The role of institutional credit in agricultural development : the case of the Bank for Agriculture and Agricultural Co-operatives, Thailand
This thesis attempts to evaluate the lending policy of Thailand's Bank for Agriculture and Agricultural Cooperatives (BAAC) from a developmental perspective. Firstly the question of access to institutional credit is examined in terms of the distribution of BAAC loans spatially and by the economic status of borrowers; secondly, the study uses the case study approach to analyse the farm-level effectiveness of three types of lending instrument a) short-term production loans, by scale of farming operation and access to irrigation (the "credit-only" model); b) short-term production loans with extension support (the credit extension model) and; c) long-term investment loans disbursed within the project framework (the project lending model). One of the case studies is drawn from the Central region and two from the Northeast. The results of the study indicate that for a variety of reasons, BAAC directs subsidised loans mainly towards the country's most agriculturally productive areas and most economically secure farmers. This orientation is long-established and is likely to have contributed to the problem of inequality in the distnbution of income and wealth in rural areas. Since 1975, institutional credit has been an important part of a government strategy to increase the flow of funds and provision of support services to the rural sector. The Bank has recruited large numbers of relatively poorer farmers. However, using farm-size as a measure of economic status shows that BAAC clients generally have larger farms than their neighbours. In the Northeastern region, the percentage of BAAC clients with farms below the median is only 11 per cent compared to 23 per cent for the Central and Eastern regions and 20 per cent country-wide. The bulk of loan disbursement is also directed towards medium- and large-scale farmers. Inter-provincial variations in the recruitment of and disbursement of loans to small-scale farmers, are explained in terms of varying strategies employed by branch managers to meet the terms and conditions of the Branch Evaluation Procedure, despite convincing evidence that repayment rates for this group are as good if not better than for larger-scale operators. Regardless of the Bank's economic orientation farm-level analyses of the effects of short-term borrowing show that production loans are most critical to and are used most effectively by small-scale farmers, particularly those in rainfed areas. At present, however, the farm-level effect of technical support, given in association with loans to small-scale farmers, though positive, is still weak. Improvement in the impact of the credit-extension model will depend on further development of the working relationship between BAAC and the Department of Agricultural Extension (DoAE). The effectiveness of long-term project loans, in terms of increasing the productive capacity and income-generating potential among smallscale farmers, is also limited. The challenge to the Bank is to develop projects that meet the Bank's criteria with regard to financial viability and also yield a good return to the borrower after loan repayment obligations have been met. The extent to which the BAAC can provide an equitable and effective service within the context of rural development policy as a whole, depends on active government intervention to prevent the erosion of the Bank's capital base, promotion of the type of interagency cooperation necessary to provide integrated support services to farmers, and prioritisation of planning for the small farm sector.