Community financial bodies face regulator’s scrutiny
A bill on community financial institutions is set to go before the cabinet in the next 1-2 months, with a goal of pushing each of the 7,000 tambons across the country to have their own community banks.
After the law is enforced, existing community financial institutions would be asked to register voluntarily, said Kobsak Phutrakul, assistant minister to the Prime Minister’s Office.
At present, community financial institutions have not been regulated and are at risk of being sued by debtors on allegations of embezzlement if they seize collateral pledged by debtors who fail to service debt as these community banks are not registered as juristic entities.
Under the bill, the Finance Ministry will take responsibility as regulator by outlining criteria for the community financial institutions to operate, such as setting an appropriate level of liquidity requirements, fixing interest rates for borrowers, probably with a ceiling of 3% per month, and prohibiting them from providing crossprovincial service.
The criteria will not be so stringent to prevent these community financial institutions from maintaining their unique services, he said. Some community banks, unlike conventional financial institutions, use ethical principles for loan scrutiny criteria.
The bill has been drafted based on discussions with representatives of the National Village and Urban Community Fund Office’s network, while state-owned financial institutions would provide assistance by installing IT systems for financial service and auditing risk and management to protect the interests of the community financial institutions’ members.
National Village and Urban Community Fund Office secretary-general Natee Khlibtong said earlier village funds were keen to transform themselves from being providers of revolving loans to villages to financial institutions for community development.
The funds, into which the government has poured 160 billion baht in seed money, use a self-governing concept under which members must ensure that borrowers pay their debt to sustain their capital. Only 10% of 79,000 village funds have failed to maintain their revolving loans or lent to relatives without asking them to pay back the amount due.
Mr Kobsak said community financial institutions can help those living in towns cut down on their financial costs.
In Nong Sarai district of Kanchanaburi province, people using the community financial institution can save around 2 million baht a year on travel costs by going to banks in the city area. They save another 15 million baht per year from paying lower interest rates than charged by loan sharks. Apart from village funds, over 40,000 community savings institutions and 120,000 small financial institutions nationwide are considered community financial institutions.