Wilawan Watcharasakwet May 12,
2015
BAAN NA KLUEA,
Thailand—Buddhist monks aren’t really known for dipping into the
material world of finance. Phra Subin Paneeto, though, says he felt
he didn’t have much choice when he saw his neighbors near
Thailand’s border with Cambodia were struggling to make ends
meet.
So, in the early
1990s, he started a microlending operation with a few thousand
baht, lending small amounts to villagers to help pay for home
repairs, buy new farm machinery and pay off other, larger
debts.
Today, Phra Subin’s
micro-banking network has amassed about $60 million in deposits an
loans.
The idea is that its
66,000 members will each contribute sums ranging from 10 baht to
500 baht, or about 30 cents to $15, a month. Each member who wishes
to borrow is bundled together with three to five guarantors, and is
allowed to tap more than they put in, at an interest rate of 1% to
2% a month—or less if other villagers agree. Some borrowers pay no
interest.
The guarantors, who
are all members of the group, are often friends, relatives or
neighbors of the borrowers. Members have an incentive to be
guarantors so that others will be guarantors for them when they
wish to borrow money.
Half of the
venture’s earnings are paid to the members at the end of each year.
The rest go to a village welfare fund.
Thais have plenty of
other banking options to choose from. According to the Bank of
Thailand, the country’s central bank, about 90% of Thai households
have access to financial services. In rural areas,
government-sponsored village credit programs have lent more than $5
billion since the idea caught on in the early 2000s, making
Thailand one of the biggest players in the global microfinance
scene.
Nonetheless, demand
for Phra Subin’s Buddhist-flavored lending program, called Sajja
Sasom Sab, continues to gain traction.
Other temples and
monasteries around predominantly Buddhist Thailand have followed
his example. More than 40 of the country’s 76 provinces have
witnessed monks get involved in similar microfinance
projects.
The reason for Phra
Subin’s continued success?
Some borrowers,
depending on how well they are perceived to follow Buddhist
precepts such as telling the truth or avoiding intoxicating
substances, aren’t charged interest, Phra Subin says.
“Other financial
institutions, they look at your financial records, assets and
collateral,” he explained in a Buddhist temple in the hub of his
saving network here in Trat province. “But the community will
evaluate your good deeds.”
No-interest loans
cut into the lender’s profit margin, but Phra Subin says that is
offset by his system’s emphasis on Buddhist principles—he calls it
a karmic peer-pressure system—which makes defaults virtually
nonexistent.
“If you are not
honest or sincere to other group members, nobody will help you when
you want to borrow the money,” Phra Subin continued. “This
community will force you to practice Dharma, work hard, be honest
and take responsibility. Otherwise no one will want
you.”
Dharma refers to the
teachings of Buddha.
Other religious
groups around the world have tried to tackle poverty using
microfinance. The Roman Catholic charity Caritas Manila has helped
form microbanks in the Philippines that have expanded access to
credit there; its cooperative now has 20,000 members and has a
repayment rate of 96%. The Catholic church has embarked on similar
projects in Indonesia, where it has set up credit unions in remote
areas of the archipelago, such as Kalimantan province on the island
of Borneo.
In India, Hindu
charities and temples have helped rural communities secure loans
from banks. Indian banking regulations prohibit banks and
microfinance institutions from taking an explicitly religious
approach in their lending decisions. But some Hindu groups do help,
says Shantharam Pai, financial director with Shri Kshetra
Dharmasthala Rural Development Project, a charitable trust that is
associated with a Hindu temple in the southern state of Karnataka.
His organization acts on behalf of commercial banks, as agents, to
help people, mostly women, navigate the banking system and obtain
loans.
By applying Buddhist
precepts to its lending policies, Phra Subin’s microfinance
operation in Thailand goes considerably further than its
counterparts. Its supporters say that applying the concept of
karma, that an individual’s actions inevitably affect them later in
life, appears to reinforce the peer-pressure model that is at the
root of most microfinance programs, helping to keep the operation’s
borrowers from defaulting.
The operation’s
managers say there are no current defaults and the lender is in
contact with all borrowers who are late on their payments. In
Thailand’s commercial sector, loan defaults were about 2.16% of
outstanding loans, or 278.2 billion baht in 2014.
Moreover, the more a
borrower repays, the lower the interest rate will be the next
month, unlike at commercial banks, which calculate interest rates
at set levels.
Traditional bankers
generally applaud such a system. “These forms of lending and
savings promotion are typically observed in low-income communities
in rural areas,” says Piyasak Ukritnukun, managing director of CFG
Services Co., Ltd., a subsidiary of Bank of Ayudhya.
He said larger
commercial banks tend to shy away from similar lending structures
“due to the relatively small loan sizes and lower interest rates
coupled with high operating costs.”
There are other
potential drawbacks to the less-formal village microfinance system:
Much of the Sajja Sasom Sab network’s success is bound up in the
efforts of its charismatic founder, Phra Subin. Economists such as
Luxmon Attapich at the Asian Development Bank say it is sometimes a
problem for lenders to rely so heavily on the leadership of one
person. “What if they are not around anymore?” she
asked.
She and other
economists say that some informal microfinance programs, while
initially successful, ultimately falter because their leaders die
or move away.
Still, Phra Subin’s
network has been a boon to the many Thais who still don’t use the
formal banking network. According to an Asian Development Bank
report, more than 1.7 million Thais borrow from informal lenders,
including some 335,000 who borrow from loan sharks or other
unlicensed lenders.
Dusit Satharalai,
for instance, borrowed some 300,000 baht with an 8% annual interest
rate from an agricultural cooperative in 1992 to start a durian
plantation.
The venture was slow
to bear fruit, however. Twenty years later, Mr. Dusit found himself
struggling to make payments and prevent his land being seized.
Adding to his problems, the co-op increased his interest rate to
13% because of late payments, he said.
He borrowed money
from his sister, but when she had to pay for her children’s school
fees, Mr. Dusit was running out of options.
At his brother’s
suggestion, Mr. Dusit turned to the Sajja Sasom Sab group in 2013,
securing a 400,000 baht loan from the fund with an interest rate of
0.5% per month. After two years, he has already paid half of it
back and plans to clear his debt to zero by the end of this year,
including the co-op loan. Business has picked up at Mr. Dusit’s
plantation, which has helped with his payments, but the
lower-interest loan from the Sajja Sasom Sab has also eased his
struggles.
Mr. Dusit’s niece,
Panisa Satharalai, whose father borrowed 1 million baht from the
fund to rebuild the family home, says she has doubled her income
since then by offering home-stay accommodation and starting a
catering business.
“This is a happy
debt,” said Ms. Panisa. “This loan gave me a job and makes me want
to get up early every morning to work hard, and it shows how united
our community is. I won’t need to worry that I could not pay it
back and risk losing my house and land.”