Moneylending and Modern Times: Informal Credit in Thailand

Abstract

The recent literature on rural finance emphasizes the important role played by various informal lenders. In Thailand, however, their share of total loans has declined from about 90 percent to 30-50 percent between 1965 and 1991, according to official figures (Thisyamondol et al. 1965; Siamwalla et al. 1990; Onchan 1992). This decline is largely explained by the rapid expansion of the loan portfolio of the BAAC, the Thai Bank for Agriculture and Agricultural Cooperatives (Quinones and Encarnacion 1988). Researchers expect a further decline in the market share of informal lenders in the course of economic development. Their future role is seen “as a complement to formal finance”, operating in “specific niches” of comparative advantage (Asian Development Bank 1990). According to ADB only the remote, backward areas will probably remain a stronghold of informal lenders, where they serve the credit needs of the poorer segments of society. Their proximity to their clients reduces transaction costs in the predominantly unsecured credit-business. This chapter reports on a survey of the financial landscape in a Thai village located only 70 kilometers east of Bangkok (see also Steinwand 1991). Research was conducted from January to June 1990. The village is situated in the Bangkok-Chonburi area, which is by no means a backward, remote area, but rather characterized by tremendous economic growth. Its future is seen by Thai officials as “one long megalopolis, interlinked with certain breaks of rural areas, but basically... one long urban, industrial, recreational zone” (Bangkok Post 8.2.1990). The chapter will illustrate the variety of borrowing and lending patterns against the background of specific economic activities. It will focus on the changes in these patterns which have resulted from the rapid economic growth in that region and suggest that the scope of responses of informal financial activities to “modern times”, at least in the medium term, is wider than commonly assumed. They raise doubts about the results of the nation-wide surveys of recent years and the figures on the decline of informal finance market share.