MICROCAPITAL BRIEF: Thai Government to Add $2.6b to Village and Urban Revolving Fund

Thai Prime Minister Yingluck Shinawatra reportedly has announced that the government plans to inject USD 2.6 billion of capital into the country’s Village and Urban Revolving Fund (VF), a government-backed program designed to stimulate the economy. VF held an outstanding loan portfolio of USD 4.9 billion as of 2011 while the number of active borrowers that year was 8.5 million. In 2012, VF reported 17 million accounts including 63,000 community rotating credit associations serving members in 80,000 villages. VF is funded by government grants and is overseen by intermediaries including state-run banks.  However, the funds in each village are managed by a locally elected committee that determines loan amounts and interest rates.

Critics of the fund have said that for-profit and nonprofit providers cannot compete with the government initiative. A 2010 study completed by US-based researchers Joseph Kaboski of the University of Notre Dame and Robert Townsend of the Massachusetts Institute of Technology entitled “A Structural Evaluation of a Large-Scale Quasi Experimental Microfinance Initiative” found that VF is less cost-effective than would be an equivalent direct transfer program while the latter would not leave recipients with repayment obligations (pp.6-7). According to Natee Klibthong, the head of VF, the benefits of the scheme “cannot be measured in monetary terms” pointing to its role in development at the village level. Mr. Klibthong hopes the program will become a “one-stop service centre to help solve problems at the village level.”

According to the Bank of Thailand, 96.5 percent of Thai households have access to financial products. The Kaboski/Townsend study reportedly also found that Thai “households increased their borrowing and their consumption roughly one for one with each dollar put into the funds” (p.3).

By Lena Phillips, Research Associate

About The Thailand Village and Urban Revolving Fund
Established in 2001, Thailand Village and Urban Revolving Fund (VF) is a government-backed program designed to stimulate the rural economy. VF is administered by the Government Savings Bank (GSB) of Thailand and comprises 17 million accounts with funds provided to 63,000 community rotating credit associations with members in 80,000 villages as of 2012.

Sources and Additional Resources:

“A Structural Evaluation of a Large-Scale Quasi Experimental Microfinance Initiative”, by Joseph Kaboski and Robert Townsend, Econometrica: April 2010, http://www.robertmtownsend.net/sites/default/files/files/papers/published/StructuralEvaluation2011.pdf

Economist.com Article, “The biggest microlender of them all”, http://www.economist.com/blogs/schumpeter/2013/01/microfinance-thailand

MicroCapital.org Article, 25 October 2012: “MICROCAPITAL BRIEF: Savings Bank of Thailand Expands Microfinance Services in Border Areas”, https://www.microcapital.org/microcapital-brief-government-savings-bank-of-thailand-expands-microfinance-services-in-border-areas/#more-20721

MicroCapital.org Article, 27 April, 2012: “MICROFINANCE PUBLICATION ROUND-UP: Disclosure Regimes for Responsible Financial Inclusion; the Thailand Village and Urban Revolving Fund; ‘Microsavings Works Much Better’”, https://www.microcapital.org/microfinance-publication-round-up-disclosure-regimes-for-responsible-financial-inclusion-the-thailand-village-and-urban-revolving-fund-microsavings-works-much-better/

MicroCapital Universe Profile: The Thailand Village and Urban Revolving Fund, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Thailand+Village+and+Urban+Revolving+Fund

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