Thailand’s Microcredit Program Upholds Triple Bottom Line

By Shaun Chan,

Microfinance Focus, 5 July, 2010: The Population and Community Development Association (PDA) was founded in 1974 as a non-governmental organization with the initial aim to complement the efforts of the Royal Thai Government in promoting family planning in Thailand. PDA later expanded its activities to include primary health care, HIV/AIDS education and prevention, water resource development and sanitation, income-generation, environmental conservation, promotion of small-scale rural enterprise programs, gender equality, youth development, and democracy promotion. Most recently, PDA has aggressively approached the problem of rural poverty by empowering the poor through the Village Development Partnership (VDP), which establishes a community-owned Village Development Bank for the purpose of microcredit.

Paul Salvette

Today, PDA is the leading and most diversified NGO in Thailand, employing over 800 staff members and working with over 12,000 volunteers. PDA has 18 regional development centers and branch offices located across 15 provinces in rural Thailand. It also manages operation of the Lamplaimat-Pattana Primary and Secondary Schools, which is revolutionary, private education for the poor. In an interview with Paul Salvette, Corporate Social Responsibility and International Affairs Officer, PDA, Microfinance Focus learnt about the unique VDP model. Below are the excerpts from the interview.  

 Microfinance Focus: Can you tell us what the Village Development Partnership (VDP) is about?

 Paul Salvette: The VDP is an integrated rural development model that has been ongoing in Thailand for over 20 years.  Our NGO, the Population & Community Development Association, under the leadership of Mechai Viravaidya oversees the program, but the most important people contributing to the success of the program are the villagers themselves. The program facilitates development in the five vital areas (community empowerment, income generation, environmental promotion, education, and health) by providing business skills training and micro-credit loans to rural villagers.

 Microfinance Focus: How much has the VDP achieved since it begun?

 Paul Salvette: The Population & Community Development Association has worked in over 400 villages utilizing this model over the past 20 years.  This model helps rural communities become financially self-sustainable in approximately 6 years. Currently, we primarily focus in Nakhon Ratchasima and Buriram provinces in Northeastern Thailand, and most recently in Siem Reap province through the NGO, PDI-Cambodia.

 Microfinance Focus: Tell us more about the Village Development Bank (VDB)?

 Paul Salvette: The VDB exists within the village and it is managed by the villagers themselves, while the initial funding comes from a sponsoring company, organization, or individual.  As an NGO, we provide financial training to the villagers on how the savings and loan process should work.  Also, we provide skills training based on feedback from the community and how they would like their path towards sustainability to progress. The initial capital for the VDB is invested by the sponsor after the villagers have planted trees (planting one tree brings in about $US1.25).  After the villagers make savings in the community-owned bank for 6 months, they can begin taking out small loans to start up a business.  Defaults on the micro-loans are very rare, because it is a community institution that is operated by a committee elected democratically.

 Microfinance Focus: How successful is the VDB?

 Paul Salvette: Over the past 20 years, Village Development Partnership have facilitated thousands of micro-credit loans and helped even more people through business skills training and community empowerment programs. In the last 3 years alone, over 3,000 members in 43 Village Development Banks in Northeastern Thailand have utilized 25.5 Million Baht (or $US700, 000) in micro-credit loans as a means of economic empowerment.

 Microfinance Focus: An interesting feature is the contribution of capital based on the number of trees planted. Why was such a feature implemented for the VDB? How has it helped in comparison with other microcredit programs?

 Paul Salvette: The tree-planting activity has three purposes: to promote environmental awareness amongst local communities, to instill a sense of ownership of the Village Development Bank within the community, and to bring the community together in the spirit of cooperation.  We believe that this activity fosters the community empowerment aspect of development, which is even more important than the actual income generation.

 Microfinance Focus:  Savings are compulsory for villagers before loans can be taken out. Has this enabled villagers to be more financially savvy?

 Paul Salvette: A significant problem with many rural communities in Thailand is that, since they can’t take loans from traditional banks, they become indebted to dubious money-lenders.  These loans may be at a 50-100% interest rate.  The act of savings helps instill basic financial discipline, and the communities we work with have indicated that it imparts responsibility and a sense of pride on their behalf to have the VDB established in this manner.

 Microfinance Focus: What checks and balances are there to ensure the VDB does not make excessive profits at the expense of the villagers?

 Paul Salvette: Our NGO does not profit off the actual VDB.  We fund our NGO operations primarily from our social enterprises (our Cabbages & Condoms restaurant chain, Birds & Bees resort in Pattaya, and many others) and the generous contributions from our donors.  The VDP is completely owned and operated by the villagers.  The profit that they do make through the savings and loans process goes directly towards community projects (rice mill for the village, improvements at the local school, health training, etc.).  Also, the committee that oversees the VDB is democratically-elected by the village, so the VDB being detrimental to the community has not been seen. 

 Microfinance Focus: Many MFIs today are looking towards commercialization to raise capital. How sustainable is the VDB model? Will the VDB look towards commercialization for cheaper funding in the future?

 Paul Salvette: As I mentioned earlier, we fund our NGO operations through our social enterprises and donor base.  We do not want to profit off the villagers we are trying to empower. The Village Development Partnership model has been shown to be sustainable, because it is managed by the community, and even after our NGO no longer provides oversight for previous communities we have worked with, the Village Development Bank is still a local institution.

 Microfinance Focus: With the increasing commercialization of the microfinance sector, do you see the lines being blurred between for profit lending and sustainable altruistic lending for the poor?

 Paul Salvette: Since the world-wide economy is still doing poorly and funding from philanthropic donors and CSR programs is low at this time, I humbly believe it is appropriate for civil society to come up with new, business-minded ways to be sustainable.  However, we would recommend these groups that they keep their mission of empowering communities and people as part of their social enterprise mission, as opposed to the mission of a traditional business, which is to generate profits.

 Microfinance Focus:  Are there any new initiatives that the VDB has undertaken in recent times?

 Paul Salvette: Instead of a village being the center of development, we would like to have a primary school be a center for development.  A primary school typically serves about 2-4 villages in rural Thailand, so it would be an expanded Village Development Partnership, or School-Based Integrated Rural Development (School-BIRD).  Public schools have many resources (large classrooms, land, etc.) that are completely under-utilized, especially on weekends.  We hope to partner with local government administrations and communities to have their local Primary School be an educational and development center for the entire community.

Microfinance Focus:  What is your outlook on the microfinance industry in Thailand?

 Paul Salvette: Unfortunately, the laws governing micro-finance institutions are very complex in Thailand, which prohibits civil society expanding into this field.  Understandably, the Thai government has some other priorities at this time, but we at PDA believe that the only road out of poverty is through business, and training and access to credit is the key to turn the poor into entrepreneurs.

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