On September 27, Japan International Cooperation Agency (JICA) signed a loan agreement of 9.9 billion yen to Muangthai Capital Public Company Limited (MTC) of Thailand for the provision of loans to farmers, small businesses, individuals, and other low-income earners in Thailand through overseas investment and loans. The contract signing ceremony was held in Bangkok on March 29. This loan is in line with the “Overseas Investment and Loan Initiative for ASEAN Countries” announced by the Japanese government in 2019, and will be provided under the “Financial Inclusion Promotion Facility for Asian Countries” established as one of its pillars, in cofinancing with Sumitomo Mitsui Banking Corporation (SMBC).
In the country, the impact of the new coronavirus has reduced the incomes of more than 70% of households since March 2020, of which about 80% are low-income families in rural areas. In Thailand, there is a large economic disparity between the Bangkok metropolitan area and the rural areas, and while the poverty rate in Bangkok is less than 2%, the poverty rate in the northern, northeastern, and southern areas all exceed 12%, and the disparity between the regions has been growing, especially after 2016. In addition to the new coronavirus, the agricultural sector’s income has deteriorated, with about half of the farmers experiencing a 50% or more decline in income, due to factors such as higher fertilizer prices in response to the situation in Ukraine. The average monthly income of the agricultural sector is 6,000 baht (about 23,000 yen), while the average income of all sectors is 14,000 baht (54,000 yen), a large disparity. Another challenge is the limited access to financing for small and micro businesses, with about 60% of them unable to obtain loans from financial institutions.
MTC, the lender, is a non-bank financial institution that offers a variety of products including vehicle-backed loans, agricultural machinery-backed loans, land-backed loans often used by farmers, loans for small businesses, and personal loans, in addition to motorcycle-backed loans, which have grown to have the top market share in Thailand. The company’s management policy is to provide transparent, fair, and fair-interest financial services to customers who would otherwise have limited access to finance. More than 60% of its customers are low-income individuals, and approximately 65% are residents of low-income areas in the northern, northeastern, and southern regions of the country.
By providing long-term loans to MTC, this project aims to promote access to finance for farmers, microenterprises, and individuals in low-income areas, thereby contributing to the reduction of economic disparities and sustainable economic growth, thereby contributing to SDGs Goals 1 (End Poverty), 10 (End Inequality among People and Countries), and 17 (Achieve the Goals in Partnership). (End Poverty), 10 (End Inequality), and 17 (Achieve the Goals in Partnership) of the Sustainable Development Goals (SDGs).
This loan is also an application of the Sustainable Finance (1) Framework for SMBC and JICA’s co-financing introduced on March 30, 2021. Under this framework, SMBC and JICA will assess, share, and manage the development impact of development projects in developing countries by utilizing JICA’s expertise in project identification, monitoring, and project effectiveness measurement, and by using common project effectiveness measurement and monitoring methods. This approach will enable SMBC and JICA to share and manage the development impact created by the recipients of the loans. JICA has received a third-party opinion from an external evaluation organization that this framework meets and complies with various internationally recognized sustainable finance principles (2) as an approach to achieving the SDGs. JICA will continue to actively promote collaboration with SMBC and accelerate the mobilization of private-sector funds for economic and social development in developing countries and regions.
(*1) Sustainable finance: The use of funds to solve issues necessary for a sustainable economy and society, while also taking into account environmental, social and governance (ESG) perspectives.
(*2) Sustainable Finance Principles: Green Loan Principles, Sustainability Linked Loan Principles, Green Bond Principles, Social Bond Principles, and Sustainability Bond Guidelines established by the International Capital Markets Association (ICMA), Loan Market Association (LMA) and others.
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