Thailand - Farm credit report

RETURN TO REPORTS DESK RESTRICTE D WITHIN ONETH~IN RILeJReportN 0. TO-260 This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT THAILAND FARM CREDIT REPORT October 14, 1960 Department of Technical Operations CURRENCY EQUIVALENTS One Thai Baht = U. S. $0. 048 One dollar = S 21 One million baht = U. S. $48, 000 One million dollars = - 8 21, 000, 000 THAIIAND FARM CREDIT REPORT TABIA OF CONTETS Page No. SUMIMARY i- ii I. INTRDUCTION 1 II. THE AGRICULTURAL POTEXTIAL AM FARM CREDIT 1 III. EXISTINM SOURCES OF CREDIT 3 A. Non-institutional 3 B. Institutional 4 1) Commercial Banks 4 2) Tobacco Monopoly 4 3) Government Sugar Factory 5 4) Ministry of Agriculture 5 5) Ministry of Interior 5 6) Ministry of Co-operatives 5 a) General 5 b) Credit to Individual Farmers (Co-operative Credit Societies) 6 i) Small Co-operative Credit Societies 6 ii) large-scale Credit Co-operatives 7 c) Credit to Co-operatives 8 i) Revolving Fund 8 ii) Bank for Co-operatives 8 iii) Co-operative Banks 10 IV. RECOMMENDED CHANGES IN THE CREDIT SYSTEM 10 A. Co-operative Credit System 12 1) Small Co-operative Credit Societies 12 2) large-scale Credit Co-operatives 12 B. Establishment of an Agricultural Bank 13 1) Financing 14 2) Functions T1 3) Administration 15 4) Branches 15 5) Personnel 16 6) Operating Policies and Procedures 16 C. Other Credit Schemes 18 D. The Need for a Farm Credit Policy 18 -2- ANiNEXES 1. Credit Societies : Consolidated Balance Sheets 2. Lending Operations of Credit Societies 3. Bank for Co-operatives : Balance Sheets 4. Bank for Co-operatives : Statements of Profit and Loss 5. Bank for Co-operatives : Lending to Co-operatives and Analysis of Credit Outstanding 6. Co-operative Banks : Balance Sheets 7. Co-operative Banks : Profit and Loss 8. Credit for Fisheries SUll1ARY This report is the result of a study undertaken at the request of the Government of Thailand in April 1960. The Government had expressed its concern over the problem of rural credit in Thailand but before under- taking remedial measures wished to have the advice of IBRD. ii. The current level of rural indebtedness in Thailand is not high. The conditions of farming in most areas preclude the effective use of credit for production and most borrowing is for consumptive purposes. The major part of this credit is from non-institutional private sources at high ratc of interest but government funds are also available, mainly through a Co- operative System. Although there are exceptions in schemes linked directly to the production of specific crops and probably in a new large-scale credit co-operative organized recently, the record of existing government credit organizations is poor, iii. The Co-operative Credit System is the principal source of insti- tutional credit. It consists of nearly 10,000 co-operative credit socie- ties financed by the Bank for Co-operatives and two small co-operative banks. The performance of the system has been disappointing. The reasons for this situation include:(a) the failure to build up a staff trained in the technical aspects of credit procedures; (b) the essentially social character of credit operations with loans made exclusively to small farmers who have neither the actual nor potential capacity to repay their loans; (c) the use of most of the credit for consumptive rather than productive purposes; (d) the failure of members to undertake their responsibility for loan appraisal or recovery, and (e) the fact that although the Bank for Co-operatives has the form and structure of a bank, it performs only bookkeeping and cashier functions. The consequence has been that the re- sources of the system are becoming increasingly frozen in circumstances which make it almost inevitable that additional resources would also soon become frozen. iv. Apart from the credit schemes of the Tobacco Monopoly and one sugar factory, there is no institutional source of credit for crop produc- tion and farm investment for medium-scale commercial farmers which could become a viable credit operation. v. Improvement of the current rural credit situation should not.be considered except in the context of an over-all credit policy coordinated with the agricultural development program. This is especially true since both administrative and financial factors will require any new credit program to begin on a most modest scale, which, to be effective must be directed at areas of high priority where significant increases in produc- tion through judicious granting of credit would be practicable. vi. The missioh considers it vital that facilities be established to ex- tend production and investment credit to creditworthy farmrs. With this in mind, it recommemds the-establishment.,of a.new Agricultural Bank, whi.ch would stand on its own administratively independent of the co-operative movement. - 11 ** vii. The Ministry for Co-operatives should continue to operate, within its existing resources, the Co-operative Credit System which is ancillary to its social purposes and the co-operative movement. However, the Credit Societies should be reviewed and reorganized and all functions of the Bank for Co-operatives should be taken over directly by the Winistry. viii. Relative to the new Agricultural Bank, the mission recommends that it be established as responsible to the Ministries of Finance and Agri- culture with initial budget allocations amounting to about Baht 35 million during the first two or three years, Additional financial resources, in- cluding loans, would be required but the amount and timing would depend on the ability of the new bank to extend its operations on a sound basis. ix. The Agricultural Bank would at first establish a limited number of branches, perhaps five, according to the priorities established, and would lend directly to farmers; later the bank would consider lending to economically viable co-operatives or to members of such co-operatives. Some guide lines concerning the new bankfs operating policies and procedures are given in paragraphs 89 to 99 of the main report. THNIIAND FARM CREDIT REPORT I. ITRODUCTION 1. In September 1959 the Government of Thailand requested the Bank to investigate farm credit problems in Thailand and to make recommendations for an improvement of the farm credit system. 2. During the last forty years, the Government of Thailand has sup- ported a system of credit for low income farmers based on Co-operative Credit Societies. This system has not developed on a sound financial basis and has failed to meet the credit requirements of the rural population as the need for sustaining and increasing the rate of growth of agricultural output arose. 3. The following report is based on the findings of the Mission which visited Thailand in May and June 1960, and on the information received from the farm credit working party established by the Government prior to the arrival of the mission. A report on agricultural credit, the organization, management and administration of co-operatives and agricultural marketing, recently presented to the Government by the U.S. Operation hission to Thailand, was of considerable assistance to the Mission. II, THE AGRICULTURAL POTENTIAL AND FARM CREDIT 4. The scope for increasing Thailand's agricultural output is con- siderable, both through the intensification of production on existing farms and through the expansion of the agricultural area. Intensification of production can be achieved through double cropping where irrigation water supplies are at present available, through higher yields which research has already shown to be possible, and through the conversion of shifting culti- vation in the north and north-east to permanent cropping under appropriate agronomic practices. The expansion of the agricultural area can be achieved through irrigation schemes and the settlement of vacant land under government projects and under private initiative. 5. However, many basic problems must be overcome if the recent growth in agricultural output is to be sustained, let alone accelerated. At one extreme deforestation and existing and threatened erosion mast be corrected and at the other production and marketing practices for many products must be improved, to provide economic incentives for further expansion. The pro- vision of credit to farmers will not alone resolve these problems. 6. There are institutional and other factors which at present consti- tute barriers to the effective use of agricultural credit in Thailand. Some of the more important of these are: -2- a) the slow rate of introduction of improved farm practices because of the farmers' level of education which despite improvements is still too low and because of the shortage of technicians. There are less than 1,200 extension officers for over 2 million farmers and this small group of extension officers cannot even give full time to extension work because of time spent on admin- istrative duties. Consequently most farmers lack the knowledge required to change their production methods so that effective use could be made of credit; b) the average size of holdings is small, 25 rai or 10 acres, and fragmentation is common. Smallholdings provide too small and uncertain an income for systematic saving and do not encourage investment in equipment to change traditional systems of culti- vation; c) tenant farmers, about 10% of all farmers, do not have security of tenure and receive a very small share of the gross product. They have no incentive to invest; d) deficiencies in flood control and irrigation headworks make production prospects highly uncertain and inadequate roads, as well as absence of roads, discourage the cultivation of cash crops; e) low farm prices for many products give little economic incentive for investment. The export tax on rice bears heavily on the return to farmers. Farm prices are further reduced because there are few dependable government or co-operative marketing agencies and farmers sell largely to middlemen. These often exploit a situation in which farmers without storage facilities must sell immediately after harvest and, particularly in cases of farmers obligated through advances in cash or kind, short weighting goes uncontrolled. In many cases, however, wide trading margins and low farm prices arise from a chain of inefficiencies. The average quality of agricultural produce is low and processing is, in general, inefficient with low recovery rates, e.g. sugar, tapioca flour, oil, cotton etc. Experience shows that where higher prices are offered by the few efficient mills or marketing agencies for certain products such as tobacco, rubber, maize, vegetables and fruits, farmers are prepared to invest in fertilizer and so on and increase production, -3- 7. Under the circumstances outlined above it is not surprising that the effective demand for agricultural credit is at present limited. An economic survey of farms, in 1953, disclosed that only some 30% of-farmers re- ported any borrowing during the preceding five years and total farm in- debtedness amounted to less than 2% of estimated farm assets. The average debt per farm family was Baht 420 and the incidence of indebtedness was greatest among larger farmers owning more than 30 rai (12 acres) of land. Later sample surveys support the view that farm indebtedness is signifi- cantly greater than indicated by the 1953 survey. The conclusion remains, however, that the effective demand'.fot. credit is limited. 8. Within this relatively small volume of farm indebtedness a large proportion is related to day-to-day living needs, expenses of ceremonies and feasts and gambling. Demand for credit directly related to farm pro- duction emanates from a small number of farmers who use short-term credit for payment of some operating expenses and longer term credit for acquir- ing draft animals and machinery, clearing and improving land and the es- tablishment of plantations. III. EXISTING SOURCES OF CREDIT 9. The Thai farmer has many possible sources of credit, whether in cash or kind. These include non-institutional sources, such as, moneylenders, landlords, traders, retail shopkeepers, processors, friends and relatives. Institutional sources include the commercial banks and government agencies including one Sugar Factory, the Tobacco Monopoly and the Ministries of Agriculture, Interior and Co-operatives. A. Non-institutional 10. The 1953 economic survey of farms estimated that about 90% of all credit obtained by farmers came from non-institutional sources. Credit from these sources is attractive to farmers because loans are made promptly, with little formality, and specific collateral is seldom sought. However, the mot-ration of lending by merchants is mostly to obtain control of the far- mer's crop. 11. Terms vary widely. Most loans are for short-term and are repaid from the proceeds of the sale of a harvest or, more usually, by delivery of the crop to the lender. In many instances no specific interest rate is charged, it being incorporated in the price of goods sold on credit to the farmer or in the price paid for the crop. In transactions in kind a far- mer who, for instance, obtains seeds on credit will repay double the quan- tity within four to six months. In cases where specific interest is charged this frequently reaches 10% per month or more. 12. The bulk of non-institutional credit is used by farmers for con- sumption rather than productive purposes. Recently, however, there has been a significant increase in sales on credit of agricultural machinery and fertilizers. Average annual retail sales of agricultural machinery and equipment have been about Baht 60 million, of which about 50% were on credit. Credit amounting to about Baht 10 million was advanced in 1959 against sales of fertilizers. 13. There is no legal provision for chattel mortgage in Thailand, so agricultural machinery is sold by dealers on a hire purchase contract with 25% to 50% down payment. The term is usually one year but sometimes is ex- tended to two years. The price on credit provides the equivalent of a rate of interest of 12% to 15% per year on the cash sales price, or a rate equal to that of commercial banks. Penal interest is charged at a rate of 12% to 15% per year on failure to make instalment payments when due. Even under these terms dealers are reluctant to sell on credit. Farmers' repayment records are unsatisfactory but dealers consider that agricultural machinery credit for a longer term than they can give would increase sales. 14. Fertilizer importers sell on credit mainly to retailers, but in some cases to farmers. Retailers in turn sell on credit to farmers against repayment in cash or produce at harvest time. The cost to the farmer is high. He pays Baht 2.20 to Baht 5000 per kilogram for ammophos at the local store, against a wholesale price of Baht 1.90 per kilogram in Bangkok. Farmers' repayment records are bad. B. Institutional 1) Commercial Banks 15. There are 16 commercial banks incoxporated in Thailand and 11 branches of foreign banks. The government-owned Savings Bank also carries out commercial bank operations. The commercial banks have 81 branches in the capital area and another 210 mainly in urban centers of the South and Central Plain. The Savings Bank has 145 branches. Many rural centers are not served at all. 16. Many Thai banks have comparatively weak capital structures and competition for depositors has resulted in payments of interest varying from 1/2 % on current account to 10% on 12-months deposits. All have re- stricted discount facilities with the Bank of Thailand for commercial paper but none for agricultural paper. Interest rates charged are occasionally as low as 9% but usually range from 12% to 15% per year, Direct agricul- tural lending is very limited and only a few loans have been made to large landowners who can provide exceptional security. However, quite a size- able amount of short-term credit flows to agriculture through processors and traders. No statistics of agricultural lending by commercial banks are available. 2) The Tobacco Monopoly 17. The Thai Tobacco Monopoly provides credit to some 117,000 tobacco producers. The volume of loans and advances in kind and cash have averaged Baht 48.2 million annually for the three crops - 1956/57 to 1958/59. 18. The Monopoly fixes prices and production quotas for each supplier. Loans on the basis of the quotas are made in instalments during the season and are repaid from the proceeds of deliveries. Amounts of loans were limited to Baht 605 per kilogram of cured leaves for the last crop; interest was charged at the rate of 1.5% per year. 19. About 22,000 tobacco growers receive credit directly from the Monopoly which deals with the remaining 95,000 growers through middlemen called "outside growers". These middlemen provide the farmers with pro- auction credit against the security of their crop from advances of the Monopoly supplemented by their on resources. The terms and conditions of these credits to farmers, or the prices paid by the middlemen for the crops, are not controlled by the Monopoly. The system of using middlemen simplifies the operations of the Monopoly. Nevertheless the use of middle- men carries some danger of exploitation of the grower. 3) Government Sugar Factory 20. The factory established in 1956 at Supanburi in a newly irri- gated area has initiated a scheme for credit to its cane suppliers. Works, such as land clearance and preparation, and supplies, such as water, fuel, fertilizer and seed, are provided on a deferred payment basis. Security is a property mortgage and an obligation to deliver the borrower's crop to the mill. Payments, in one to three instalments, are deducted from the pro- ceeds of crop deliveries, no interest charge being made. Cash advances also are made to farmers in instalments as cultivation work progresses. 21. The scheme is as yet too new and on too small a scale to provide definite conclusions but it appears likely to result in a rapid increase in production to meet factory needs. The scheme, concentrated on a few farmers in one region, involving technical assistance and providing fair prices for produce, appears sound. 4) Ministry of Agriculture 22. During recent years the Ministry of Agriculture has administered several programs involving limited loans to farmers. The total advanced during the five years ending 1958 amounted to Baht 24.1 million including about Baht 21 million in emergency loans to paddy growers. 5) Ministry of Interior 23. The programs of commuity development and land settlement carried out by the Ministry of Interior include grants to rural comunities and some loans to farmers, Total credit extended to individuals in 1957 and 1958 amounted to about Baht 2.5 million. 6) Ministry of Co-operatives a) General 24. The Ministry of Co-operatives is by far the most important source of institational credit to farmers. Her6 again, a significant proportion is not utilized on production operations or inrestment but on consumption needs. 25. This Ministry sponsors, directs and controls the co-operative move- ment in Thailand. The co-operatives under its guidance include a number of -6- non-agricultural co-operatives, viz consumer, industrial and urban building co-operatives. The agricultural co-operatives include land co-operatives (purchase, settlement and improvement), produce marketing co-operatives and credit societies. 26. The Minirstry has a dual credit function. It extends loans direct- ly to Co-operatives, other than Credit Societies, from its Revolving Fund. It also controls the co-operative credit system through a Bank for Co-, operatives (and two small co-operative Banks) which have resources separate from the Revolving Fund. The Bank for Co-operatives extends credit to the Co-operative Credit Societies, which in turn make loans to individual farmers. 27. In May 1960, the Ministry had a staff of 2024, of which 1377 were in the field service. Some 60% of the personnel were engaged in work re- lated to farm credit. The administrative budget of the Ministry averaged Baht 28 million for the three years 1957 through 1959. b) Credit to Individual Farmers (Co-operative Credit Societies) 28. Co-operative credit outstanding at end of 1958 amounted to Baht 351 million. Roughly Baht 9 million was provided by Land Co-operatives to their members and all the rest was provided by Co-operative Credit Societies. 29. i) Small Co-operative Credit Societies: There are 9985 Agricul- tural Co-operativeTCrdit Societies established under the Raiffeisen prin- ciples, with a total membership of 180000. They serve 261 out of 448 Amphur (districts) and 63 out of 71 Changwat (provinces). Their density is highest in the ronoculture rice-growing area of the central plain, Mem- bership in each Society is limited to farmers with inter-related interests, which severely restricts the size of most Societies and limits their re- sources and volume of operations. In addition most members operate at near subsistence level with limited scope for effective use of credit and repay- ment. The average size of loan is only about Baht 1,600. 30. Each Society is nominally administered by a committee of six of its members, elected at the annual general meeting. The committees are supposed to process credit applications, make loan decisions and effect recoveries. Few of the committees take much interest or undertake any responsibility for loan appraisal or recovery. Field officers of the Minis- try of Co-operatives, most of whom have had little opportunity of proper training in rural credit, keep the books, .attend meetings of committees, make cursory study of loan applications and, in practice, do all the work and make all decisions for the Society. 31. Loans are made only to members and all members are jointly liable for all debts of the Society. Loans are made for a wide range of purposes with maturities up to 10 years. Interest rates are 10% per year. The pur- pose for which loans are required is treated as of less importance than tbe existence of security. Although general character and credit-worthiness are considered, each borrower is required to have two joint sureties and to mort- gage all his land to the Society. Most loans are for short or medium-term with maturities up to three years. According to the purposes stated in the loan applications some two thirds of all loans are for land improvement, erection and repair of farm buildings, purchase of machinery, implements and work animals, and general farm operating expenses (see Annex 2). A further one sixth is for longer term loans primarily for refinancing old debt but also for land purchase. However, the use of loan funds is not supervised and a major proportion is expended for non-productive purposes. 32. Consolidated balance sheets of co-operative credit societies as at the end of the four fiscal years 1955-58 are given in Annex 1. During this period, resources of the co-operatives increased by about Baht 63 million or 22%, of which additional borrowings total Baht 29.6 million, deposits total Baht 11.8 million and equity Baht 21.3 million. Borrowings and de- posits accounted for about 76% and 6% of total resources respectively as at the end of 1958. During the same period loans outstanding increased by about Baht 42 million which comprised an increase of short and medium-term loans of Baht 55 million and a decrease of long-term loans of about Baht 13 million. Credit operations of the societies are given in Annex 2. The co-operative societies' income mostly derives from the mark-up between the rates of interest of the Bank for Co-operatives (7%) and their own lending rates (10%). As they have small overheads, their book profits are substan- tial. During recent years, however, an increasing proportion of accrued interest receivable has not been paid. The delinquent interest receivable corresponded to about one year's interest on the loan portfolio as at the end of 1955 and to more than one and a half yearts as at the end of 1958. 33. Officials of the Ministry of Co-operatives estimate that about 20% of the loan portfolio is in arrears and that renewals granted each year also average 20co of the loan portfolio. The proportion of delinquent loans is undoubtedly higher. Recoveries in principal averaged about Baht 21.1 for the last four fiscal years ended December 31, 1958 while on the basis of average loan maturities, repayments should have exceeded Baht 50 million. Although loans are well secured, there is little chance that strong action towards recovery could be taken. 34. In 1955 a special scheme was initiated under which the Societies made crop loans to members of paddy marketing co-operatives under the guar- antee of their co-operative. These loans are secured by the borrower's crop, which must be delivered to his marketing co-operative. Repayment re- cord generally has been good and the system of security based on control of the crop is worth further exploration. Unfortunately few of the existing marketing co-operatives operate successfully and, consequently, only 20 out of a total of 119 participate in this scheme after six years of operating it. In 1959 loans extended under this scheme totalled only Baht 5 million. 35. ii) Large Scale Credit Co-operative: An interesting attempt to develop an improved type of credit society has been made recently at Pakchong on the Friendship Highway under a joint scheme of the Ministry of Co-operatives and USOM. 36, The Pakchong Society started operations in March 1959. All loans are short-term crop credit. An interest rate of 1% per month is charged and borrowers must purchase shares of the Society at the rate of Baht 5 per Baht 100 of each loan. Loans under Baht 3,000 must be secured by two guarantors and the borrowers' crop. - 8 - 37. Characteristics of the new Society, differentiating it from older ones, are : the limited liability of members; the large size, permitting the hiring of a manager; the selection of members from permanent residents in the area, who personally operate holdings producing appreciable marketable surpluses and who are known to be capable, honest and of good character; and, the provision of credit for farm production purposes only. 38. The average size of loans made has been Baht 2,700 (Bhat 60 per rai under corn) and all the initial lending resources of the new Society, Baht 409,500 have been rapidly committed. 39. The Pakchong Society appears to be an improvement on the old soci- eties but will require continuation of the current careful nursing by ex- perts of USOM and the Ministries. The credit provided is all short-term and, with the existing lack of longer term credit, the farmer will find difficulty in effecting improvements necessary for the full and proper use of the short- term credit he receives. Difficulties may arise from the requirement of mem- bers to buy shares while paying high interest rates, as both together consti- tute a severe financial burden for most Thai farmers. Also, there is no provision in existing legislation for crop liens, 40. Conditions at Pakchong are particularly favorable for the opera- tion of a credit society because the farmers are located near the main high- way, have good financial standing, and are operating economic units. Multi- plication of these new Societies, if the Pakchong one proves successful, will be much more difficult in most other regions. c) Credit to Co-operatives 4l. i) The Revolving Fund : The Ministry of Co-operatives ad- ministers a Revolving fund-built up ty budgetary appropriations and interest earned on loans from it,. This Fund amounted by the end of 1959 to Baht 103 million. 42. Loans are made from the Fund to co-operatives other than credit societies for long-term financing of investments and for supplementing working capital. Interest is charged at the rate of 2% per year to all co-- operatives except land co-operatives, which pay no interest. The repayment record of the co-operatives is not readily available but is believed to be unsatisfactory. Allocations from the fund for agricultural co-operatives at the end of 1959 amounted to Baht 76 million. 43. ii) Bank for Co-operatives : The Bank for co-operatives is a corporate body established in 1943 which serves as the central financing .institution for co-operative credit societies. Its authorized capital of Baht 10 million is owned by the Government and the credit societies. The Government's share is progressively retired as new or existing societies purchase shares. At the end of 1959, the Government held about 45% of the shares and the societies about 55$. 44. The Bank is administered by a board of seven members. The Minis- ter of Co-operatives is the Chairman and the Registrar for Co-operatives is Vice Chairman. Although the other five members are elected by representa- tives of shareholders, four are officials of the Ministry of Co-operatives -9- and one is an official of the Ministry of Finance. The bank personnel totals 76, including 48 clerks. The present manager has held office for about one year. 45. The Ministry of Co-operatives maintains close control of the operations of the Bank for Co-operatives and in fact directly undertakes most of the credit functions. The recommendations of the Ministry's field officers concerning the credit ceiling for each Credit Society during the coming year are made directly to the Ministry. Each year the Ministry pro- poses, and the Board of the bank endorses, the ceilings or lines of credit for each Society. The field officers' recommendations for loans of over Baht 6,000 are also submitted directly to the Ministry for approval. These loans, together with recommendations for loans of less than Baht 6,000 which are submitted by the field officers directly to the bank, are then considered by the bank's Chief Inspector. Few, if any, of the applications are revised or rejected by the Chief Inspector so long as the particular Society's line of credit has not been exceeded. In effect, the Bank for Co-operatives carries out little more than bookkeeping and cashier func- tions. 46. Condensed balance sheets of the Bank for Co-operatives as at the end of the last four financial years are given in Annex 3. During this period, total resources of the bank have increased by about Baht 28 mil- lion. While the authorized capital, fully paid, remained at its initial amount of Baht 10 million, reserves and the undistributed surplus increased during this period by about Baht 13 million, deposits and other liabilities increased by Baht 19 million and borrowings decreased by about Baht 4 mil- lion. 47. Borrowings, the average cost of which is about 4.31o per year, consist of loans and bond issues of the Co-operative Department of the Ministry of Agriculture (predecessor to the Ministry of Co-operatives) in- herited by the bank and of new loans contracted later from the Government Savings Bank and Ministry of Finance and from U.S. counterpart funds. 48. At the present time, the bank has little prospect of raising additional resources either in the form of share capital, deposits or bor- rowings and is faced with the problem of repayments on loans and bonds at the average rate of Baht 19.2 million for each of the fire years 1960-1964. 49. The credit portfolio rose from about Baht 239 million as at Decem- ber 31, 1956 to about Baht 271 million as at December 31, 1959. Not all of the growth of the loan portfolio has been due to increased credit opera- tions. Accrued interest is added to the co-operatives' loan accounts at the end of each quarter and during the last five years the amount of accrued interest earned averaged about 50% of the amount of new loans. 50. Condensed profit and loss statements for the last four fiscal years are given in Annex 4. As interest is automatically added to the borrowers' loan accoumts irrespective of the prospects of payment, the fairly good earning picture given by the profit and loss statements is only aparent. The small personnel expenditure is due to the fact that most of the credit operations are carried out by the Ministry. -10 - 51. loans made by the bank are nominally well secured but enforcement o2 recoveries is impracticable. As a large proportion of the loans made by credit societies from funds obtained from the bank, as well as related in- terests receivable, are frozen, the bank cannot obtain repayment of its credit lines. 52. The bank's operations for the last five years are shown in Annex 5. From 1947 through 1959, advances made by the bank totaled Baht 527 million, that is, on the average Baht 40.5 per year. Due to a shortage of resources, recent lendings have been restricted and for the last five years averaged less than Baht 32 million per year. 53. iii) Co-operative Banks : In 1951, two co-operative banks were established on an experimental basis in the northern part of the country. Shareholders comprise 1,131 individuals and 281 credit societies having a membership of about 5,000. 54, The objectives in establishing these banks were to attract local capital and obtain management by leading local businessmen so as to pro- vide more efficient services. These objectives have not been attained be- cause the return from investment in the co-operative banks is much lower than in any commercial bank or business enterprise and the co-operative banks have been unable to attract local investment either in shares or de- posits. Furthermore, as the Ministry of Co-operative's officers have a leading role in the banks' loan processing and decisions, representatives of shareholders have been permitted little say in the direction of the bankst credit operations, even though the Board of Directors consist of shareholders and not officials of the Ministry. 55. The co-operative banks lend only to their member credit societies. Members of these societies are required both to subscribe to share capital and to deposit an amount of not less than Baht 50 per year. Nevertheless, co-operative banks have remained dependent on advances from the Bank for Co-operatives for most of their funds. The shortage of resources of the Bank for Co-operatives has been reflected in the shortage of resources of the co-operative banks, which have been unable to meet the credit demand of their members. 56. Comparative balance sheets and statements of income and expenditure of the co-operative banks are given in Annexes 6 and 7. Both banks have always operated at a profit and have been able to pay 6% dividends annually to shareholders and to build up an appreciable reserve fund. Here again, however, much of the credit work is undertaken by officers of the Ministry. 57. Farmers' repayment records in the co-operative credit societies that the co-operative banks are serving are somewhat better than in societies directly attached to the Bank for Co-operatives. The quality of the co- operative banks' portfolios may be considered moderately good but these banks, with a total personnel of only seven persons, play a minor role in agricul- tural credit in Thailand. IV. HECONMENDED CHANGES IN THE CREDIT SYSTEM 58. The review of the existing sources of credit shows the heavy depen- dence of the Thai farmer on high cost forms of ncn-institutional credit. -The - 11 - -insignificant lending operations of commercial banks reflect the normal difficulty these institutions have in playing more than an indirect role in agricultural credit. Existing government sponsored credit through various Ministries or through agencies controlled by them is unco-ordinated and scattered over a large number of small organizations. Apart from the successful credit operation of the tobacco monopoly and the promising scheme of the Supanburi Sugar Factory, these bodies have steadily diminishing lend- ing resources which cannot meet farm credit needs. 59. The main source of institutional credit, the co-operative credit system has been costly for the Government and its results have been dis- appointing. Credit operations undertaken by the system have not resulted in lowering the average cost of money in rural areas and reducing the farm- ers' dependency from usury credit from non-institutional sources. Nor has credit made by co-operative credit societies ever had any noticeable impact on agricultural expansion. Only a small part of existing credit has been in effect applied directly to agricultural purposes; virtually all credit so applied isshort-term and for practical purposes no medium or longer term credit is made. 60. The reasons for the disappointing performance of the co-operative credit system have been made apparent. These include the failure to build up a staff trained in the technical aspects of credit procedures; the es- sentially social character of the credit operations with loans made exclu- sively to small farmers who have neither the actual nor the potential ca- pacity to repay their loans; and the fact that although the Bank for Co- operatives has the form and structure of a bank, it does not fulfill the functions of such an institution. The consequence has been that the re- sources of the system are becoming increasingly frozen in circumstances which make it almost inevitable that additional resources would also soon become frozen. 61. The co-operative credit system is basically a system of social assistance to low income farmers which calls for recurrent replenishment of its resources. There is no institutional source of credit for crop production and farm investment for medium and larger scale commercial far- mers, which could be a viable credit operation. 62. Attempts to graft a viable credit for commercial farmers on to the present credit system would not work. Experience shows that, in an organization attempting to perform mixed social assistance and credit functions, one or the other objective prevails to the detriment of the other. 63. Assuming that the policies of the Government require that social assistance to low income, non-viable farmers be continued, the present sys- tem as a whole could not be abolished. There is, therefore, a need for a new organization of credit concerned with farm production and investment. 64. In proposing changes in the credit system the mission recognizes that improvements could be introduced only slowly and initially on a re- stricted scale. It has borne in mind the factors limiting effective demand for farm credit and the time necessary to improve these conditions together - 12 - with the lack of trained personnel for credit operations. Broadly, the mission proposes that the credit system of the Ministry of Co.operatives should be reorganized, that a new Agricultural Bank should be established, and that farm credit policies be integrated with plans for agricultural development. A. Co-operative Credit System 65. The task of the Ministry of Co-operatives should be to improve the existing co-operative societies through which financial assistance to low-income farmers is channelled and promote the development of large- scale credit co-operatives among commercial farmers. 66. 1) Small Co-operative Credit Societies: Tho Ministry should imme- diately commence a thorough review of all the small co-operative credit societies. Those in which members show some interest and with promise of stabilizing or improving their financial situation should be maintained and where possible marged into larger units. The remaining societies should be placed under liquidation. Mergers and liquidations would re- sult in a smaller number of co-operatives, which would facilitate guid- ance and supervision. 67. The members of the co-operative societies to be maintained should have to take up shares in proportion to their operations with the society. This would be a start to some savings and should interest farmers more in their society. Credit operations should be restricted to short-term. 68. The Ministry should continue to finance these small co-operative credit societies. The resources of the Ministry for this purpose should be limited to the presently available funds of the Bank for Co-operatives and of the two co-operative banks, as well as to recoveries on loans and liquidations of credit co-operatives. As part of the review a complete analysis of the loan portfolio of credit co-operative societies should be made in order to obtain reasonable estimates of the amounts and a schedule of recoveries on outstanding loans. At that stage the government should decide whether additional resources are necessary to continue these cre- dit operations of social rather than economic character. 69. Since the M1inistry already makes decisions for the Bank for Co- operatives and the two co-operative banks, these institutions with their assets, liabilities and credit functions should be taken over and admin- istered directly by the Ministry. 70. 2) Large Scale Credit Co-operatives : When establishing new and large co-operatives, the Ministry Whoultd incorporate thefollowing charac- teristics: - 13 - - limited liability; - stock made of shares subscribed by members in proportion to their operations with the society- - membership limited to farmers who market a size- able portion of their crops and have a good character; - volume of business large enough to have contin- uous operation and employ paid staff; - credit operations restricted to short-term. 71. Co-operatives of this type should have fair prospects of success but should be tested longer under Thailand conditions. Only a few pilot co-operatives should, therefore, be started in areas and among farmers where they have the best chances of being successful. The availability of personnel to provide the new societies with technical assistance and of re- sources would, in any event, slow down the establishment of large-scale cre- dit co-operatives. 72. Large scale co-opEratives should be financed by the Ministry of Co-operatives until they have demonstrated operation on a sound basis. They might then be passed on to the Agricultural Bank for finance on its own account. It is possible that after some time of successful testing, new co-operatives of this type may be established by the Ministry of Co- operatives and immediately financed by the Agricultural Bank upon the assessment and decision of the Bank. 73. As large scale credit co-operatives extend short-term credit only, the Agricultural Bank should cover their members' medium and long-term cre- dit requirements. The co-operatives, however, could play a significant role in these longer term operations by supplying information' on their mem- bers' characters, holdings, business and capacity to handle funds and assist- ing in recoveries and eventually guarantee of the loans. Payments by the Agricultural Bank of a commission for these services would stimulate the societies' interest in these matters and provide some cover for any risks assumed by them. B. Establishment of an Agricultural Bank 74. As there is no likelihood that a farm credit institution will attract private capital, the Bank should be a government owned corporation or a statutory body. It should be established initially on a modest scale to operate through a head office and a limited number of branches in selec- ted regions while conditions for the effective use of farm credit are most favorable. For instance, originally Baht 5 or each Baht 100 borrowed, until the capital reaches a sizeable amount or adequate reserve funds have been accumulated. 14 - 1) Financing 75. The Government would need to accept responsibility for the provi- sion of financial resources until the unforeseeable time when the Bank is in a position to borrow or raise capital from other sources. The Govern- ment contribution should be primarily in the form of equity capital to make the agency creditworthy for later borrowings. 76. The equity capital could be built up in stages. An initial govern- ment contribution by. budgetary appropriation of about Baht 35 million to be paid in over a period of two to three years might be sufficient to start with. Provision should also be made for shares to be sold to farmers' organi- zations such as co-operatives. 77. No precise estimate can be made of the total volume of financial resources which the Bank would require until a study of priority needs, tak- ing into account factors likely to limit the rate at which credit could be granted, has been undertaken. Whatever the amount may be further government contributions in the form of equity and loans would be necessary. Any addi- tional government financial assistance in the form of loans should be for specific purposes and should be on a schedule similar to the schedule of amortization of loans to ultimate borrowers. 78. In time it would be possible for the Agricultural Bank to develop discounting facilities with the Bank of Thailand. Forlthiz, the Agricultural Bank must build up a loan business which is adequately secured to be accept- able to the Central Bank. 79. The Bank is likely to incur losses during the early years as its operations will be modest and it will have to spend for organization, train- ing of personnel and research. The Government should make good losses dur- ing the first few years in order that it may develop rapidly into a sound financial institution and might earmark Baht 5 million for this purpose. 2) Functions 80. The basic functions of the bank and of its branches would be pro- cessing, approval and administration of loans to:- - commercial farmers who are not members of credit co-operatives for production and investment needs; - agricultural processing industries and individuals or corporate enterprises which provide services for farmers; - members of large scale credit co-operatives for their investment credit needs; - credit and other agricultural co-operatives which are considered by the Bank to be economically viable. - 15 - 81. The Bank would also carry out economic investigations connected with extension of credit and plan, in liaison with government or agencies concerned, specific credit schemes. 82. As the banking system remains undeveloped in rural areas, branches - insofar as they are adequately staffed and equipped - should be empowered to carry out some simple banking operations for farmers and agricultural co- operatives such as keeping checking, savings accounts and internal transfer facilities. 3) Administration 83. While there must be some measure of Government control over the blank in view of the Government's responsibility and contribution, the agency should be endowed with as much autonomy as possible. The board should con- sist therefore of members representing the Government (Ministries of Agri- culture and Finance) and perhaps the National Economic Development Board and the Ministry of Co-operatives,together with members representing the Bank of Thailand and private agricultural interests. The size of the board should be restricted for expeditious dispatch of business. The functions of the board should be policy formulation and the establishment of the guide lines for the administration of the institution, 84. Management, including approval of credit applications within the limits and along the lines of policy set by the board, should be left to a general manager who would be responsible for the day-to-day operations of the agency. Particular attention should therefore be paid by the board to the qualifications of the general manager who should be a good administra- tor, conversant with development problems and familiar with financial con- cepts and with credit procedure. 4) Branches 85. The Bank would operate through branches established in main coun- try centers. Decentralization through branches is necessary to ensure close contact with borrowers and more rapidity and flexibility in operations. It would also permit some desirable specialization, as credit problems present aspects varying with regions and the main crops grown in each region. 86. Owing to the untested operating procedures of the bank, the likely limited resources in capital and personnel and the factors which may limit credit demand or the rate at which loans can be made, the new organization must be modest in size. The speed with which personnel could be trained and the availability of resources would determine the timing of the opening of branches. The first branches should be located in regions where condi- tions are most suitable for agricultural expansion and effective use of credit by farmers. Very tentatively, it is suggested that about five ini- tial branches might cover the following: north-east for upland crops; southern and south-eastern part of the country for tree crops; irrigated areas of the Central Plain for rice and diversified cultivation. The northern area could be served by branches replacing the two co-operative banks. - 16 - 87. Branches should be given considerable latitude in operating within the limits and along the lines fixed by the Agricultural Bank in order that decentralization may be effective. Branches should be administered by a manager assisted by an advisory committee, with representatives of farmers' interests and of governmental local services dealing with agriculture. The local Governor should also be represented. 5) Personnel 88. The selection of dependable personnel is a prerequisite to the smooth functioning and efficiency of the organization. Some personnel of the Bank for Co-operatives and of the Ministry of Co-operatives concerned with credit operations might form the nucleus of the staff of the bank. Many, however, would need special training notably in banking and lending practice and procedure. The Government might seek technical assistance in this connection, The recruitment of clerical personnel does not seem to be a problem. 6) Operating policies and procedures 89. Within established priorities (see Credit Policy later) the pro- ductivity of borrowers' projects should be a prerequisite to their con- sideration and the basis for loan appraisals. Loan appraisals should in- clude an appraisal of the borrowers' technical ability to carry out the proposed project, particularly as extension facilities are at present inade- quate. 90. The bank should be prepared to cover adequately the total credit requirements of farmers who are granted loans. Inadequate financing of the whole farm enterprise, as well as particular projects, may well cause fail- ure of the projects and result in default. The current practice of setting ceilings to loans should not be adopted by the bank but the number of bor- rowers should be limited to those who can be accommodated fully. 91. Adequate security should be obtained as an insurance against un- expected developments and misapplication of proceeds of loans and as a medium to ensure the timely execution of loan contracts. Security appraisal should have regard to the applicant's general creditworthiness based on character, general economic and financial position, satisfactory repayment records, the existence of an adequate collateral or surety and/or on the degree of control which can be exercised over the marketing of his crop. 92. Mortgages on land should be required for all long and medium-term loans as the cost and procedures involved would not be such as to impede an extensive use of this type of security. The requirement of a mortgage would benefit farmers in clarifying their land titles. 93. Comprehensive legislation on chattel mortgages is needed in order that medium-term loans for purchase of movables may be secured by a chattel mortgage on theses items. Until such legislation is passed an alternative might be conditional sale contracts. This might also be used as an alter- native to real estate mortgage. - 17 - 94. Short-term loans should be secured generally by the crops grown by borrowers but, for enforcement, a law on crop liens is needed. Arrange- ments should also be worked out with marketing co-operatives, processors of agricultural products and government purchasing agencies (Public Warehouse Organization) in order that the bank may obtain the proceeds of the sale of commodities in liquidation of its loans. 95. Collateral security of guarantors should continue to be obtained as it seems well adapted to the local conditions and guarantors have, in effect, exercised some control over borrowers. Too widespread a use of this type of security would render it less effective but it seems indispens- able in the case of tenants. 96. At this stage, no specific suggestion can be made regarding in- terest rates. However, the cost of farm credit and risks are in fact likely to be high and income of the bank should as far as practicable ensure ade- quate coverage and leave a margin for building up reserves. 97. Supervision of loans to an extent compatible with cost and avail- able personnel, should be undertaken to avoid misapplication of loans and to follow the changes in the borrower's financial position. Because of high cost and limited personnel, loan supervision initially might be in the form of spot-checks, particularly on medium and long-term loans. in the case of purchase of goods such as fertilizers and machinery, disbursements should be made only against documents. 98. Credit in kind, which avoids the risk of misuse of loans, should also be used as far as practicable. Since branches are not equipped to ex- tend credit in kind, arrangements with dealers in agricultural supplies, supply co-operatives or suppliers of services should be worked out. The cooperation of many of these agencies can be expected because of the result- ing expansion of business and they might even be prepared to guarantee part or all of some loans for the purchase of supplies or equipment. 99. In establishing terms and conditions for loans certain general principles should be borne in mind. Loans should be granted for a term and with a repayment schedule related to the production cycle and the timing of the receipt of benefits from the investment. Even for short-term credit, different arrangements need to be made for payment of labor, purchase of animals for fattening and fertilizer for crops with an extended production cycle, such as sugarcane and cassava. Medium-term credit of from 2 to 8 years also requires differential arrangements for land improvement, pur- chase of breeding stock, draft animals, machinery and for replanting plan- tations or altering cropping patterns. Long-term credit, over 8 years, usually applies to land purchase and arrangements may well vary for differ- ing farming systems or the establishment of experienced farmers compared with young farmers, including graduatei of agricultural schools. Where new farmers are being established the economics of the undertaking could be jeopardized by too great a dependence on credit and too little investment of personal resources. - 18 - C. Other Credit Schemes 100,. The credit schemes of the Tobacco M14onopoly and the Supanburi Sugar Factory, which provide direct control over marketing of crops grown by borrowers, could be continued. Other undertakings might well be war- ranted if run along similar lines. 101. Although commercial banks have confined their operations to the financing of trade and commerce and have little or no experience in lend- ing to agriculture, they are likely to become interested as the tclimate' for agricultural lending improves. The provision of discounting facilities from the Bank of Thailand adapted to the characteristics of agricultural paper should be considered when conditions are appropriate. If made avail- able these discounting facilities should be used within a defined credit policy with established priorities, D. The Need for a Farm Credit Policy 102. The proposed modification of the co-operative credit system and the establishment of an Agricultural Bank should materially improve farm credit facilities in Thailand. However, this is not enough. Conditions limiting the demand for credit must be improved before the great majority of farmers could make effective use of credit. Secondly, it is clearly not possible to provide credit for all purposes in all parts of the country at the same time. This means that farm credit agencies must know what agri- cultural endeavors should be encouraged and the essential priorities. 103. Under the existing situation the Government needs to formulate a clearly defined and properly integrated policy for agricultural development. On the basis of such a policy an action program could be evolved within the limits of technical manpower and financial resources. Against the background of such an agricultural policy and program, a supporting agricultural crodit policy could be formulated. As an initial step at least, government depart- ments involved in planning agricultural development should agree on regional and product priorities, towards which credit facilities will be directed. 104. Over the whole range of crops the use of fertilizer would merit priority credit consideration. Nevertheless, credit for fertilizer should be directed to farms producing priority crops, where improved cultural meth- ods are practiced and water control is at least moderately effective. 105. Similarly farm mechanization should be considered a priority in- vestment in areas where crops and terrain are suitable e.g. where rice is broadcast; upland crops in the north-east; and, sugarcane and cassava since yields of these crops increase considerably with better soil preparation. 106. Farm machinery credit should be given for a higher proportion of the price and for a longer term than is provided by dealers at present. In all cases, farm mechanization credit should be given only where dealers main- tain adequate spare parts and services. Care should be exercised to ensure that suitable types of machinery are bought and some guide to these may need to be obtained from experiments of the technical services in cooperation with dealers. - 19 - 107. Where holdings are too small for individual mechanization, credit should be extended to selected farmers, or contractors, capable and willing to do custom work. There are already a number of farmers in Thailand suc- cessfully carrying out such work for neighbours. The experience of the Supanburi and other mills which undertake mechanized cultivation for farmers indicates that this is a system giving good results. Joint ownership of machinery by a small group of farmers, for whom technical guidance is pro- vided, can be successful also. Government machinery pools are not easy to manage and far more failures than successes are recorded. 108. In summary, the aim at this time should be to develop credit fa- cilities in selected regions to meet the full credit needs of selected farmers for specific crops and purposes. The regional coverage should be extended and the scope of lending should be widened as further technical and financial resources can be made available and as the conditions limit- ing the effective use of credit are improved. September 23, 1960 ANNEX 1 AGRICULTURAL CO-OPERATIVE CREDIT SOCIETIES CONSOLIDATED BAIANCE SHEET AS AT 12/31/55 - 12/31/198 (in thousand baht) 1955 1956 1957 1958 Number of Operating Societies 9,832.0 9,835.0 9,858.0 9,932.0 ASSETS Cash in hand and banks 2,9946.5 3,595.7 2,951,.8 3,199.4 Loans 254,152.3 259,538.4 274,400.3 295,862.3 Interests receivable 25,725.8 30,749.0 38,165.6 46,119.9 Investments 7,730.5 7,775.8 7,812.0 7,911.1 Other assets 26.2 35.0 35.0 160.0 Misappropriations 365.4 251.1 264.4 539.3 Total 290,994.8 301,945.0 323,609.1 353,792.0 LIABILITIES Share capital 257,8 261.3 263.4 271.3 Reserves 32,006.6 40,278.6 46,641.3 53,316.0 Common-good fund 1,258.4 1,720.5. 2,7..7 2,435.4 Borrowings 239,137.5 239,188.9 249,721.0 268,781.3 Deposits 9,005.9 13,351.4 17,341.8 20,774.8 Other liabilities 79.6 70.2 90.7 151.9 Profits 9,248.9 7,074.1 7,476.2 8,061,3 Total 290,994.7 301,945.0 323,609.1 353,792.0 ANNEX 2 LENDING OPERATIONS YDE BY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETIES 1955 - 1958 (in thousand baht) Loans Loans Repa y ment Outstanding Granted Principal Interest Total at End of Year 1955 19,635.7 20,219.1 21,357.6 41,576.7 254,112.3 1956 26,860.8 21,481.6 21,452.6 42,934.2 259,491.5 1957 36,533.4 21,638.9 20,020.8 41,659.7 274,386.1 1958 42,582.3 21,106.2 21,299.1 42,405.3 295,862.2 LOANS MADE FROM 1956-1958 DETAILED BY PURPOSES (in thousand baht) 1 9 5 6 1 9 5 7 1 9 5 8 oo of' Amount Total Amount Total Amount Total Long-term loans: Old debt refinancing 5,859 21.81 5,736 15o7o 6,27 1L.70 Land purchase 688 2.56 912 2.49 1,128 2.70 Short & Medium-term a Shor & Mdiumte loans : Work animals 9,453 35-19 11,351 31.07 12,232 28.72 Land improvenent 3,063 ll40 .6,799 18.61 8,605 20.21 Food grains 431 1.61 893 2.44 2,315 5.44 Pumping engines 816 3.o4 1,452 3.97 1,697 3.98 Seed and fertilizers 181 68 314 .85 1,507 3.5.3 Farm inplements 891 3.32 1,160 3.17 1,342 3.15 Carts and barges 1,035 3.85 1,162 3.18 994 2.23 Ceremonial expenses 133 .49 141 .38 108 .25 Wages, rents and taxes 146 .55 2 .05 2 .04 Others 4,165 15-50 6,611 18.09 6,405 15.05 Total 26,861 100.00 36,533 100.00 42,582 100,00 a/ No distinctions made in the records between short and medium-term loans. ANNEX 2 Page 2 LOANS OUTSTANDING AS AT THE END OF 1955 TO 1958 BY MTURITY (in thousand baht) Loans Outstanding Number of Medium-term2/ Societies Long Terml/ and short-term 3/ T o t a 1 1955 9,832 175,801.6 78,310.7 254,112.3 1956 9,835 169,622.3 89,869.2 259,491.5 1957 9,858 164,683.2 109,702.9 274,386.1 1958 9,932 162,098.8 133,763.4 295,862.2 1/ Iong-term -- for old debts refinancing and purchase of land - Up to 10 years jMedium-term i) For purchase of farm implements and for ceremonial purposes - Up to 2 years ii) For purchase of work animals, farm implements and equipment, erection and repair of farm buildings and land improvement - Up to 3 years }/ Short-term - for current operating and family living expenses - Uaually up to 1 year. AlNEX 3 BANK FOR CO-OPERATIVES COIIPARATIVE BALANCE SHETS AS AT 12/31/56 - 12/31/59 (in million bahts) 1956 1957 1958 1959 ASSETS Cash in hand and banks 44.0 65.6 26.6 37.7 Advance to Coop. Societies 238,9 250.2 268.5 270.8 Less: reserve for bad' debts 0 0.1 0.2 0.2 238.9 250.1 268.3 270.6 Other assets - .1 2.0 2.5 Fixed assets 0.3 .3 .4 .3 283.2 296.1 297.3 311.1 LIABILITIES Authorized paid-in-capital 10.0 10.0, 10.0 10.0 Reserves 7.7 11.5 15.2 19.4 Deposits 16.0 20.6 25.4 31.1 Other liabilities 3.7 4.7 4.5 7.5 Bonds and borrowings: )4h% Coop.-Bonds 15.1 14.0 12.9 11.7 Government Savings Bank 113.6 113.7 110.0 112.5 Ministry of Finance 107.2 111.3 108.7 106.9 Counterpart funds 4.3 4.7 4.4 4.2 Dept. of Producers' Coop. - - - .9 240.2 243.7 236.0 236.2 Profit 5.6 5.6 6.2 6.9 283.2 296.1 297.3 311.1 ANNEX 4 BANK FOR CO-OPERATIVES Comparative Statement of Profit and Loss and Income Appropriation (in million bahts) 1956 1957 1958 1959 INCOME Interest on loans 16.8 17.2 18.3 19.0 Interest on deposits made 1.2 1.6 1.3 1.1 18.0 18.8 19.6 20.1 EXPENDITURES Interest paid on borrowings 10.0 10.2 10.3 10.2 Interest paid on deposits received 0.6 0.6 0.7 0.6 Personnel 1.9 2.4 2.5 2.5 Others 0.6 0.7 0.6 0.6 13.1 13.9 14J 13.9 Net income 4.9 4.9 5.6 6.2 Surplus carried forward 0.7 0,7 0.6 0.7 5.6 5.6 6.2 6.9 APPROPRIATIONS Reserves 3.8 3.7 4.1 5.2 Dividends (6 fo) 0.6 (8%) 0.8 (8%) 0.8 (8%) 0.8 Bank Directors' & Officers' bonus 0.5 0.5 o,6 0.6 Carried forward 0.7 0.6 0.7 0.3 ANNEY 5 BAZZ OF CO-OPERATIVES LENDINGS TO CO-OPERATIVES (in million baht) Credit Number of Interest Outstanding Co-operatives Amount Charged as at the End Receiving Loans of Loans Accounts Repayments of the Year 1955 9,834 20.1 16.7 44.3 237.0 1956 9s837 28.6 16.8 43.4 238.9 1957 9,861 38.7 17,2 L4.6 250.1 1958 9,935 42.7 18.3 42.8 268.5 1959 9,988 28.3 19.0 45.1 270.8 ANALYSIS OF CREDIT OUTSTANDING AS AT THE END CF 1956 TO 1969 (in million baht) 1956 1957 1958 1959 Coop. banks 8.4 8.1 7.4 7.7 Coop. credit societies 230.5 241,1 260.1 261.4 Paddy mrketing societies - - - .8 Bangkapi land hire-purchase - 100 1.0 .9 Coop, Society 238.9 250.2 268.5 270.8 MANE 6 cuKlAROIE mlE . AS AT JE 30. 1956 - JUNE 30, 1959 (in thual at 195 6 19 7 19 8 u. Total d. U. VTotal C. U. Total C. U. Total In an ha 299.l 1,09. 61.8 865.h 52.4 917.8 651.6. 53.4 705.0 767.9 231.8 999.7 Eaia ~ ~rtolio 6,390.7 2,9~8.2 9,338.9 6,h55.9 3,139.7 9,595.6 6,232.7 3,176.9 9,409.6 6,176.8 2;929.6 9,106.4 OR,e .e1sLg e rna ~Jan Aas~ 1m-l 27.4 bhy.8 06.6 23.9 430.5 393.5 20.4 13.9 382.3 12.9 395.2 0~ru.t - 4. I.7 - 2.9 2.9 - 3.9 3.9 - 2.9 2.9 Total 7,30.5 3,089.7 10,20o.1 7.727.9 3.nB.9 10,966.8 7,277.8 3,254.6 10,532.4 7,327.0 3,177.2 10,504.2 a edael 50.2( ) 508.2( ) 508.2( ) 508.2( ) Besr 71.2( 365.0 ,05.0) IE.2( 28.7 ,Å0o.9) 147.8( 497.6 1,272.3) 206.3( 561.8 1,4c.3) ~hfte 80.6( ) M.8( ) 118.7 ) 129.0( ) ~te 367.5 906.5 27.0 1,017.9 534.4 1,532.3 740.7 765.2 1,505.9 690.0 615.3 1,3C5.3 Rek %r Co ~Watives h,2%6.5 h6.0 k,672.5 2,867.5 760.7 3,628.2 2,366.4 556.9 2,923.3 2,660. 619.7 3,280,1 cama0"te- t0 1816.1 1h12.1 3,228.2 3,128.5 515.0 h,643.5 3,365.8 1,431.2 4,797.0 3,131.2 1,374.3 4,505.5 Cther 1**L- 0 0.1 0.5 1.8 0.1 1.9 30.2 3.7 33.9 1.9 6.1 8.o T 7,110.5 3,089.? 10,200-2 7,72-9 3,21.9 10,9b6.8 7,277.8 3,254.6 10,532.4 7,327.0 3,177.2 10,504.2 C. - ~= ad co-O vate ar. u. - ute~at co.ariw n. ANNEX 7 CO-OPERATIVE BANKS COMPARATIVE STATEMNT CF PROFIT AND LOSS AND INCOME APPROPRIATION (in thousand baht) 1 9 5 6 1 9 5 7 1 9 5 8 1 9 5 9 C. U. Total C. U. Total C. U. Total C. U. Total INCOME Interest h2.1 195.9 638.0 439.2 211.1 65o.3 440.1 217.1 657.2 447.7 216.8 664.5 Miscellaneous 0.1 - 0.1 0.1 - 0.1 0.7 - 0.7 0.6 0.2 0.8 442.2 195.9 638,1 439.3 211.1 6506 440.8 217.1 657.9 h8.3 217.0 665.3 EXPENDITURES Interest paid 332,0 88.3 420.3 308.6 107.8 416,: 292-3 109.4 hol.7 289.1 107.0 396.1 Stationary 2,2 .1.1 3.3 2.6 0.3 2.9 5.0 1.0 6.0 6.2 - 6.2 Personnel 4.7 4 h.7 4.8 - 4.8 5.1 - 5.1 5.1 - 51 Travel 2.3 1.6 3.9 2.3 3.0 5.3 2.1 3.2 5.3 1.8 3.1 4.9 Depreciation 16.6 2.2 18.8 13.8 4.8 18.6 13.1 3.5 16.6 11.8 1.6 19.4 Others 3.8 h.o 7.8 4. 1.0 5.h 4.5 4.6 9.1 5*3 1.7 7.0 361.6 97.2 458.8 336.5 116.9 453.4 322.1 121.7 443.8 319.3 119.4 438.7 Net Income 80.6 98.7 179.3 102.8 94.2 197.0 118.7 95.4 214.1 129.0 97.6 226.6 APPROPRIATIONS Co-mon good fund 1.0 4.9 5.9 1.0 4.7 5.7 1.0 4.8 5.8 1.0 ho8 5.8 Stabilization fund 5.0 9.9 14.9 5.0 9.4 14.4 5.0 9.5 14.5 5.0 9.7 lt.7 Boaus 20.1 24.7 44.8 25.7 23.5 49.2 29.7 23,8 5365 32.2 24.2 56.4 Reserves 24.1 48.9 73.0 40.6 45.9 86.5 52.5 46.4 98.9 60.3 11.3 71.6 Dividends on shares 304 10.3 140.7 30.5 10.7 41.2 30.5 10.9 41.4 30.5 47.6 78.1 C. = ChienR Mai U. = Uttaradit CREDIT FOR FISHERIES The Mission was also requested to comment on the credit needs of the fishing industry. Fish culture in fresh or brackish water is often carried out in conjunction with rice farming and presents problems similar to those net with in agriculture. Many fish farms are being established without the aid of insti- tutional cedit. Actual case histories show that investments in fishponds, sluices and protective dams involve mainly the payment of labor and the investment can be amortized over two or three crops, because of the present profitability of these enterprises. Credit to cover operating expenses, repairs and replacements represent a seasonal requirement similar to crop credit. Credit requirements on fish farmers differ little from those of other farmers and, therefore, could be met under the recommended credit system The problems of marine fisheries are not well documented and appear to be complex. The main aspects of the situation'of the indust.ry noted by the mission are: 1) Owner-operators and owners of outfits operated by a crew are most frequently heavily in debt, either for capital equipment or operating expenses or both. 2) Loans are obtained from non-institutional sources, in- cluding boat builders, equipment dealers and middlemen operating in fish markets. 3) laddlemen require fishermen to sell their catch through them; they fix prices and take a share of the proceeds up to 10% and sometimes a monthly interest, usually of 1.0. 4) There are no adequate government credit schemes for fishermen. 5) Fish processing and marketing are poorly organized and equipped. A ring composed of a few middlemen enjoy high profits, while fishermen get very low returns. 6) Additional investments in fishing boats, trawlers, fishing gear, refrigeration facilities and transportation equipment, which might result in an important development of the industry, call for heavy investments which can only be amortized cver long periods. Risks are great, 7). There is a considerable need for research and extebsion, Fishery officers &r@ at present mostly tax collectors. Under the circumstances, extension of credit to the marine fishing industry would be extremely risky without any certainty of an impact on pro- duction and the well-being of the fishermen. No specific recommendations can be made at this time except that a comprehensive study of the situation appears to be warranted.