Handled well, village funds could be the answer to our economic woes

Led by General Prayut Chan-o-cha, the government has announced lately its decision to pump Bt59 billion into about 60,000 village funds across the country. It has explained that as loans are given for livelihoods, start-ups or business expansions, the overall economy should become stronger.

But will such an initiative really make a difference?

The concept behind the move, after all, is not entirely new. The Thaksin Shinawatra-led government launched the village-fund scheme in 2001. Right from the start, so many critics have described it as “populist”.

The concerns expressed by the critics were not groundless. Years of implementation reveal less than half of the 70,000 village funds have proven successful.

Village-fund committees are usually not very strict about reviewing applications from loan applicants. It is quite an open secret that some people have received loans and used them for things other than what were listed on their loan applications.

Central agencies are unable to closely supervise all the 70,000 village-fund committees. That explains partially why loans have already become non-performing loans. So, can Thais expect to see the current government successfully spur the economy after the village-fund initiative is unveiled?

Last week, so many people picked up their loans under the initiative and openly admitted they were going to use the money to repay loan sharks.

The National Village and Urban Community Fund Office, so far, has explained that the initiative by the current government has already included stricter measures.

For example, only well-performing village funds will have the right to participate in this initiative, which offers interest-free periods for two years and just one-per-cent interest after that.

The office has pointed out that it has assessed village funds based on their potential and repayment ability. Only about 60,000 village funds are qualified to get loans under the initiative launched by the current government.

The government also says this initiative will accept applications and hand out loans only till December 31.

A 2013 research shows village funds have the potential to transform themselves into village banks if they get good and capable executives, strict compliance with their founding principles, and effective communication needed to ensure villagers really understand the purpose of such funds.

“Village funds give people the quickest access to funds for their occupation,” Thanawat Polvichai from the University of Thai Chamber of Commerce’s Centre for Economic and Business Forecasting said. He said the village fund scheme in principle could pave the way for the establishment of community banks, if those involved in the implementation had the right knowledge, approach and attitudes.

Some village funds have been doing remarkably well after all. More than 2,100 village and urban community funds in Surin province, for example, have blossomed and now have more than Bt3 billion in circulation. 

Most of the village funds here have already registered themselves as legal entities too.

Their success story shows that the village fund scheme is not just a populist policy, if implemented properly.

If village-fund committees are strong and efficient, not just locals but also Thailand as a whole would enjoy benefits. Villagers have convenient access to funding, a soft loan that comes with a very low interest rate. 

With the low interest rate, they have a better chance of seeing their start-ups take off well. If their small businesses are doing well, the country’s economy will be vibrant. If their small businesses become solid, the Thai economy will be strengthened too.

So now that the government has already decided to pump a big amount of money into the village-fund scheme, let’s hope it has measures to ensure successful implementation.

Success would show that the village fund scheme is not just a populist idea but also a practical and sustainable economic solution.