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© 1990 International Bank for Reconstruction and Development / The World Bank

research-article

The Thai Rural Credit System: Public Subsidies, Private Information, and Segmented Markets

Ammar Siamwalla, Chirmsak Pinthong, Nipon Poapongsakorn, Ploenpit Satsanguan, Prayong Nettayarak, Wanrak Mingmaneenakin, and Yuavares Tubpun

Ammar Siamwalla is president, Thailand Development Research Institute
The other authors are members of the economics faculty at Thammasat University, Bangkok, Thailand

Thailand has sought to increase farmers' access to credit by government intervention. In 1966 it created a government agricultural bank to lend solely to farm households, and beginning in the late 1970s it required commercial banks to lend heavily in the rural sector, either directly or by making deposits in the agricultural bank. The result was an enormous expansion of credit in the rural sector. But because formal lenders were either unable or unwilling to solve the information problems involved in the broad range of rural credit transactions, the informal credit sector (which charged interest rates many times higher than the formal sector) continued to thrive. Using household surveys and surveys of moneylenders, this article provides a detailed analysis of the ways in which lenders in the informal sector have solved the information problems of providing credit. The authors argue that the informal sector is competitive, and that high interest rates reflect high information costs, not the scarcity of funds.


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