Microfinance rate set at 3% monthly

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 Bt100,000 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 sky-high 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 licences 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 Bt10 million. 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, or Srisawad Ngern Tid Lor (Money on Wheels), are already players in the microfinance segment.

Weidt Nuchjalearn, first senior executive vice president of KTB, said the Finance Ministry’s programme would not affect KTB’s own microfinance scheme in terms of pricing because the bank charges interest of just 1.25 per cent per month.