While Thailand has declared war on poverty, its efforts have been focused on systemic factors that keep a significant portion of the population, especially those who participate in the informal economic sector, trapped in poverty. Breaking out of this trap which is built on unemployment, low wages, poor community infrastructure, income disparity and lack of access to financial assets and services, requires a change of approach.
Thailand Says – Finance for the People
Government policymakers in Thailand have come to realize that the single most important key to solving the population’s financial issues requires improved financial services for all and increased opportunities to own financial assets and take part in the formal financial sector. Hence, the strategy has been named – Finance for the People.
Let’s break it down: when looking at higher wage earners in Thailand, researchers found that 30% of them held a savings account as opposed to lower-income households where only 8% had any financial asset at all, totaling less than $1,500. While less income plays a role in a diminished ability to save, it is not the whole story.
According to a 2011 study, in the northeast area of Thailand, where the informal market accounts for roughly 65% of the economy, there isn’t much real-wage growth nor is there an improvement in poverty rates. This comes to show that participation in the formal national financial system is of essence, and the lack of microfinance products available to low income residents only serves to exacerbate the situation.
Following the lead of other nations, especially neighbors in the Southeast Asia region, Thailand has begun focusing on inclusive finance as a cornerstone of their strategy to reduce poverty rates. Inclusive finance means overall access to the full package of financial assets as well as a knowledge-base for how to use financial services. In other words, improving both financial asset infrastructure and financial literacy in order to improve financial participation. It also means providing access to a wide range of financial products and services to an entire population, including those who are most impoverished, as well as the struggling middle class. The full package of financial services would consist of traditional and electronic banking, mobile financial services, micro savings, long-term housing loans, insurance and money transfer services and more.
Overcoming Institutional Obstacles
An examination of the existing infrastructure revealed the following obstacles which had to be addressed if Thailand was to have a successful financial inclusion strategy. (1) Regulations make it difficult for non-bank financial institutions to participate in the microfinance sector; (2) sustainable growth of the microfinance sector is restricted by limitations in licensing procedures; (3) access to multiple lenders for a single non-income producing project has put many borrowers in a debt cycle; (4) absence of a credit history reporting system means that microfinance providers may make financial assets available to a borrower who does not have the means to repay the obligation, thus hurting both the lending system and the borrower; (5) the institutional capacity of the microfinance system is impaired by lack of management stability, restricting the range of product that is offered and the quality of customer service; and (6) non-traditional microfinance providers, such as NGOs do not have the same access to capital as do banks.
To address these deficiencies the Finance Ministry’s strategy includes a number of action items including: (1) launching a financial literacy program for impoverished household across the entire country; (2) establishing a credit reporting bureau for the microfinance industry; (3) removing the barriers inherent in the microfinance sector that limit private sector participation and phase out the 15% interest rate ceiling; (4) creating a supporting environment for mobile banking; and (5) promoting the growth of a healthy micro-insurance industry.