While Thailand currently boasts the highest level of formal financial usage in the South East Asian region, current high levels of financial inclusion and access do not necessarily translate into availability of all financial services across all income groups. Featuring a diverse regulatory environment that covers everything from pawnshops to savings groups, Thailand’s main area for access improvement lies within the provision of appropriate, relevant insurance and credit products for different groups working within the informal market.

Though there are already high levels of financial access in Thailand, there are many factors that will shape the future nature of financial provision for lower-income households. These include:

• Economic growth: Expected increase in the incomes of Thais increases demand for financial services. It also leads to an increasing demand for more sophisticated financial services.
• Migration patterns: Continued internal and cross-border migration will see an increase in demand for remittance services.
• Informality: The majority of employment in Thailand is informal in nature (62%), either through self-employed microenterprises, farming or piece work, and this trend will continue.
• Stable society with strong social capital: The strong cultural values placed on cohesive households and supportive communities have generated Thailand’s successful signature network of community-based financial institutions.
• Connectivity: Thailand enjoys high levels of access to mobile phones and the internet. 99% of the population use a mobile phone, 88% own a mobile phone, 50% use a mobile broadband-based phone (smart phone), and 26% currently have internet access. This is likely to drive new business models for financial service delivery but will require concerted effort in conjunction with the government driven / affected entities (SFIs and CBFIs).

An Included Market with Room for Improvement

Thailand’s financial sector inhabits a regulatory and policy environment that was greatly affected by the 1997 Asian financial crisis. The crisis forced the Ministry of Finance and Bank of Thailand to place the emphasis for commercial bank operations on stability and soundness rather than expanding into higher-risk low-income markets, a decision that reinforced the approach of state-provided financial services for the majority of the Thai population. In the absence of any external interventions, the market in Thailand is likely to continue developing as it has in the recent past. With heavy reliance on state infrastructure, the risk of stagnation and limited innovation is high, as well as the limited drive to steer business models away from unsustainability. The cost of service to the client by the private sector is also likely to remain high for the foreseeable future given the high cost of payment services referred above. Any interventions therefore need to focus on the sustainability of current models, as well as how to lower costs by leveraging the mobile networks, improve quality of services, and ensure faster inclusion for all.

The 2013 FinScope survey revealed that 74% of Thailand’s adult population has a bank account, while an additional 23% use other formal financial services and a further 1% utilize only informal products. This leaves just 1% of the Thai adult population that is not using financial services of any type. Despite high levels of formal access to financial services, however, substantial pockets of unmet demand remain, especially in regards to the utilization of formal credit products, insurance, and mobile money transfers.

Notwithstanding Thailand’s impressive record for some forms of formal financial inclusion, there are still challenges that remain in achieving increased and innovative solutions for financial access. At a macro level, the situation is evolving, and the following will require concerted effort at a policy and implementation level to encourage financial inclusion:

• Increased provision of financial services – savings, credit, payment services, investment – to informal businesses and those employed in the informal market.
• As a result of previous state-led financial inclusion initiatives, there has been limited expansion by commercial banks to low-income or rural households despite the issuance of the Microfinance Guidelines for Commercial Banks by the Bank of Thailand in 2011

At a MESO level, key barriers include:

• Most formal financial institutions have inadequate mechanisms and procedures to adequately assess client loan repayment capacity and instead rely too much upon collateral as a means of protecting against the risk of non-performing loans
• Both direct and indirect costs for sending money via the banking system are high, particularly for smaller amounts

At a micro level, there exist several barriers to financial inclusion including:

• High number of customers already utilizing formal financial services, thereby creating perceived market saturation from an institutional point of view
• Formal credit and insurance products include features and requirements that are inappropriate for low-income households

From a customer perspective, barriers include:

• Proximity of access and opening hours for customers in non-municipal areas
• Price sensitivities to formal credit products and high use of informal credit services
• Difficulty complying with formal financial institutions’ requirements, vis-à-vis proof of income, proof of residence, etc.
• Lack of financial literacy and financial management ability, especially in regards to debt
• Lack of cheap, efficient money transfer services for both domestic and international remittances
• Overly complex loan application procedures and documentation requirements which many households cannot easily provide
• Lack of any legal documentation for the approximately 2.5 million undocumented migrants from Cambodia, Lao PDR, and Myanmar