ABSTRACT
Informal finance will likely continue to be important in rural Thailand for years to come. A clearer understanding of the strengths and limitations of informal finance will largely depend on additional research. A clearer understanding of the reasons for the relatively high interest rates in informal finance may encourage policymakers to adopt more flexible interest rate policies for formal lenders. The majority of formal loans are covered by collateral or collateral substitutes. In the few instances in which collateral was provided on informal loans, land was the predominant form. Agricultural credit policy in Thailand has been carried out quite successfully as judged by the phenomenal increase in the supply of formal credit and by the decline in the relative share of informal credit. Considering the nonfarm enterprises are very important to rural households in terms of income and employment, informal credit is providing a useful service by supporting these non-farm efforts.
