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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
The World Bank Economic Review
Vol. 4, No. 3, A Symposium Issue on Imperfect Information and Rural Credit Markets (Sep., 1990), pp. 271-295
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/3989878
Page Count: 25
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The Thai Rural Credit System: Public Subsidies, Private Information, and Segmented Markets
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Abstract

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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