Agricultural Development Bank Reform: The Case of the Bank for Agriculture and Agricultural Cooperatives (BAAC), Thailand

This case study investigates and analyses the reform process of Bank for Agriculture and Agricultural Cooperatives (BAAC). It explores the major elements and contents as well as the phasing of reform from a functional perspective, drawing lessons and best practices. The development of BAAC stem from the dual objectives of maximum outreach to the target clientele of farm households and maintaining the financial viability of the bank. The paper states that BAAC in Thailand has gone through four major phases of reform:

• 1966-74, laying the foundation for individual lending to farmers through joint liability groups;
• 1975-87, expanding its lending operations through access to commercial bank and donor funds and consolidating its operations by reducing loan channeling through cooperatives;
• 1988-96, striving for viability and self-reliance, under conditions of controlled interest rates, through savings mobilization, improved loan recovery and increased staff productivity and;
• Since 1997, adjusting to prudential regulation by the central bank and diversifying into non-agricultural lending.

Concludes that:

• The result of gradual reform has been the largest outreach by any Agricultural Development Bank: 88% of farm households in Thailand, combined with institutional viability;
• The reform process has been a gradual one and has progressed in stages over more than 30 years; from a specialized agricultural lending institution to a diversified rural bank which provides a range of financial services;
• In many cases, reform decisions and measures were taken in response to internal influences such as government policy decisions and external shocks like the financial crisis.