Paper

Microfinance in Rural and Urban Thailand: Policies, Social Ties and Successful Performance

How do social ties and compulsory savings impact repayment rates?
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This paper analyzes the impact of social ties and policies such as compulsory savings and training on repayment rates of joint liability lending programs.

The research is based on a panel database on household loans from the Village Fund Program in rural and urban Thailand. Results suggest that:

  • Repayment is positively associated with strong social ties;
  • Compulsory savings or training in joint liability programs impacts repayment rates positively;
  • Repayment decreases with degree of joint liability in urban and rural communities;
  • Repayment decreases with availability of formal credit in urban communities;
  • The more diversified a pool of borrowers is in terms of economic activity, the less vulnerable it is to shocks.

The paper states that local knowledge of rural households on people and institutions in the region can be utilized to design new programs. The cost and benefits of a new policy or training should be analyzed before implementation to assess if it represents a positive innovation for the program.

About this Publication

By Huerta, A.
Published