The impact and sustainability of microfinance institutions in Thailand : A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy at Lincoln University

Abstract

Income inequality is a major problem in Thailand. The Thailand Twelfth National Economic and Social Development Plan (12th NESDP), established in 2017 covering a five-year period, highlights the central role of microfinance institutions (MFIs) in enabling poor individuals and households to access financial resources at a reasonable cost. Though MFIs play an important role in alleviating poverty in developing countries, to date, there is no research simultaneously investigating the impact and sustainability of MFIs. Prior studies do not adequately address questions about MFIs’ impact and sustainability. This study simultaneously evaluates MFIs’ impact and sustainability in Thailand. The study uses a multinomial logit model, propensity score matching (PSM), a fixed effect model with PSM and financial performance indexes to evaluate MFIs’ impact and sustainability. The study employs secondary data from Thailand’s Socioeconomic Survey (cross-sectional data from 2017 and panel data from 2012 and 2017), to evaluate the accessibility and impact of selected MFIs. The study evaluates MFIs’ sustainability using secondary data from the 2014 – 2016 annual Village Fund (VF) and Saving Groups for Production (SGPs) reports. These data were collected by the Government Savings Bank (GSB) through the 2017 MFI Competition. The empirical results from the multinomial logit model reveal that the VF targets low-income rural households. The VF also encourages older individuals with lower education levels and female household heads to participate in their programme. Larger households are more likely to access the VF. Households with higher dependency ratios are less likely to borrow from the VF. This finding suggests that the VF cannot help less economically active households. Well-educated, young household heads in regional areas are more likely to borrow money from SGPs. SGPs’ borrowers have higher household incomes than VF borrowers. PSM and a fixed effect (FE) model with PSM were used to estimate the impact of the selected MFIs. The PSM results show that the impact of VFs is significant on income, education and transport expenditure but with negative signs. These results indicate that VFs do not improve borrowers’ socio-economic wellbeing. The empirical results reveal that SGPs’ effects are significant for income but insignificant for expenditure. This indicates that SGPs borrowers effectively invest their loans in income-generating activities such as agricultural production and self-employment. The FE model with PSM results show that the VF increases education expenditure, but SGPs participation impacts income and transport expenditure. This indicates that SGPs improve borrowers’ income and encourages them to increase investment in working capital and assets. The results for MFIs’ performance and sustainability show that both VFs and SGPs are profitable and financially sustainable. The determinants that affect Thai MFI sustainability are average loan balance per borrower, the number of borrowers per staff member, the total assets, the debt to equity ratio, the operating expense ratio, and the yield on gross loan portfolios.