charged by regular financial institutions or credit cards, given the high risk of default, but will undercut the loan sharks.

Under the ministry’s programme, microfinance operators are required to have registered capital of no less than 10 million baht ($322,580). Unlike commercial banks, which mainly raise money through people’s deposits, microfinance operators will mobilise capital from their shareholders and promissory notes, as required by the Securities and Exchange Commission. Each microfinance operator will be limited to a specific geographic area. The Fiscal Policy Office is in the process of determining these areas.

Krungthai Bank and CFG Services (Money on Wheels) are already players in the microfinance segment.

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