The Bank for Agriculture and Agricultural Cooperatives (BAAC) has launched a new lending scheme in which farmers will be graded according to product quality and production efficiency to qualify for loans. The scheme is intended to reduce government subsidies and non-performing loans.

Farmers will be classified from A to C depending on the quality of their crops and the amount of production. This will help the bank with its decision-making and reduce the risks that derive from crop failures.

The plan is designed not only to reduce non-performing loans (NPL) and the government's subsidies but also to encourage farmers to focus more on product quality and develop their farming methods so that they can pay their debts to the bank and have a better quality of life.

Thiraphong Tangthirasunan, president of the bank, said a pilot project had been launched focusing on areas in which farmers had high NPL problems, as is the case with rice-farmers in Surin and longan-growers in the North.

Farmers joining the programme will be considered for the bank's debt-moratorium scheme. Then the bank will provide consultants on selecting new farm crops or old crops with better farm-management systems to ensure production.

The project targets 20 priority crops, including rice, rubber, palm, sugar cane, cassava, longans, rambutans and shrimp.

"The programme is really intended to help farmers understand HM the King's 'sufficiency economy' theory, focusing on the survival of the family first, rather than concentrating on commercial purposes," Thiraphong said.

He added that the bank also had to restructure its lending conditions to serve the programme, focusing more on a wide variety of crops and products.

"Farmers in different areas and with different crops or products will have different lending conditions, which they can discuss with the bank's staff," he said.

The programme is part of the adoption by the Bank of Thailand of the International Accounting Standard (IAS), which aims to see short debt-repayment periods for all of the BAAC's clients to reduce the bank's risks.

At the first step, farmers can voluntarily join the programme, with debt-repayment periods depending on their income. For instance, rubber growers have income every day, so they can arrange with the bank for three-month or six-moth debt-payment periods instead of a single payment each year.

"This will allow farmers to repay loans on a regular schedule, to reduce their debt burden as well as the bank's risk," Thiraphong said.

The BOT has ordered local banks to fully implement the programme by 2008.

So far BAAC has dealt with more than 100,000 farmers nationwide, lending a total of Bt450 billion. Of that, NPLs account for 4.8 per cent, or Bt21.6 billion.

The bank is predicting that it will see total revenue of Bt10 billion in 1007, ensuring Bt1 billion in profit.

Achara Pongvutitham

The Nation

Chiang Mai