Bank for Agriculture and Agricultural Cooperatives (BAAC), Thailand (Case Study)
The Bank for Agriculture and Agricultural Cooperatives (BAAC) has operated in the rural areas of Thailand for just over thirty years. Originally conceived as a vehicle to deliver low-cost credit to Thai farmers, in recent years BAAC has been going through a process of adapting to the diversifying demands of a market-driven, growing rural economy. BAAC's current function is to provide credits directly to farmers and through agriculture cooperatives and farmers' associations at below-market interest rates for agriculture and agriculturally-related activities.
As BAAC has adapted to meet the varying needs of a changing market, it has also come to be internationally recognized as one of the few sector-specialized, government-owned rural microfinance institutions which has demonstrated a notable degree of success in carrying out it mandate without substantial need for government subsidies. The most notable features of BAAC's success are its tremendous loan outreach to Thailand's rural poor and its impressive savings mobilization, especially outside the Bangkok metropolitan market.
The paper concludes that BAAC's success can be attributed to factors such as:
- A workforce that is highly dedicated to provision of financial services to the agricultural sector;
- Heavy investment in careful screening of new recruits and in staff training;
- An unusual staff incentive program;
- Maintaining an emphasis on reaching financial sustainability - being cost- efficient in operations;
- Having a very good MIS system;
- Its relationship with the government;
- Building successful relationships with its clients.
The author further suggests that the following areas of reform might yield the greatest returns for BAAC:
- Interest rate reform;
- Expansion of BAAC's mandate from an agricultural bank to a rural bank;
- Elimination of or a substantial decrease in the level of cross-subsidization between borrower's client groups;
- A review of staff incentives;
- An increase in equity;
- Improved disclosure of loan losses, adequacy of loan loss provisioning, and rescheduling of loans.
[Abstract adapted from the author's]
