Credit for Poor and Low-income Entrepreneurs in Urban and Rural Northern Thailand

This paper reviews the institutional characteristics and finance technologies of formal and informal financial institutions in Chiang Mai, Thailand.

It notes that:

• Small rural enterprises have far better access to formal financial services than urban ones. This is due to the efforts of the Thai government to increase rural lending, particularly through the Bank for Agriculture and Agricultural Co- operatives (BAAC);
• Despite Thailand's economic boom, there remain thriving rural and urban informal sectors for small enterprise finance;
• Formal institutions still have a lot to learn from informal intermediaries, such as developing close relationships between borrowers and lenders, and flexibility in adapting loan contracts to individuals' needs;
• Informal intermediaries manage to fill the niches not yet covered by the formal system;
• To widen its outreach in the small enterprise finance market, BAAC has to also lend to non- farmers.

[Author's abstract]