Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4276-TH STAFF APPRAISAL REPORT THAILAND SECOND AGRICULTURAL CREDIT PROJECT May 10, 1983 Projects Department East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS $1.00 = Baht (B) 23.00 B 1.00 = $0.04 B 1 million = $43,478 GOVERNMENT OF THAILAND FISCAL YEAR October 1 to September 30 BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVES FISCAL YEAR April 1 to March 31 WEIGHTS AND MEASURES ha = hectare (2.47 acres) m = meter (3.28 feet) km = kilometer (0.62 miles) kg = kilogram (2.2 pounds) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ALRO - Agricultural Land Reform Office BAAC - Bank for Agriculture and Agricultural Cooperatives BOT - Bank of Thailand CB - Commercial Bank DAE - Department of Agricultural Extension DOA - Department of Agriculture IFAD - International Fund for Agricultural Development MOAC - Ministry of Agriculture and Cooperatives FOR OFFICIAL USE ONLY THAILAND SECOND AGRICULTURAL CREDIT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. 1. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . 1 A. Project Background . . . . . . . . . . . . . . . . . . 1 B. Agriculture and the Rural Economy . . . . . . . . . . 2 C. Government Agricultural Policy . . . . . . . . . . . . 3 D. Bank Lending Strategy . . . . . . . . . . . . . . . . 4 E. Performance under the First Agricultural Credit Project . . . . . . . . . . . . . . . . . . . . . . 5 2. RURAL FINANCE. . . . . . . . . . . . . . . . . . . . . . . 6 A. The Rural Economy and the Government's Rural Credit Policies . . . . . . . . . . . . . . . . . . . . . . 6 B. Emerging Issues in the Rural Economy . . . . . . . . . 9 C. Toward Self-Sustaining Development Finance in Rural Thailand . . . . . . . . . . . . . . . . . . . . . . 11 3. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . 16 A. Project Objectives . . . . . . . . . . . . . . . . . . 16 B. Brief Description . . . . . . . . . . . . . . . . . . 17 C. Detailed Features . . . . . . . . . . . . . . . . . . 18 D. Cost Estimates . . . . . . . . . . . . . . . . . . . . 19 E. Financing . . . . . . . . . . . . . . . . . . . . . . 21 F. Procurement ....... .. ... .. .. .. .. . 21 G. Disbursements ...... .. .. .. .. .. .. . . 22 4. PROJECT IMPLEMENTATION ................. . 24 A. Organization and Management . . . . . . . . . . . . . 24 B. Lending Policies and Procedures . . . . . . . . . . . 24 C. Accounts and Audits ....... .. .. .. .. . . 27 D. Monitoring and Reporting . . . . . . . . . . . . . . . 27 This report is based on the findings of an appraisal mission that visited Thailand in February 1982, comprising Ms. M. Varkie, Messrs. M. McGarry, and H. Kim (Bank), Messrs. P. Judd and G. Graesel (consultants). This documnent has a restricted distribution and may be used by recipients only in the performance of their offlcial duties. Its contents may not otherwise be disclosed without World Bank authorization. Page No. 5. MARKETING, MARKETS AND PRICES . . . . . . . . . . . . . . 28 A. Marketing and Markets .28 B. Prices .28 6. BENEFITS AND RISKS ..29 A. Benefits and Beneficiaries . . . . . . . . . . . . . 29 B. Rates of Return . . . . . . . . . . . . . . . . . . . 30 C. Risks . . . . . . . . . . . . . . . . . . . . . . . . 30 7. AGREEMENTS REACHED AND RECOMMENDATION . . . . . . . . . . 31 TABLES IN TEXT 3.1 Project Cost Summary . . . . . . . . . . . . . . . . . 20 3.2 Project Financing. . . . . . . . . . . . . . . . . . . 22 3.3 Disbursement Schedule. . . . . . . . . . . . . . . . . 23 5.1 Financial Prices of Selected Outputs . . . . . . . . . 29 6.1 Rates of Return. . . . . . . . . . . . . . . . . . . . 30 ANNEXES 1. The Bank for Agriculture and Agricultural Cooperatives. . 33 2. Illustrative Farm Models. . . . . . . . . . . . . . . . . . 55 3. Pilot Schemes in North and Northeast. . . . . . . . . . . . 62 4. Project Cost and Prices. . . . . . . . . . . . . . . . . . 64 5. Related Documents and Data Available in the Project File. . . . . . . . . . . . . . . . . . . . . . . . . . . 66 TABLES IN ANNEXES Annex 1. The Bank for Agriculture and Agricultural Cooperatives 33 Table 1: BAAC - Terms and Conditions of Ongoing Lending Program . . . . . . . . . . . . 42 Table 2: BAAC - Loans Disbursed by Maturity/Type . . 43 Table 3: BAAC - Loan Disbursements to Individual Farmers, Classified by Type and Region - 1980/81 . . . . . . . . . . . . 44 Table 4: BAAC - Comparative Balance Sheet, 1977/78 - 1981/82 . . . . . . . . . . . . . . . . 45 - iii - Table 5: BAAC: Comparative Income Statements, 1976/77 to 1981/82 . . . . . . . . . 46 Table 6: BAAC's Income and Expenses as a Percent of Average Total Assets, 1977/78 - 1981/82 . . . . . . 47 Table 7: BAAC: Repayment Performance (Principal) 48 Table 8: Aging of Arrears of Individual Loans as of March 31, 1982 . . . . . . . . . . 49 Table 9: BAAC: Projected Sources and Uses of Funds, 1982/83 to 1985/86 . . . . . . 50 Table 10: Financial Indicators of BAAC and Three Selected Commercial Banks . . . . . . 51 Table 11: Average Financial Situation of BAAC Client Farmers, Classified by Region. 52 Table 12: Rural Deposits at Financial Institutions, 1972/78 . . . . . . . . . . . . . . . 53 Table 13: Credit of Financial Institutions in Rural Areas, 1972/78 . . . . . . . . . . . 54 Annex 2. Illustrative Farm Models .55 Table 1: Summary of Rates of Return and Sensitivity Analysis .55 Table 2: Financial and Economic Prices of Selected Project Outputs . . . . . . . . . . . . 56 Table 3: Cash Flow and Financing - Draft Animal (Buffalo & Cow) Model . . . . . . . . . 57 Table 4: Pig Breeding Operation Model (10 Sow Unit). 58 Table 5: Pig Fattening Operation Model (100 Pigs Fattened/Year) . . . . . . . . . . . 59 Table 6: Duck Egg Production Model (200-layer unit). 60 Table 7: Hen Egg Production Model (1,000-layer unit) . . . . . . . . . . . 61 Annex 4. Project Cost and Prices . . . . . . . . . . . . . . . . 64 Table 1: Total Project Costs . . . . . . . . . . . . 64 Table 2: Costs of Technical Assistance and Training for BAAC . . . . . . . . . . . . . . . . 65 CHARTS WB-23893 - Organizational - Functional Chart of BAAC Headquarters. 68 WB-23894 - Organization Chart of BAAC Branch . . . . . . . . . . 69 MAP IBRD 14506 Ri - BAAC's Branch Offices 1. BACKGROUND A. Project Background 1.01 The Royal Thai Government has requested a Bank and International Fund for Agricultural Development (IFAD) loan to support the growth of the Bank for Agriculture and Agricultural Cooperatives' (BAAC) lending activities over the next two years. The loans would finance BAAC-s projected resource gap over this two-year period. The type of agricultural activities eligible for financing would be as broadly based as possible and would include agricultural term lending countrywide, and short-term subloans under a pilot scheme in support of smaller farmers in the North and Northeast regions. 1.02 The Government and the Bank are working closely together to elabo- rate a strategy which will improve the functioning of rural financial mar- kets and the performance of institutions in these markets. Such a strategy would take account of the role of the important financial institutions operating in the rural areas, including the commercial banks. Adequate incentives need to be created to encourage financial intermediaries, including the BAAC and commercial banks, to actively participate in mobilizing financial savings and in lending in rural areas, including for nonagricultural activities, which significantly contribute to rural incomes and employment. Extensive discussions have already taken place between the Government and the Bank on rural financial policy issues affecting both public and private financial institutions. The proposed project was originally intended to involve a broad range of financial intermediaries and lending for both agricultural and nonagricultural activities. However, since this was a new approach to rural lending in Thailand, and, as such, would take time to be accepted, the Government indicated that, at the present time, it did not wish to use the commercial banks as financial intermediaries in a Bank-supported rural credit project, but instead wished the proposed project to be restricted to BAAC, and, as a consequence, agricultural lending only. The proposed project is, therefore, limited to the BAAC; but the Bank views it as an interim step toward a broader approach in subsequent projects, which would include the commercial banks and lending for rural nonagricultural as well as agricultural activities. The proposed project is a first step toward improving the functioning of rural financial markets by raising the level of BAAC lending rates relative to those prevailing elsewhere in the market, and by improving BAACGs overall recovery rates. The proposed project would also increase the availability of medium- and long-term loanable funds to the BAAC, because the financial system generally has problems in adequately meeting the demand for term financing. The relative increase in BAAC's lending rates would firstly, partially correct the distortions existing in rural financial and real sector markets as a consequence of subsidized BAAC lending; secondly, increase the incentives to BAAC to mobilize rural financial savings; and thirdly, strengthen BAAC financially and thus lessen its dependence on subsidies. - 2 1.03 Moreover, the proposed project seeks to encourage lending to small farmers, particularly in the North and Northeast, which are the poorest regions of Thailand. The Irternational Fund for Agricultural Development (IFAD) has been strongly supportive of these project components. In addition to financing medium- and long-term subloans to poorer farmers in the North and Northeast, IFAD would also provide financing for short-term loans in support of a pilot scheme in these areas, with the objective of improving coordination between the agencies involved with credit, extension services and research. 1.04 The proposed project was prepared by Bank and IFAD preparation missions, in conjunction with Government authorities. There has been an in-depth exchange of views between IFAD and the Bank on the project formulation, particularly on how poorer farmers could be helped directly by institutional credit. B. Agriculture and the Rural Economy 1.05 Out of Thailand's population of about 47 million, about 40 million live in rural areas, where there are about 5 million farm households and 1.8 million nonfarm households. The rural sector of Thailand is in many ways exceptional: (a) it is a major net exporter of food grains; (b) it has grown and diversified rapidly over a long and sustained period; (c) Thai farmers have been found to respond vigorously to relative price incentives; (d) ownership and usufruct of cultivated land are widely and fairly evenly distributed; and (e) labor mobility within rural areas and between rural and urban areas is very high in both directions. 1.06 The performance. and growth of the agricultural sector in Thailand has been the determining factor in the dynamism of the rural economy. Agricultural production (GDP in constant terms) grew at an annual rate of about 5% during 1960-80. And, because of significant improvements in its terms of trade relative to nonagriculture, the real value of agricultural production increased even faster at 5.8% p.a. during the same period. In 1980, agriculture contributed about 26% of GDP and 58% of exports, and provided full- or part-time employment for more than 70% of the country's labor force. Furthermore, with real agricultural GDP per capita growing at 2.8% p.a. in the past two decades and the relatively even distribution of farm holdings, the strong agricultural performance has contributed to a substantial reduction in rural poverty. 1.07 The process at work in Thai agriculture over the past quarter century has been the commercialization and diversification of the rural sector, predominantly in response to opportunities in world trade. The key factors in this development have been efficiency of private markets, the extension of the road system, reduction in forested land, the rapid expan- sion of the cultivated area, the expansion of irrigation, the introduction of new crops in response to market opportunities, and explosive mechanization. The expansion of the cultivated area by 4.0% p.a. has been central to the development of Thai agriculture over the past two decades, and has accounted for most of the 5% p.a. growth in output, while yield increases played an important but relatively minor role. - 3 - 1.08 In recent years, however, growth of agricultural production has been gradually falling off. Agricultural GDP in constant prices, which had grown at about 5.5% p.a. in the 1960s, slowed to 5.1% p.a. in 1970-75 and 3.5% p.a. in 1975-80. The slowdown in the 1970s is even more pronounced for the crop subsector, which experienced a growth rate of 5.2% p.a. in 1970-75, but only 3.3% p.a. in 1975-80. This is of major significance, since crop production contributes 73% of agricultural GDP. The deterioration occurred primarily because earlier growth had been achieved through expansion of the cultivated area, but, more recently, poorer marginal lands increasingly came under cultivation and average yields, already low relative to other developing countries, decreased further. 1.09 While real agricultural growth was falling off in the late 1970s, one of the fundamental trends in those years has been the relatively rapid increase in the income of rural farm households from nonfarm sources./l Farm family income from sources other than home consumption and sale of farm products by their producers grew at roughly 12% p.a. over the six-year period 1972 to 1978, substantially faster than agricultural income. In 1978/79, it is estimated that about 48% of average farm household net income originated from sales of farm products, 6% from hiring out factors of agricultural production to other farmers, 13% from home consumption, and 33% from other activities such as sales of nonagricultural products, hiring out labor for nonagricultural use, remittances, etc. Recent data suggest that, within regions, with the declining quality and size of farm endowments, proportion- ately greater efforts are generally invested in nonfarm activities. Available statistics also show that nonfarm employment tends to smooth income over time and to be of higher productivity; within regions, nonfarm income thus tends to offset farm income inequalities. It is estimated that about 12% of the income of nonfarm households is derived from the sale of agricultural products. C. Government Agricultural Policy Objectives 1.10 The main objectives of the Government's agricultural policy are: (a) to increase agricultural production; (b) to alleviate rural poverty and reduce inter-regional income disparities; (c) to expand agricultural exports rapidly to help the balance of payments; and (d) to better utilize the available land suitable for agriculture, protect against deforestation and conserve natural resources. Strategies 1.11 The Government's efforts to pursue the above objectives involve the following major strategies: the creation of an environment in which the private sector will have the needed incentives and confidence to boost pro- duction, marketing and exports; the generation of appropriate technical /1 Nonfarm income is defined as income from nonagricultural activities on one s own farm plus nonagricultural and agricultural activities off one-s own farm. - 4 - packages to aid intensification; the demarcation of poverty areas in which line agencies are to focus their programs, particularly for agriculture, rural infrastructure (physical and social) and community development; and the establishment of a land use policy for better utilization of land suitable for agriculture, including the required legal and regulatory framework to give individual farmers title to their land and a clear demarcation of zones reserved for forestry and conservation. D. Bank Lending Strategy 1.12 The primary objective of the Bank's lending operations in rural Thailand is poverty alleviation. The broad strategy being followed to achieve this objective is to boost the level of economic activity in rural areas, thus creating employment opportunities directly and through resulting spinoff activities. Preference is given to developments closest to poverty areas in the expectation that more of the benefits would accrue to the poverty group. With the potential for area expansion diminishing in Thailand, future growth in the agricultural sector must increasingly come from intensification. A substantial portion of rural income is now generated from activities other than sale or home consumption of farm products. Social services are provided at a low level in many rural areas, particularly in poverty districts. In response to the above, the Bank plans to develop seven lines of lending namely: (a) irrigation, (b) tree crops, (c) rural credit; (d) supporting services of the Ministry of Agriculture and Cooperatives (MOAC); (e) agricul- tural land reform and titling; (f) rural development; and (g) forestry. 1.13 To date, the main activities supported by the Bank in agriculture have been: (a) Irrigation. Since 1950, Bank assistance to Thailand's water resource development has included financing for five multi- purpose dams and twelve irrigation projects for a total of $683 million. Of the irrigation projects, six were in the central Chao Phya Basin, two in the Northeast, one in the South, and two in the Mae Klong Basin. (b) Tree Crops. The replanting and new planting of tree crops (rubber and oil palm) have been supported by two Bank loans totalling $192 million. This is improving agricultural production and export earnings, as well as raising farmers' incomes. (c) Agricultural Credit. Credit arrangements are being improved by strengthening the BAAC through the First Agricultural Credit Project with a loan of $19 million. More funds are being made available for medium- and long-term lending, and credit arrangements are being integrated with other support services. The proposed project is the second phase of a long-term program to improve the functioning of rural financial markets. (d) Supporting Services of the Ministry of Agriculture and Cooperatives (MOAC) (i) Research. Research programs are being supported through one Bank loan of $30 million (also cofinanced with IFAD) which emphasize: the production of high-yielding and pest- and disease-resistant varieties of the main crops, adaptive research aimed at improving rainfed rice and other rainfed crop yields; and research into alternative farming systems, including crop diversification, intercropping and rotational cropping, which should also benefit rainfed rice farmers; (ii) Extension. As the training and visit system of extension, supported by two Bank loans totalling $68 million, achieves national coverage, every effort is being made to ensure that it reaches poor rural communities and that the service is supported by the wider availability of agricultural inputs; (iii) Shifting to Stable Agricultural Development. Current activities, supported by one Bank loan of $25 million, are focused on the conversion of shifting cultivation areas to a condition of stable agriculture and introduction of appro- priate soil and water conservation works and practices; and (iv) Livestock. Livestock development, supported by one Bank loan of $5.0 million, is being improved mainly in the Northeast Region and aims at: improving meat production and quality for local consumption and export; controlling animal disease; and strengthening the capacity of the Department of Livestock within MOAC. (e) Agricultural Land Reform. Support is provided to the Agricul- tural Land Reform Office (ALRO) to help it develop a model for equitable distribution and improvement of suitable agricultural areas in encroached public lands, and to help strengthen its capability to manage and implement the agricultural land reform program nationwide. In addition to the above activities, the Structural Adjustment Loan has sup- ported the Government's land reclassification program, aimed at improving security of tenure to farmers in the forest areas. E. Performance Under the First Agricultural Credit Project 1.14 The Bank's first Agricultural Credit Project in Thailand aims to improve BAAC-s term lending capability to finance new credit programs and strengthen appreciably the weak cooperative system to serve small farmers more effectively. The Bank loan (Ln. 1816-TH, signed April 1980) of $19 million mainly finances: (a) BAAC's medium- and long-term lending for onr-farm development (mostly irrigation), oil palm, shrimp culture and nonspecified activities in the North and Northeast; and (b) a technical assistance program primarily to strengthen the cooperative system. Overall Bank disbursements for the project are ahead of schedule and disbursements for the BAAC component are completed. The other components of the project are scheduled to be completed by December 1984. -6- 1.15 Under the BAAC component, disbursements for the specified lending components only reached 20% of the target set at appraisal due to numerous problems that were beyond BAAC's control. Implementation for on-farm development was slow because of the difficulties in obtaining full consensus from participating farmers before proceeding with the land consolidation works. The infrastructure works for the shrimp farming were not constructed in one of the settlement schemes because the area was occupied by squatters. Lending for oil palm development in three settlement schemes was delayed till the feasibility study for the replanning of these schemes was completed. The bulk of the loan has been used for BAAC's ongoing term lending in the North and Northeast. About 60% of the recipients of these subloans have been small farmers./I The financial problems of BAAC were not directly addressed by the project, but during the course of supervision missions, the issue of raising BAAC's low on-lending rates was discussed. The training activities to improve the cooperative system are progressing satisfactorily. 2. RURAL FINANCE A. The Rural Economy and the Government's Rural Credit Policies 2.01 After the financial liberalization of the late 1950s, commercial banks expanded their rural branch network quickly and began to integrate the rural areas into the rapidly growing national financial system. By the late 1960s studies showed the rural credit system to be rather efficient; average interest rates were found to be between 24% and 35% per year, and 85% of debts were repaid in cash, not crops pledged previously. On balance, the rapid growth and diversification of Thai agriculture after the late 1950s may be seen as an a priori indication that the cost and availability of credit and financial services were not serious constraints on overall agricultural development during the 1960s and early 1970s. 2.02 Despite the excellent performance of the agriculture sector since the late 1950s and into the mid-1970s, both in terms of growth (5% p.a.) and in reducing rural poverty (from 61% of the rural population in 1962/63 to 35% in 1975/76), public intervention in the allocation of credit and the regulation of interest rates has been more extensive in agriculture than in any other sector, and this intervention has been increasing since 1975. The Government intended firstly, to increase the flow of institutional credit to agriculture so as to increase resources available to the rural areas. Secondly, it sought to provide credit to agriculture at below market interest rates to compensate for high levels of taxation, and to direct this credit to poor farmers. In pursuit of these objectives interest rates on commercial bank credit to agriculture have been controlled at levels /1 A "Small Farmer," as defined in the Loan Agreement of Ln. 1816-TH, means a subborrower who is a new settler selected as such by the Borrower's agency responsible for settlement or any other farmer primarily engaged in farming activities who farms a holding smaller than the average holding in the particular province. equivalent to the market rates for urban borrowers, and far below informal market rates in rural areas; commercial bank loanable funds have been subject to mandatory allocations to agriculture; BAAC has for years channelled large volumes of heavily subsidized credit to small, medium and large farmers, but not the truly needy who often do not produce a surplus and, therefore, are hardly creditworthy; and the Bank of Thailand (BOT) in addition has operated four rediscount facilities directed toward agriculture as discussed below. 2.03 Special BOT Rediscount Facilities. Since 1967, the BOT has been authorized to rediscount promissory notes arising out of agricultural transac- tions. Four different kinds of short-term notes can be discounted covering production, marketing, livestock, and inputs. The commercial banks may have 90% of their loans discounted, at a rate of 5% p.a. The maximum rate the commercial bank may charge the subborrowers is 10% p.a. for production loans and 7% p.a. for all others. By the end of 1977, only about B 184 million of commercial bank notes were being rediscounted through the BOT. The commercial banks offer two explanations for the limited use of the rediscounting faci- lity. First, they argue that the narrow spread between the interest rate charged by BOT and the rate for subborrowers is not an inducement to use the window. Second, the rediscounted loans cannot be counted against the mandatory credit requirements (para. 2.04). In 1978 and 1979 the amount rediscounted by commercial banks was about B 100 million each year. In the meantime, BAAC has ceased using this rediscount window, because it needed and obtained even better terms from the BOT. 2.04 Mandatory Allocations. Prior to 1975, five of the 16 Thai commercial banks were involved in lending to farmers. Since response to the rediscounting mechanism was so modest, the BOT in 1975 adopted a system of mandatory allocations to agriculture. BOT required that by the end of 1975 the amount of loans outstanding to agriculture should total at least 5% of a bank's total outstanding deposits at the end of 1974. This quota could be met by direct lending, through deposit with BAAC, or by purchases of government securities. These options could augment financial resources available to the rural areas, though at different terms, and very likely with different economic effects. To ensure the maximum flow to the farmers, loans to agribusiness, warehouses, and for import of fertilizer and machinery were excluded. Subsequently, the quota has been adjusted. The 1976 quota was 7% of end 1975 deposits. In 1977, it increased to 9% of total deposits at the end of the previous year; in 1978 it was raised to 11%, but 2% could be absorbed by agribusiness loans. The quota is now 13% of total deposits at the end of the previous year, and 2% may be used for agribusiness loans. Moreover, all new rural and provincial branches are required within two years of opening to lend 60% of their local deposits in the area served by the branch, of which one third must be to farmers. There was a surge of new branch openings after the late 1950s, but the rate has slowed as banks find increasing difficulties in meeting the mandatory allocations. 2.05 Bank for Agriculture and Agricultural Cooperatives (BAAC). In 1966 the Government established a specialized institution, BAAC, as part of its strategy to boost lending to agriculture. It took over the assets and - 8 - liabilities of the stagnant and poorly managed Bank for Cooperatives, which in turn had been created by the Government in 1947. BAAC is a government-owned bank with a mandate to supply credit for the development of the agricultural sector. BAAC-s activities are legally limited to lending to individual farmers, agricultural cooperatives and farmers' associations for agricultural purposes, excluding agribusiness. Today, BAAC is the most important single institutional source of credit to farmers. In FY81, its loan disbursements totalled about B 10.7 billion. One of the most striking features of BAAC-s credit operations is its remarkably wide coverage. With 62 branches and 514 field units all over the country, BAAC has been able to reach about 2 mil- lion farm families (about 1 million directly, and another 1 million through cooperatives and farmers' association) through its credit operations. This represents about 40% of the approximately 5 million farm families in Thailand. By comparison, commercial banks, with about 1,017 rural branches, reached about 200,000 families directly. The BAAC staff of about 4,800 are suitably qualified, of good caliber and receive adequate training. Overall, BAAC is well administered, with an organizational structure, staffing and internal management systems appropriate for its functions (Annex 1). 2.06 Noninstitutional sources, commercial banks, and the BAAC now account for about 50%, 40%, and 8%, respectively, of rural credit. The remaining 2% is accounted for by the finance companies and the Industrial Finance Corporar tion of Thailand. In the agricultural sector, noninstitutional sources again supply about 50%, with the commercial banks and the BAAC each supplying about 25%. Commercial banks mobilize about 80% of rural savings, and the BAAC only about 3%. Over the five years 1976-81, BAAC-s credit operations have grown at an annual rate of about 20%, with loans disbursed increasing from about B 4.3 billion in 1976 to B 10.7 billion in FY81. In FY81, disbursements to individual farmers were 75% of total loans disbursed, to cooperatives 24%, and to farmers' associations about 1% of the total. In FY81, about 65% of BAAC's total loan disbursements were for short-term loans. 2.07 While BAAC is a well managed institution within the Government rules and interest rate regulations, this operational framework is such that BAAC cannot be an independent, financially self-sustaining institution. As discussed later on (paras. 2.16-2.26), while the financial viability of BAAC, per se, has not been the Government-s concern, the policy objective of promoting rural development through directed credit arrangements has been undermined to the extent that these arrangements have not functioned as intended. Besides, some of these arrangements have been very costly. For example, the annual combined subsidies to BAAC from all sources have recently been on the order of B 700 million. BAAC relies heavily on notes payable, which are notes rediscounted with the BOT at subsidized rates of 1% to 3.5% p.a., in order to remain in business. Like its predecessor, the BAAC found it extremely difficult to attract funds from the private sector, and has relied mainly on direct support from the Government, the BOT, and since 1976, on compulsory deposits from commercial banks. The Ministry of Finance presently owns about 99% of the BAAC's shares; the remaining shares - 9 - belong to agricultural cooperatives, and individuals. Currently, about 42% of the BAAC's sources of funds comes from commercial banks under the mandatory credit allocation scheme. Other sources are capital and reserves (12%), deposits (16%), external borrowings (12%), and loans from the BOT at highly subsidized interest rates (18%). The bulk of the increase in BAAC assets since 1975 has been funded by compulsory deposits from commercial banks and subsidized loans from the BOT with negative consequences for new deposit mobilization, and efficiency of overall financial intermediation, monetary control, and the burden on scarce public resources. Captive sources of funding as a percent of loans outstanding have risen from negligible levels in the early 1970s to about 90% by 1980. Since 1978, net new funding from captive sources and the BOT have exceeded net increases in BAAC loans outstanding, the balance being held by BAAC in the form of recycled deposits and Government securities. 2.08 Since 1977, BAAC-s total assets have grown at an annual rate of about 20% and amounted to B 20.2 billion in March 1982. Its debt/equity ratio is now 7.7:1. BAAC is nominally a profitable institution. Its net earnings amounted to B 132 million for the year ending March 31, 1982; the return on year-end equity amounted to about 6% and on total assets to about 0.7%. It receives subsidies on the order of B 700 million p.a., it assumes the exchange risk on its foreign borrowings (potential loss as of March 1982 estimated at B 140 million), and it has high arrears necessitating higher provisions than actually made. If it were not for the subsidies, BAAC would have faced an effective operating loss in FY81 amounting to about one fourth of equity. 2.09 BAAC's loan collection performance is fairly good for individual farmers, but poor for cooperatives and farmers associations. In FY81, there was a 73% recovery rate for individual farmer loans, which are generally made on a group guarantee basis. Most of these loans remain performing loans even when overdue, and more than 98% are paid within three years. The amounts of write-offs after ten years appear to be negligible. Reasons for the failure to repay on schedule are difficult to establish apart from the obvious incentive given borrowers to repay BAAC last since its interest rates are the lowest. The repayment of loans by cooperatives and farmers associations is at adverse levels: cooperatives repayments were about 42% and farmers associations about 49% in FY81. 2.10 The existing incentive system offers the BAAC little motivation to mobilize rural savings, because the rate on time deposits is 13-14% p.a., while the BAAC lending rate to individual farmers is 14% and to cooperatives only 11% p.a. This system, and its dependence on subsidies to BAAC, is sometimes justified as a means of helping poor farmers, and compensating somewhat for the taxes imposed on the agricultural sector. These issues will be further discussed below. B. Emerging Issues in the Rural Economy 2.11 The major issues in rural development during the 1980s stem firstly, from the fact that slightly less than 50% of rural income is now generated in nonfarm activities (about 33% for the 5 million farm households and - 10 - 88% for the 1.8 million other rural households); secondly, from the need to generate future agricultural growth more from intensification rather than area expansion as in the past; and thirdly, from the possibility that more and more farm households will get caught in a subsistence trap due to a poor agricul- tural resource base with little hope of increases in income except from nonagricultural pursuits. These issues have implications both for financial sector policy and for the restructuring of rural development incentives. 2.12 For rural development in the 1980s, the implications of the gradual closing of the land frontier are important. In future, poverty alleviation through opening up new areas and thereby creating jobs will become less and less feasible because such opportunities are disappearing as the forest area shrinks. If much of the increment to the labor force cannot migrate out of agriculture, then the duality within the agricultural sector will increase as one group cannot get beyond subsistence while the other becomes more and more commercial. Since the subsistence trap is mainly a result of location and a poor natural resource base, the long-term solutions must lie mainly outside of agriculture. More immediately, however, the Government can and should ensure that people living in the poorer areas have equal access to education, health services, and potable water. This is often not true today. It is important to realize that many of the people at the strictly subsistence level of production are trapped on poor soils with little marketable surplus and, as a consequence, are generally beyond the direct reach of the formal credit system. Should the BAAC expand its lend- ing to farmers with no cash surplus, its overdues would soar because debt service to a government bank will generally have lower priority than meeting essential family needs. In contrast, the moneylender will often receive repayment even at the expense of essential family needs. Distribution of agricultural inputs such as improved seed and fertilizer may be appropriate in such instances to ensure that all people have at least an adequate diet. 2.13 The gradual closing of the land frontier has other important implications. For the longer term, the main source of growth in the sector must be agricultural intensification; without intensification, agricultural growth will drop to low levels. Intensification requires that the Govern- ment continue emphasizing the following: (a) ensuring that the rate of taxation on important crops such as rice and rubber remains substantially reduced from levels of the past; (b) giving appropriate legal title to farmers, including those in areas suited to agriculture, but presently under the control of the Royal Forestry Department;/l (c) providing the sector with appropriate financial services; (d) clarifying and rationalizing the regulatory framework which today often benefits vested interest at the expense of agricultural producers (e.g., location of slaughterhouses); (e) generating useful and relevant research results that serve the needs of farmers; and (f) ensuring that the extension service works diligently to serve the needs of farmers. /1 About 12% of the cultivated area in Thailand has full title, about another 40% has a title that is generally acceptable as collateral; most ticled land is held by the larger farmers. - 11 - 2.14 The structure of incentives to agriculture has artificially depressed the benefit/cost ratio for the use of fertilizers: first, by the taxation of agricultural outputs, and second, by impediments to the wide availability of appropriate low-cost fertilizers. The extension service has tended to promote the use of the more expensive, but sometimes less appropriate, compound fertilizers. While it would be inappropriate for Thailand, given its dependence on world market prices, to reach the levels of fertilizer use in such countries as Korea or Japan, it will be important to reduce existing distortions in the structure of incentives, and improve the quality of the research and extension services, in order to facilitate rapid intensification in the 1980s. 2.15 If agricultural intensification is to proceed at a pace commen- surate with maintaining future growth rates in agriculture at 4% to 5% p.a., the historical level, the financial system will probably be faced with fairly rapid increases in the demand for short-term funds to finance technical inputs such as fertilizer, seed, insecticides, etc; as well as medium and long-term funds to finance the increases in the capital stock needed to maintain growth. Despite these potential substantial increases in demand for short, medium and long-term resources by the agricultural sector, no great difficulties are foreseen in meeting them if appropriate levels of taxation and changes in the financial system are put in place. C. Toward Self-Sustaining Development Finance in Rural Thailand 2.16 Intensification requires increased investment from farmers which will be forthcoming only if producer prices provide sufficient incentive for the assumption of higher input costs, higher risks, and appropriate use of credit. Changes in the financial system will be needed to improve incentives for lenders. In the past, the Government attempted to influence the rural financial sector by directives rather than by incentives. But its narrow focus on lending for agriculture alone, rather than focussing more broadly on rural development, and the various instruments it has adopted for this purpose (the mandatory allocation and establishment of a rediscounting facility and of BAAC) have not functioned as they were intended. Over half of rural sector income comes from sources other than home consumption and sale of farm products by their producers, yet credit policy has focussed on agriculture rather than rural development. As to the banking system, the narrow spread between the interest rate charged by BOT's rediscounting facility and the rate for subborrowers is not an inducement for commercial banks to use the facility. Banks are also finding it increasingly difficult to meet the mandatory allocation, and the interest rate regime imposed on the BAAC by Government ensures that it cannot operate as a financially self-sustaining institution. These policies should be changed with a view to encouraging institutional lending for rural nonagriculture as well as agricultural activities, and increasing incentives for banks, including BAAC, to lend in rural areas generally by allowing interest rates to reach levels which cover the costs of financial intermediation and promote broader competition, both within the formal financial system and in relation to the informal market. - 12 - 2.17 Regarding the use of subsidized credit, the Government may wish to reexamine its present policies for achieving its rural development objectives, to ensure that the financial system is making its full potential contribution, and that it is not being used to pursue goals that could be more effectively pursued by alternative means. For example, the financial system is not an effective vehicle for channelling subsidies directly to the approximately 2 million families living in absolute poverty in rural Thailand. In order to qualify for credit, a person must be creditworthy, which means having a potential to generate a cash surplus sufficient to service the debt, but it is precisely the inability to generate such a cash surplus that is a distinguishing feature of the absolute poor in Thailand. Public resources available for helping the absolute poor could be targeted on this group much more effectively using means available to the Government besides the financial system. 2.18 Moreover, even within the creditworthy group of farmers, channelling subsidies through the financial system is neither an effective means of improving income distribution, nor of offsetting the negative disincentive effects of agricultural taxation. Within the creditworthy group of farmers, the overal effect on income distribution of existing credit subsidies is uncertain, but the larger farmers do obtain a disproportionately large per capita share of the credit subsidy component. BAAC-s credit is made avail- able to about 90% of farm borrowers, particularly those within the credit- worthy group with relatively small- and medium-size farms. Commercial bank credit to agriculture, which is about equal in volume to that provided by BAAC, is lent to about 10% of farm borrowers. All of this credit carries a subsidy element. In the case of BAAC, the subsidy on interest rates in 1982 was about six percentage points. The subsidy in commercial bank lending was appreciably less per unit lent, but, nevertheless, was estimated to be about two percentage points. The subsidy in commercial bank credit stems from the mandatory allocation to agriculture imposed on the commercial banks. In an effort to meet this requirement in the presence of heavily subsidized BAAC credit, the commercial banks have little option except to lower their interest rates in order to attract borrowers. The result is that large farmers borrow very substantial amounts at subsidized rates (close to the prime), and are thus in a privileged position to amass rural assets, including land, with obvious undesireable effects on rural wealth and income distributions. This injection of subsidized credit into agriculture has the further undesireable effect of encouraging undue mechanization in the presence of widespread underemployment. To the extent that commercial banks fail through direct lending to satisfy the mandatory requirement, they may make deposits with the BAAC at the deposit rate of interest. Such deposits now account for about 40% of BAAC-s sources of funds. It is estimated that about 10% of farm borrowers, essentially the commercial bank clients, receive 25% of the credit subsidy component, while about 90% of farm borrowers, essentially the BAAC clients, receive the balance of 75%. In the case of BAAC-s clients, the subsidy is paid by the BOT and nonfarm borrowers of the commercial banks; the subsidy to the commercial bank farm borrowers is again paid by the nonfarm borrowers of the commercial banks. - 13 - 2.19 Subsidized credit is seen by some as partially compensating farmers for the taxes on agricultural products such as rice and rubber. But to the extent that not all farm borrowers sell rice or rubber, or all rice or rubber sellers are borrowers, the objective is not achieved. Furthermore, the tax burden on agriculture is much greater than the subsidy to BAAC. In any event, this ignores the obvious solution of removing, or at least partially correcting, the original distortion introduced through agricultural taxation. The rubber tax is neutral in its income distribution effects on producers, while the rice tax is somewhat progressive. Given this slight progressivity in the agricultural tax system, it is unclear what the effects on agricultural income distribution would be if the subsidies on agricultural credit were removed, and a compensatory cut in taxes on the agricultural sector were made simultaneously so as to maintain fiscal neutrality. But it is clear that the distribution of the benefits of a tax cut would be broader than the distribution of benefits from credit subsidies, because the number of farmers affected by agricultural taxes is greater than the number who borrow from institutional sources. 2.20 The liberalization of interest rates is an important issue affecting the development of rural financial markets in Thailand. As in many countries, the Government continues to enforce interest rate ceilings on lending and deposit taking, which contributes to market segmentation and decreased resource mobilization. Commercial banks do not lend to potential clients willing and able to pay an interest rate higher than the ceiling, and sufficient to adequately compensate lenders for the service and risks involved. Commercial banks are deprived of potential clients, generally the small and medium sized borrowers, and such potential clients are sometimes left to depend on the informal market which is then free to function without competition from the formal sector in this segment of the market, particularly in areas where the BAAC does not have an effective presence. It would there- fore be desirable to remove the interest rate ceiling on commercial bank lending, presently 19%, in order to allow the financial intermediation process to channel more institutional funds to rural areas, particularly to smaller borrowers, where transaction costs and risks are generally higher than in urban areas. To be really effective, of course, interest rate liberalization must extend to the BAAC. Otherwise, the commercial banks will probably decide that the opportunities for increased lending on commercial terms to agriculture are too limited to justify their mounting a serious effort to develop this market, except for their lending to large farmers. 2.21 The noninstitutional sector, which lends substantial amounts of credit which was advanced to it in many cases by commercial banks, probably remains the single most important source of credit to agriculture. There is some evidence of noncompetitive behavior in this sector. The best policy response would be to increase competition by removing the existing interest rate ceilings on institutional lenders. - 14 - 2.22 The present regulations requiring commercial banks operating in rural areas to relend 60% of rural deposits in the areas in which they were mobilized is a disincentive to mobilization of rural financial savings, because it lowers the returns to the institutions involved, and discourages branching into areas where the 60% ratio cannot be profitably met. Since rural and provincial deposits were about B 94,000 million as of 1980, any disincentive to increased savings mobilization affects a broad segment of the rural population. In 1980, the agriculture sector by comparison had only B 23,000 million in institutional loans outstanding. The mandatory allocations have not worked to achieve Government objectives. They appear to have benefitted a small group of large clients in rural areas while imposing substantial social costs. Nevertheless, they can probably only be eliminated after interest rate liberalization makes their continuation unnecessary. 2.23 Financial intermediaries appear to have a problem meeting the medium and long term credit requirements of clients with fixed rate loans. It is suggested that floating rates be further encouraged systemwide to improve the capacity of intermediaries to perform term transformation and mobilize genuine longer-term savings. In rural lending, this could be particularly important because of the greater risks associated with term lending and thus less certainty regarding repayment schedules. Livestock, mechanization, buildings, tree crops, and land improvements, are all examples of agricultural developments that require medium to long-term financing of 3 to 15 years. 2.24 BAAC. With regard to BAAC's activities, liberalizing its on-lending rates would be the most effective way of making it a financially self-sustaining institution. BAAC would then have an incentive to mobilize savings in areas presently not served by other financial institutions, but where BAAC already is active in lending. Making such financial services available more widely to savers in rural areas would be important in increasing rural incomes, because rural areas are generally substantial net savers. 2.25 Over the five year period 1975 to 1980, BAAC's loan portfolio, in real terms, grew at about 9.0% p.a. During 1980-85, BAAC's outstanding loan portfolio, in current terms, is projected to grow at an annual average rate of about 15%, increasing from about B 11.0 billion in FY80 to about B 23 billion in FY85. This implies about the same real growth rate as in the past. Loan disbursements are projected to increase from B 8.3 billion in FY80 to B 17.6 billion in FY85. As a result of this increased lending program, BAAC is expected to expand its clientele from about 2 million farm families in FY80 to about 2.6 million farm families in FY85. Based on this expanded lending program and using FY80 as the base year, projections have been made of BAAC's financial position up to FY85, assuming, inter alia, the current financial structure, the existing BAAC onlending rate and commercial interest rate structure, repayment performance, and B 3.5 billion annually from the BOT at subsidized rates of 3.5% p.a. The projections indicate - 15 a steadily deteriorating financial position for BAAC despite the heavy infusion of public subsidies. In order for BAAC to maintain a trend of increasing profits up to FY85, the annual contribution of subsidized funds from the BOT would have to increase by about B 1 billion each year, unless changes were made in BAAC's onlending rate structure. 2.26 Generally, the BAAC lending rate would need to be about six percentage points above the long-term deposit rate to make BAAC into a self-sustaining financial institution; such deposits potentially could be its main source of funding. W4ith this higher rate, BAAC would have a strong incentive to mobilize rural financial resources, and it no longer would have to be dependent on subsidized government funds and commercial bank deposits resulting from any unsatisfied requirements under the mandatory allocation to agriculture. BAAC should be allowed to charge interest rates that better reflect the higher costs and risks involved in rural lending to many small borrowers, widely scattered, and subject to the vagaries of the elements. Since the issue of agricultural interest rates is politically sensitive, any liberalization of rates will probably take place gradually over time. When BAAG interest rate ceilings are removed, the Government should also consider allowing BAAC to lend for all iinds of economic activities in rural areas as a means of further strengthening it financially, and improving financial services available in rural areas. Lending to cooperatives is a serious drain on BAAC resources. It is recommended that BAAC ease out of lending to cooperatives, except to those managed effectively, which, at the present time, is a small proportion. 2.27 Priority Funding Pool. Since deposits are the source of most funds to the banking system, it is not surprising that Thai banks have major difficulty meeting the term needs of borrowers as compared to meeting their short-term requirements, where few problems exist. One solution suggested above is to move to floating rate loans (para. 2.23). For the foreseeable future, however, there is also a need to supplement the existing sources of medium and long-term funds with new ones. It is expected that the estab- lishment of a priority funding pool within the BOT, which would rediscount medium and long-term loans made by commercial banks or the BAAC for rural development, would help to integrate rural financial markets, increase the flow of such funds to rural areas, and create additional economic activity, and, hence, jobs in rural areas. The proposed project was originally designed along the lines of such a priority funding pool. However, the Government indicated that at the present time its preference was for a project limited to the BAAC. The Bank views the proposed project as an interim step toward a broader approach for subsequent projects that would support rural financial market development through the establishment of a priority funding pool. - 16 - 3. THE PROJECT A. Project Objectives 3.01 The proposed project would: (a) improve the functioning of rural financial markets by raising the level of BAAC lending rates relative to those prevailing elsewhere in the market and by improving BAAC's loan recovery rates; and (b) increase the availability of medium- and long-term loanable funds to the BAAC. The relative increase in BAACGs lending rates would firstly, partially correct the distortions existing in rural financial and real sector markets as a consequence of subsidized BAAC lending (paras. 2.17-2.21); secondly, increase the incentives to BAAC to mobilize rural financial savings (para. 2.10); and thirdly, strengthen BAAC financially and thus lessen its dependence on subsidies (para. 2.08). Improvements in BAAC's financial viability would enable it to better achieve its developmen- tal role of providing financial services to creditworthy farmers who are unable to gain access to commercial bank lending, or who are outside the reach of the commercial banks' branch networks and credit policies. Increasing the availability of term finance to the BAAC would alleviate the term financing problem which currently exists in rural financial markets in Thailand (para. 2.23), and, as a consequence, would boost the level of economic activity in rural areas and thereby contribute toward: (a) employment generation and poverty alleviation; (b) increased rural production and incomes; and (c) improvements in the balance of payments through increased agricultural exports. 3.02 The proposed project seeks to alleviate rural poverty, especially through employment creation and by preventing farm families at the margin from falling below the poverty line. IFAD's participation in the project would contribute in particular to the objective of helping to prevent small farmers falling into poverty by: (a) increasing the availability of mediumr- and long-term credit to small farmers in the North and Northeast;/l and (b) improving the links between extension, research and credit, so that short-term credit is used more effectively. It is estimated that 31% of Thailand-s population has incomes below the absolute poverty line./2 With 90% of the poor residing in the rural areas, the poverty problem i7n Thailand is mainly a rural problem, and almost 80% of all the rural poor can be found /1 A small farmer would be one whose annual net cash family income is approximately $435 equivalent (B 10,000) or less. /2 The absolute poverty line is defined as $157/year/person in rural areas and $236/year/person in urban areas (end-1982 prices). - 17 - in the villages of the North and Northeast. The overwhelming majority of the poor households, over 85%, are farm households. IFAD and the Bank put high priority on the objective of increasing the flow of credit to creditworthy poor farmers. Under the project, IFAD funds would be earmarked exclusively for BAACGs lending to small farmers engaged in food production in the North and Northeast. 3.03 The project would also play an important catalytic role in Thailand by encouraging the Government's program to strengthen the links between research, extension and credit. To date, coordination between research, extension, and credit has not been adequate even though the three services are complementary in helping farmers raise their production and income levels. One of the most important institutional requirements for agricultural intensi- cation is coordination in technology development and transfer. Coordination is particularly important in the context of extending yield-improving technologies where elements of a production package of support services reinforce each other. IFAD funds would be used to finance a pilot scheme in the North and Northeast, which would provide research/short-term credit/extension packages, particularly for smaller farmers. If proven successful, this would provide the basis for similar endeavors throughout Thailand. B. Brief Description 3.04 The proposed project would support the growth of BAAC-s lending activities and finance BAAC's projected resource gap over a two-year period. The proceeds of the Bank loan would be used countrywide to finance BAAC's medium- and long-term subloans to farmers, including smallholders, and medium-term subloans to cooperatives with good performance records. The types of activities eligible for financing would be as broadly based as possible, but would exclude purchase of land, housing, poppy cultivation and refinancing of old debt. 3.05 The proceeds of the IFAD loan in support of lending activities could only be used by the BAAC to finance short-, medium-, and long-term subloans made to small farmers for food production in the North and Northeast regions. Furthermore, within these regions, the use of IFAD funds for short-term lending would be limited to supporting small farmers engaged in a pilot scheme planned by BAAC and the Department of Extension to improve the delivery of technical services to farmers, particularly the poorer ones. 3.06 The project would also attempt to improve BAAC institutionally by providing funds for additional training activities, financing a study that would examine BAAC-s policies and criteria concerning lending to small farmers, and addressing the issues of BAAC's relatively low lending rates and recovery ratios. - 18 - C. Detailed Features Term Lending Program for Agricultural Investments 3.07 During the project period, BAAC's past pattern of lending is expected to continue, and subloans are expected to finance mainly investments in draft animals, agricultural equipment, farm buildings, land improvements, livestock and poultry (Annex 2). These investments would result in the increased production of principally rice, maize, treecrops, pigs and poultry. About 40% of the medium- and long-term subloans are expected to be made in the North and Northeast, about 30% in the Central Region, and 30% in the South. Within the creditworthy group, BAAC would be lending principally to middle- income and smaller farmers. The average size of medium- and long-term loans during the project period is expected to be about $900 and $1,300, respec- tively. During negotiations, assurances were obtained that in no instance would the total amount of subloans partially financed out of the proceeds of the Bank loan to any subborrower exceed $217,000 equivalent (B 5 million). Few loans (less than 5%) are expected to exceed $100,000. These loans would mainly finance investments made by relatively large farmers in pigs and poultry. Assurances were also obtained that BAAC would submit to the Bank for its prior approval all subloans made out of the proceeds of the Bank loan for subprojects exceeding the equivalent of $100,000 (B 2.3 million), and furnish to the Bank the subproject proposal supported in sufficient detail to satisfy the Bank that the proposed investment is technically, financially and economically sound. 3.08 IFAD's Term Lending to the North and Northeast Regions. IFAD funds would be limited to BAAC's lending to small farmers engaged in food production in the North and Northeast, and the total amount of subloans to any individual farmer would not exceed $4,543 equivalent (B 100,000). To date, BAAC has devoted a considerable amount of its credit resources to helping the poorer farmers in the North and Northeast. In FY80, loan disbursements in these Regions were about 49% of BAAC's total disbursements, and 60% of these loans were directed to small farmers. Under the project, it is expected that a similar percentage of loans to the North and Northeast would reach the poorer farmers. These loans are expected to finance mainly draft animals, land improvements, livestock, poultry, farm buildings, and farm equipment. These investments would increase the production of mainly rice, maize and livestock in these Regions and, in addition, cassava in the Northeast. IFAD's Participation in a Pilot Scheme to Strengthen Links between BAAC, the Department of Extension (DAE), and Research in DOA 3.09 BAAC and DAE are now planning a pilot scheme in the North and Northeast, particularly for small farmers, which would provide extension/ short-term credit packages. The main objectives of this scheme would be to assist BAAC in achieving its goals of increasing the effectiveness of short- term production subloans and improving the overall repayment performance of BAAC client farmers. At the same time, the efforts of the DAE would be assisted by backing their extension message with a BAAC credit package. The BAAC credit officers, who would work as a team with the extension officers, would provide short-term credit to target farmers to finance the purchase of - 19 - a package of inputs recognized by both the research and extension services as most economic for the area. The pilot scheme would be set up in four pro- vinces, two in the North and two in the Northeast. A committee with repre- sentatives from the Department of Agriculture (DOA), DAE and BAAC would oversee and evaluate the scheme (for further details of the pilot scheme see Annex 3). IFAD would lend its support and encouragement for this pilot scheme by providing funds for the short-term credit needs of participating small farmers. This would be complementary to the support it is providing the DOA through its ongoing research project (Loan 1922-TH, jointly financed by the Bank and IFAD). 3.10 Training, Technical Assistance and Studies. Over the past few years, BAAC has devoted considerable effort to staff training. The Training Division in BAAC is advised and assisted by a consultant financed under the Bank's First Agricultural Credit Project. The training programs have been quite successful and generally adequate, but over the next two years, addi- tional training is needed for executive and middle-level staff. Under the project, funds would be made available to BAAC to finance these additional training activities. Twenty middle-level and executive staff would attend two- to three-week courses in neighboring countries in fields such as managerial finance, computers, inventory control, institutional manpower utilization and internal auditing. Six middle-level staff would also receive advanced degree training in the Philippines in business administration and agricultural economics. Project funds would also finance the costs of an expert to conduct a three-week workshop on training for the monitoring and evaluation of agricultural projects. No further training beyond that proposed here would need to be financed under the project. The project would also finance, with IFAD funds, an expansion of an ongoing study being carried out by BAAC which includes: (a) a household economic survey of small farmers; (b) an analysis of the basis for BAAC's current eligibility criteria for lending to small farmers; and (c) an assessment of new systems of lending to small farmers in experimental lending programs. During negotiations, assurances were obtained that the BAAC would select training programs and participants in accordance with procedures and criteria satisfactory to the Bank, and hire an expert for the training workshop whose qualifications, experience and terms and conditions of employment would be satisfactory to the Bank. D. Cost Estimates 3.11 Total project cost (including taxes and duties) is estimated at $188.5 million, of which about $47 million, or 25%, represents foreign exchange requirements. The price contingency amounts to about $16 million, assuming the following rates of price increase: - 20 - 1983 1984 1985 Local costs (%) 7.0 7.0 7.0 Foreign costs (%) 8.0 7.5 7.0 Taxes of about $11 million, or 6%, are included in project cost. The project cost is summarized in Table 3.1, and presented in further detail in Annex 4. Table 3.1: PROJECT COST SUMMARY For- For- For- Local eign Total Local eign Total eign Project components ------ (B million) ------ --- ($ million) -- % BAAC Lending Medium- & long-term lending to small- holders in the North & Northeast 862.5 287.5 1,150.0 37.6 12.5 50.1 25 Medium- & long-term lending to others, including small- holders in the Center and South 2,086.1 696.9 2,783.0 90.9 30.3 121.2 25 Short-term lending to smallholders in the North and Northeast 289.8 96.6 386.4 12.6 4.2 16.8 25 Subtotal 3,238.4 1,081.0 4,319.4 141.1 47.0 188.1 25 BAAC training 1.0 3.0 4.0 0.1 0.1 0.2 75 BAAC study 3.6 0.4 4.0 0.2 - 0.2 10 Total Project Cost 3,243.0 1,084.4 4,327.4 141.4 47.1 188.5 25 Of which: Price contingencies 275.6 101.9 377.5 12.0 4.4 16.4 27 - 21 - E. Financing 3.12 The financing plan provides for a Bank loan of $70 million, including the capitalized front-end fee of about $0.2 million. The proposed Bank loan of $70 million, and the proposed IFAD loan of $20.2 million, amounting to 40% and 11%, respectively, of project cost net of taxes, would jointly finance the full foreign exchange cost of 547.3 million, including the front-end fee, and $42.9 million of local cost. Local currency financ- ing is justified in view of the low foreign exchange element in BAAC's sub- loans, and the need for the Bank to make a meainingful contribution to project costs. The combined Bank and IFAD loans would cover the full projected resource gap of the BAAC over the next two years. The Bank loan would finance retroactively an amount of $7 million for expenditures incurred since April 1, 1983 by BAAC for mediumand long-term subloans to individual farmers and, medium-term subloans to cooperatives with good performance records. Subborrowers would provide about $28 million, or 15% of project cost, inclusive of taxes, in the form of owner contributions to individual subprojects. The BAAC would provide about $71 million, or 38% of project cost, inclusive of taxes. Project financing is shown in Table 3.2. 3.13 The Bank loan would be made to the BAAC with the Government acting as Guarantor of the loan. The IFAD loan would be made to the Government, who would pass on the funds to BAAC under the same terms and conditions regarding interest rates and repayment schedules as the IFAD loan. A condition of loan effectiveness would be IFAD appointing the Bank as Cooperating Institution to administer the IFAD loan. BAAC would bear the foreign exchange and interest rate risks. F. Procurement 3.14 Bulk purchasing under ICB would not be feasible, since the lending activities would be implemented over a two-year period, be widely distri- buted geographically, cover a wide variety of investment activities, and involve a large number of subborrowers. All procurement under the project would be carried out by individual subborrowers through normal commercial channels, following established commercial practices. International and domestic manufacturers are well represented in Thailand, there is a well developed distribution system for the varied types of inputs expected to be procured by individual subborrowers, and competition is keen. Furthermore, the BAAC assists farmers by posting in its many branches and field offices local price lists by dealers for key inputs. These enable farmers to do comparative price shopping and have proven to be very helpful in dissemin- ating price information and in helping farmers avoid poor quality products. - 22 - Table 3.2: PROJECT FINANCING ($ million) Subbor- rowers BAAC IFAD Bank Total Project components Amt. X Amt. % Amt. % Amt. % Amt. X BAAC lending Medium- and long-term lending to smallholders in the North and North- east 7.5 15 18.7 38 12.0 24 11.9 23 50.1 100 Medium- and long-term lending to others, including smallholders in the Center and South 18.0 15 45.5 38 - - 57.7 47 121.2 100 Short-term lending to smallholders in the North and Northeast 2.5 15 6.3 38 8.0 47 - - 16.8 100 Subtotal 28.0 15 70.5 38 20.0 10 69.6 37 188.1 100 BAAC training - - - - - - 0.2 100 0.2 100 BAAC study - - - - 0.2 100 - - 0.2 100 Total project cost 28.0 15 70.5 38 20.2 10 69.8 37 188.5 100 Front-end fee on Bank loan - - - - - - 0.2 100 0.2 100 Total financing required 28.0 15 70.5 38 20.2 10 70.0 37 188.7 100 G. Disbursements 3.15 A Special Account would be established at the Krung Thai Bank to finance subloans and some training expenditures. This Account would be main- tained in baht, since it would be used to finance expenditures in local currency with the exception of a small amount for training, where the expendi- tures may be incurred in other currencies. This Special Account would relate exclusively to the Bank loan and to Bank-financed expenditures. The amount of funds on deposit in this Account would not exceed at any time the baht equiva- lent of $7 million. The initial application requesting deposit of funds would be $5 million and requests for additional deposits would be submitted when project needs justify the increase. Each withdrawal application requesting replenishment of the Special Account would be accompanied by a statement from - 23 - the Krung Thai Bank showing transactions in the Special Account for the relevant period. A condition of loan effectiveness would be the establish- ment of the Special Account. 3.16 All project subloans would be committed during approximately a twoyear period and the Bank and IFAD loans would be disbursed over approxi- mately two-and-a-half years. The Bank would reimburse the BAAC 55% of its eligible medium- and long-term subloans. For administrative simplicity, IFAD funds for mediumr and long-term lending in the North and Northeast to small farmers would be disbursed first, at the rate of 55% of subloans made by BAAC for this purpose, and Bank funds allocated to this component would be disbursed once IFAD funds have been exhausted. In addition, IFAD would reimburse the BAAC for 75% of approved subloans made by the BAAC for short- term purposes under the project and for 100% of the cost of the study to be carried out by BAAC. Disbursements for the lending program would be made against statements of expenditure, which would certify that the amount of approved lending had taken place. The documentation for the statements of expenditure would be retained by BAAC and made available to the Bank, IFAD, and the auditors for inspection during the course of project supervision and audit inspections. The Bank would reimburse BAAC for 100% of the cost of technical assistance and overseas training, against normal documentation. Depending on the circumstances related to indiviual training expenditures, BAAC may either withdraw funds from the Special Account or request the Bank to make direct payments to their suppliers. Separate applications would be prepared for the IFAD-financed and Bank-financed components, since disbursements would not be made on a joint basis. 3.17 The estimated schedule of disbursements is given below. The esti- mated date of project completion would be September 30, 1985 and the estimated Closing Date would be March 31, 1986. In preparing the disbursement schedule, account was taken of the disbursement profiles for credit projects in the Region and the first Agricultural Credit Project (Loan 1816-TH) in Thailand, in particular. Under Loan 1816-TH, Bank funds were disbursed ahead of schedule for the nonspecified term lending component of the project. Table 3.3. DISBURSEMENT SCHEDULE ($ million) Bank Fiscal year Disbursed and semester during semester Cumulative 1984 1 12.0 12.0 2 14.0 26.0 1985 1 15.0 41.0 2 15.0 56.0 1986 1 10.0 66.0 2 4.0 70.0 - 24 - 4. PROJECT IMPLEMENTATION A. Organization and Management 4.01 BAAC would be the implementing agency. The activities of BAAC are controlled by a Board of Directors whose chairman is the Minister of Finance. The main responsibility of the Board is to formulate the operating policies of BAAC and to control and supervise its activities. BAAC's head office is in Bangkok. It has 62 branches and 514 field units all over the country. The head office is responsible for planning, control, and general administration. There are four departments (Planning, Loans, Banking and Accounting, and General Administration) and two offices (Secretariat, and Audit and Inspection). The branch offices are in charge of lending (appraisal, approval within authorized limits, disbursement, supervision and collection) and soliciting deposits. Under the direct control of branch offices, field units assist subborrowers in preparing subloan applications, check their adherence to subloan conditions, particularly on use of funds and on repayment, and provide subborrowers with some technical advice. (See Charts 23893 and 23894 for the organizational set-up of BAAC's head office and branches, respectively.) 4.02 At present, BAAC has a total staff of 4,757, of which about 19% (911) are at the head office and 81% (3,846) are at the branches and field units. In general, the staff are well qualified and of good caliber. The managers of departments, divisions and branches are usually university graduates, many of whom have had several years of experience in other organizations. The salaries paid BAAC staff are commensurate with other civil service salaries. Promotions are based on regular performance evaluations, written tests and personality evaluations. Overall, BAAC is administratively sound. Its organizational structure, staffing and systems are in accordance with its requirements. 4.03 While BAAC is a well managed institution with no serious organiz- ational problems that need addressing, major improvements, however, could be made toward making it a financially self-sustaining institution, both by increasing its onlending rates and improving its loan recovery rates. Under the project, attempts would be made to improve its performance in these two areas. B. Lending Policies and Procedures 4.04 BAAC provides loans only for agricultural purposes, excluding agro-industries. For medium-term loans, individual borrowers, who are unable to provide collateral, are required to join a small informal guarantee group. This enables BAAC to take advantage of the socio-economic sanctions arising from the joint liability characteristics of these groups, particularly in the case of repayment. Each member is liable for his/her loan and for other loans guaranteed by the group. The minimum group size is five. The maximum loan amount per group nember is $1,304 equivalent - 25 - (B 30,000), but not exceeding 60% of the value of the expected marketable surplus produced. Individual farmers can receive medium-term loans exceeding $1,304 equivalent (B 30,000) but less than $43,478 equivalent (B 1 million), provided they mortgage their assets with BAAC. The prevailing interest on these loans is 14% with a loan repayment period of 3-5 years. For long-term loans, the repayment period is up to 20 years, the loan ceiling is $217,000 equivalent (B 5 million), and farmers must submit detailed investment proposals for BAAC's consideration. Farmers are also required to furnish an equity contribution of at least 20% of the project's total investment costs (including noncash costs), and are required to mortgage their fixed assets with BAAC. The Board of Directors of BAAC approve all loans above $87,000 equivalent (B 2 million). With the exception of interest rates, which are discussed below, BAAC's subloan terms and conditions are considered adequate. During negotiations assurances were obtained that BAAC would make project subloans in accordance with its current lending terms and conditions, as they may be amended from time to time by agreement between BAAC and the Bank. 4.05 Onlending Rates. As discussed in Chapter 2, BAAC's low lending rates have made it heavily dependent on government subsidies. The Bank has had extensive discussions with BAAC regarding this issue during supervision of the first Agricultural Credit Project (Loan 1816-TH). In April 1981 and 1982, BAAC's rates were increased by 1% across the board so that rates to individual farmers and cooperatives/associations are now 14% and 11%, respectively. In comparison, commercial banks now charge up to 17% for their agricultural term lending. In a well-functioning credit market, one would expect agricultural lending rates to be higher than other rates due to the higher risks and transaction costs involved. At present, BAAC requires a spread of about 6% between its lending rate to individual farmers and the rate payable on domestically mobilized savings in order to cover its costs, including administrative and loan risk costs. However, a big adjustment in rates is not feasible, at least in the short- to medium-term. During negotiations it was established that it was BAAC's long-term objective to become a financially self-sustaining institution capable of mobilizing sufficient domestic savings to meet adequately the legitimate credit needs of its borrowers. It was agreed that to provide BAAC with sufficient incentive to pursue this objective, BAAC requires an adequate spread between its lending rate and the rate payable on domestic savings in order to cover its costs, including administrative and loan risk costs. As an interim step toward this end, assurances were obtained during negotiations that, except as the Bank shall otherwise agree, BAAC would adjust at least once annually, and to the extent necessary its lending rate to individual farmers such that: (a) when the deposit rate is less than 7%, the BAAC's lending rate to individual farmers will be the deposit rate plus 6%; (b) when the deposit rate is 7% or more but less than 10%, the BAAC's lending rate to individual farmers will be at least 13%; (c) when the deposit rate is 10% or more but less than 14%, the BAAC's lending rate to individual farmers will be at least 14%; and - 26 - (d) when the deposit rate is 14% or more, the BAAC's lending rate to individual farmers will be at least equal to the deposit rate. The deposit rate referred to above, is defined in the legal documents as the average of the monthly interest rates in the latest quarter paid on one to less than two year time deposits by commercial banks, as reported by the Bank of Thailand in its latest available Quarterly Bulletin. Since changes in BAAC's lending rates usually take effect on April 1 of any year, the quarter most likely referred to would be the one ending December 31 of each year. During negotiations, assurances were also obtained from BAAC that the differential between its interest rate for individual farmers' loans and its interest rates for all other types of loans would not be greater than that existing during its FY82. Assurances were obtained at negotiations that the Government, as Guarantor, would take all appropriate measures with respect to BAAC's lending rates for BAAC to fulfill the above assurances. In the three years, 1979, 1980, and 1981, the CPI increased 9.9%, 19.7% and 12.7%, respectively; it is currently increasing at about 6% p.a., and is expected to increase at about 7% p.a. over the next three years. BAAC rates during the project period are expected to be positive in real terms. 4.06 Loan Repayments and Lending to Cooperatives. The loan repayment rate from individual farmers is fairly good at 73%, with the bulk of overdues repaid within two years of being overdue and almost 98% repaid within 3 years. However, the repayment from cooperatives and associations is at adverse levels of 42% and 49%, respectively (para. 2.09). Financial mismanagement by these institutions is one of the major causes for this poor performance. Loan 1816-TH finances training courses under a program designed to restructure agricultural cooperatives in poor financial condition. Under this program, which is to span the three years l19l-83, cooperatives have been graded according to performance, with Grade 1 being the best and Grade 3 the worst. Cooperatives were divided according to size based on membership and business volume, and were classified into grades based on three major criteria: (a) general administration and management; (b) business and results of operations; and (c) financial position, including loan repayment performance. Of the 844 agricultural and land settlement cooperatives that were reviewed, 34 were classified as Grade 1, 410 as Grade 2 and 400 as Grade 3 (88 of these were graded as 3 because they were newly established). The program under Loan 1816-TH attempts to rehabilitate a mix of Grade 2 and 3 cooperatives. A first step in improving BAAC-s overall repayment performance from cooperatives would be for BAAC not to increase the credit line ceiling of those Grade 3 coop- eratives whose performance is deteriorating. During negotiations, assurances were obtained that BAAC would: (a) not increase the credit line ceiling of those Grade 3 cooperatives with deteriorating performance; (b) in collabor- ation with the National Agricultural Training Institute (NACTI) design appropriate training programs for Grade 3 cooperatives not yet covered by the restructuring program; and (c) make its best efforts to improve the rates of recovery from cooperatives to which it makes subloans. It is expected that - 27 - restricting the volume of lending to Grade 3 cooperatives with deteriorating performance would provide an incentive for them to improve their performance. During negotiations assurances were also obtained that the Government would take all measures necessary to encourage the cooperatives to improve their repayment performance. During negotiations assurances were also obtained that BAAC would review its lending policy and activities affecting coopera- tives and discuss the implications of this review with the Guarantor and the Bank by December 1, 1984. This review is intended to assess the impact of BAAC's lending through cooperatives and to examine the justifications for the interest rate spread (currently about 3%) given to cooperatives by BAAC. Specifically, it will require analyzing the characteristics of the borrowing cooperative members, the purposes of the loans and the lending terms, and evaluating the services that the cooperatives as financial intermediaries provide to their members and to BAAC, respectively. In carrying out the review of its lending to cooperatives, BAAC would be able to draw on the information available from the programs for the restructuring of cooperatives under Loan 1816-TH. C. Accounts and Audits 4.07 BAAC would maintain separate project accounts for the proposed pro- ject in accordance with sound accounting principles and methods, consistently applied. The project accounts and related basic financial statements would be audited annually by independent auditors acceptable to the Bank, in accordance with appropriate auditing procedures consistently applied. BAAC would be required to submit to the Bank within six months of the end of every fiscal year during project implementation a certified copy of the auditors' report including a separate opinion by said auditors in respect of disbursements made on the basis of statements of expenditure. BAAC would also be required to submit to the Bank an audit of its entire accounts. Assurances were obtained at negotiations on the conditions specified in this paragraph. -D. Monitoring and Reporting 4.08 BAAC would be required to submit to the Bank semi-annual progress reports, an annual evaluation report of the project investments, together with the annual audited financial statements for the project, a project completion report, and such other information relating to the implementation and finanr- cial position of the proposed project as the Bank may reasonably request. The semi-annual progress reports would contain information on the progress being made by BAAC in mobilizing domestic savings, and the monitoring of BAAC-s lending activities to individual farmers as well as cooperatives and farmers' associations. The annual evaluation report would contain information on the impact of project investments and determine whether objectives such as increased output and improved incomes are being met. At present, BAAC's monitoring and evaluation is carried out by its Planning Department. BAAC is presently reviewing with the aid of a consultant a management information system which would aim to: (a) improve procedures for data collection report format to reduce the large volume of paper flow and duplication in report - 28 - content; (b) ensure timely reporting; (c) collect data for preparing annual work programs by region and lending category; and (d) improve the evaluation of the financial, economic and social impact of individual lending programs. 5. MARKETING, MARKETS AND PRICES A. Marketing and Markets 5.01 Agricultural production under the project is expected to consist principally of rice, maize, treecrops, livestock, poultry and fish. The existing marketing infrastructure and facilities for agricultural inputs and outputs, which are well established in Thailand, are considered efficient and capable of handling the agricultural production under the project. The marketing of agricultural inputs and outputs in Thailand is primarily handled by the private sector. 5.02 Domestic and export market prospects for the agricultural production under the project are generally good, except for possibly rice in the long term. Short-term prospects for some crops like cassava are less favorable because of world recessionary conditions, but due to its relatively low production costs, aggressive private sector, and favorable government-to- government trade arrangements, Thailand's comparative advantage compared with many other exporting countries should enable it to find sufficient market outlets. While the medium-term prospects for rice are reasonably favorable, longer-term prospects for about a projected 5 million tons of exportable surplus from Thailand are uncertain and require further assessment as to the potential absorptive capacity of world markets. For the remaining products, supply rather than demand is likely to be the limiting factor. B. Prices 5.03 Prices were assumed as shown in Table 5.1 in order to arrive at a financial rate of return for subproject investments. Annex 2, Table 2 shows a more detailed list of present and future prices in financial and economic terms. Project prices for traded goods such as rice have been based on the Bank's commodity price projections, adjusted for international freight, local marketing costs and quality differentials. The conversion factors used to derive some of the economic prices are detailed in the Project File. - 29 - Table 5.1. FINANCIAL PRICES OF SELECTED OUTPUTS /a Financial Price Unit 1982 1997 Paddy B/kg 3.0 4.0 Finished pigs B/kg 25.0 25.0 Chickens, live B/head 27.5 27.5 Ducks, live B/head 55.0 55.0 Chicken eggs B/dozen 16.8 16.8 Duck eggs B/dozen 16.8 16.8 Buffalo B/head 8,000.0 8,000.0 /a In constant 1982 prices. 6. BENEFITS AND RISKS A. Benefits and Beneficiaries 6.01 The proposed project would make a positive step toward improving the functioning of rural financial markets in Thailand by increasing BAAC-s on-lending rates relative to other rates. This would increase BAAC's incentives to actively mobilize rural savings; partially correct the existing distortions resulting from subsidized BAAC lending; improve the competition in the supply of agricultural credit between BAAC and the commercial banks; and strengthen BAAC financially, so that it is better able to serve the needs of the rural people. 6.02 By providing medium- and long-term financing for the rural areas, the proposed project would boost the level of economic activity in these areas and thereby contribute toward job creation and raising rural produc- tion and incomes. Since most of rural production is agriculture based, and since much of the increased agricultural production would be exported, the project would contribute toward improving Thailand's balance of payments through increased agricultural exports. It is estimated that about 150,000 farmers would receive funds channeled through BAAC under the project, including about 50,000 beneficiaries of IFAD funds in the North and Northeast. 6.03 The potential long-term benefits from the project's support of the pilot scheme in the North and Northeast could be substantial. With improved coordinated services between the agencies concerned with research, extension and credit, the extensive transfer of yield-improving technology, which is crucial to agricultural intensification, would be facilitated. - 30 - 6.04 It has not been possible to make a fully quantitative assessment of the benefits to be achieved under the project. However, several typical investment models have been developed to measure benefits from some of the subproject investments for agricultural development./l The models are shown in Annex 2 and the rates of return are discussed in the following paragraph. B. Rates of Return 6.05 The financial rates of return on five selected investment models range from 16% to 26%. The economic rates of return range from 17% to 26%. The results of sensitivity analysis on these models is presented in Annex 2, Table 1. The net cash income after debt servicing appears to be satisfac- tory for all the farm models. Income from these investments would typically supplement income derived from the main agricultural activity such as rice production. A summary of the estimated rates of return is presented in the following table: Table 6.1: RATES OF RETURN (ROR) Subprojects Financial Economic ROR (%) ROR (%) Draft Animals 23 24 Pig Breeding 16 17 Pig Fattening 23 24 Duck Egg Production 21 21 Hen Egg Production 26 26 C. Risks 6.06 The level of risk associated with this project, in terms of dis- bursement of funds, is low because of the broad range of subprojects to be financed countrywide. However, if the ongoing worldwide recession persists, it could have adverse effects on Thailand's agricultural growth, and hence the demand for agricultural loans and loan repayment performance. The risks common to all agricultural projects would include: failure to achieve projected yields; changes in Government's agricultural policy affecting prices, taxes and subsidies which would provide disincentives to farmers; and deterioration in technical services. /1 A detailed discussion of the investment models is contained in the Project Files. - 31 - 7. AGREEMENTS REACHED AND RECOMMENDATION 7.01 Assurances were obtained from the Government as Guarantor, that: (a) it would take all appropriate measures with respect to BAAC's lend- ing rates for BAAC to fulfill its obligations pertaining to its lending rates (para. 4.05); and (b) it would take all measures necessary to encourage agricultural cooperatives to improve their repayment performance in respect of BAAC-financed loans (para. 4.06). 7.02 Assurances were obtained from BAAC that: (a) in no instance would the total amount of subloans partially financed out of the proceds of the Bank loan to any subborrower exceed $217,000 equivalent (B 5 million). Assurances were also obtained that BAAC would submit to the Bank for its prior approval all subloans made out of the proceeds of the Bank loan for subprojects exceeding the equivalent of $100,000 (B 2.3 million), and furnish to the Bank the subproject proposal supported in sufficient detail to satisfy the Bank that the proposed investment is technically, financially, and economically sound (para. 3.07). (b) it would select training programs and participants in accordance with procedures and criteria satisfactory to the Bank, and hire an expert for the training workshop whose qualifications, experience and terms and conditions of employment would be satisfactory to the Bank (para. 3.10). (c) it would make project subloans in accordance with its current lending terms and conditions, as they may be amended from time to time by agreement between the Bank and BAAC (para. 4.04); (d) as an interim steps toward achieving the objective of becoming a financially self-sustaining institution capable of mobilizing suffi- cient domestic savings to meet adequately the legitimate credit needs of its borrowers, BAAC would, except as the Bank shall otherwise agree, adjust at least once annually and to the extent necessary its lending rate to individual farmers such that: (i) when the deposit rate is less than 7%, the BAAC lending rate will be the deposit rate plus 6%; (ii) when the deposit rate is 7% or more but less than 10%, the lending rate will be at least 13%; (iii) when the deposit rate is 10% or more but less than 14%, the BAAC lending rate will be at least 14%; and (iv) when the deposit rate is 14% or more, the BAAC lending rate will be at least equal to the deposit rate (para. 4.05). - 32 - (e) the differential between BAAC's interest rate for individual farmers' loans and its interest rates for all other types of loans would not be greater than that existing during BAAC's FY82 (para. 4.05); (f) it would: (i) not increase the credit line ceiling of those Grade 3 cooper- atives with deteriorating performance; (ii) in collaboration with the National Agricultural Cooperative Training Institute (NACTI), design appropriate training pro- grams for Grade 3 cooperatives not yet covered by the restruc- turing program; and (iii) make its best efforts to improve the rates of recovery from cooperatives to which it makes subloans (para. 4.06). (g) it would review its lending policy and activities affecting cooperatives and discuss the implications of this review with the Guarantor and the Bank by December 1, 1984 (para. 4.06); and (h) it would: (i) maintain in accordance with sound accounting practices separate project accounts; (ii) have the project accounts audited annually by independent auditors acceptable to the Bank, in accordance with appropriate auditing procedures consistently applied; and (iii) submit to the Bank within six months of the end of every fiscal year during project implementation a certified copy of the auditor's report including a separate opinion by said auditors in respect of disbursements made on the basis of statements of expenditures (para. 4.07). 7.03 Conditions of loan effectiveness would be that: (i) IFAD would appoint the Bank as Cooperating Institution to administer the IFAD loan (para. 3.13); and (ii) A Special Account would be established (para. 3.15). 7.04 Subject to the above assurances and conditions, the proposed project would be suitable for a Bank loan of $70 million, with a term of 20 years, including a grace period of 6 years. The borrower would be the BAAC. - 33 - ANNEX 1 Page 1 THAILAND SECOND AGRICULTURAL CREDIT PROJECT THE BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVES (BAAC) /1 Background and BAAC-s Role in the Thai Economy 1. BAAC was established in 1966 under the Bank for Agriculture and Agricultural Cooperatives Act, as a government-owned bank with a mandate to supply credit for the development of the agricultural sector. BAAC's lending activities are strictly limited to individual farmers, agricultural coopera- tives and farmers' associations, and are based on regulations which specify the types of borrowers, the purposes of loans, repayment periods, loan amount ceilings and interest rates. BAAC is authorized to attract funds for its operations by: (a) collecting deposits from the commercial banks and the general public; (b) issuing negotiable instruments, such as bills and bonds; and (c) borrowing from domestic or foreign sources. Total indebtedness from borrowing and issuing negotiable instruments is not supposed to exceed twenty times the paid-in share capital. The authorized share capital of BAAC is at present fixed at B 4 billion ($174 million), divided into 40 million shares at a par value of B 100 each. The shares are to be sold to the Ministry of Finance (MOF), farmers, agricultural cooperatives, farmers' associations, financial institutions and other persons subject to the Regulations of the Bank (the latter two not exceeding 10% of the total paid-up share capital). In FY81, the paid-up share capital was about $70 million. 2. Today, BAAC is the single largest credit institution serving farmers in Thailand. Commercial banks are now playing a far more significant role in agricultural credit provision than previously, but the farmers they serve are relatively better off. BAAC devotes most of its credit resources to the middle-income and poorer farmers who are unable to acquire credit through other institutional channels. BAAC's loan disbursements in FY80 totaled $463 million and the number of farmers benefiting from BAAC's credit operations was about 2 million, representing about 40% of the total number of farm families in Thailand. The volume of operations, nationwide coverage, numbers of farmers served, diversity of support services, and potential abil- ity to mobilize rural savings, make BAAC an extremely important institution in the Thai agricultural economy. Changes in Government policy, particularly regarding interest rates, would enable BAAC to develop into a sound, financially viable institution that could even better serve the rural economy. /1 BAAC's fiscal year is April 1 to March 31. (FY81 runs from April 1, 1981 to March 31, 1982.) Prior to 1977, BAAC was on a calender year basis. - 34 ANNEX 1 Page 2 Institutional Aspects 3. Organization and Management. The activities of BAAC are controlled by a Board of Directors consisting of 11 members. The Chairman is the Minister of Finance and the Vice Chairman the Under-Secretary of State of the Ministry of Agriculture and Cooperatives (MOAC). Other members are representatives from the Prime Minister's Office, Juridical Council, MOF, MOAC, Agricultural Land Reform Office, Bank of Thailand (BOT), Budget Bureau, Thai Bankers' Association, and the General Manager of BA.AC. The main responsibility of the Board is to formulate the operating policies of BAAC and to control and supervise its activities. 4. BAAC's head office is in Bangkok. It has 62 branches and 514 field units all over the country. The General Manager is in charge of the day-to-day operations and is assisted by two Deputy Directors. The head office is responsible for planning, control, and general administration. There are four departments (Planning, Loans, Banking and Accounting, and General Administration) and two offices (Secretariat, and Audit and Inspection). The branch offices are in charge of lending (appraisal, approval within authorized limits, disbursement, supervision and collection) and soliciting deposits. Under the direct control of branch offices, field units assist borrowers in preparing loan applications, check their adherence to loan conditions, particularly on use of funds and on repayment, and provide borrowers with some technical advice. (See Charts 23893 and 23894 for the organizational set-up of BAAC's head office and branches, respectively.) 5. Staffing. At present BAAC has a total staff of 4,757, of which about 19% (911) are at the head office and 81% (3,846) are at the branches and field units. In general, the staff are well qualified and of good caliber. The managers of departments, divisions and branches are usually university graduates, many of whom have had several years of experience in other organizations. The salaries paid BAAC staff are commensurate with other civil service salaries. Promotions are based on regular performance evaluations, written tests and personality evaluations. Overall, BAAC is administratively sound. Its organizational structure, staffing and systems are in accordance with its requirements. 6. Training. Over the past few years, BAAC has devoted considerable effort to staff training. The Training Division consists of four sections: (a) General Administration; (b) Project Implementation; (c) Monitoring and Evaluation; and (d) Planning and Design. The Training Division is advised and assisted by an expatriate consultant, who was previously financed under the Colombo Plan, but is now financed under the Bank's First Agricultural Credit Project (Ln. 1816-TH). The training program for 1981/82 comprises 26 different short-term courses and seminars including overseas training, covering a wide range of topics. The training programs at BAAC have been quite successful and are considered adequate. ANNEX 1 - 35 ~ Page 3 Operational Aspects 7. Types of Loans, Regulations and Procedures. BAAC provides loans only for agricultural purposes, excluding agro-industries. Farmers who are members of cooperatives are not entitled to borrow directly from BAAC. An individual farmer must fulfill the following 10 criteria to be eligible to register as a BAAC client: (a) have Thai nationality; (b) be at least 20 years old; (c) be a farmer; (d) have sufficient experience in agriculture; (e) have permanent residence in the branch area; (f) regularly produce a sufficient marketable surplus; (g) have an honest and good reputation; (h) be of sound mind with no mental infirmity; (i) not be bankrupt or insolvent; and (j) not have been previously expelled from being a BAAC client. Short-term loans fall under two main categories: (a) short-term loans for agricultural purposes; and (b) short-term loans for postponement of sale, which is provided to assist farmers with their loan repayments and post-harvest household expenses in the event that they are unwilling to sell their products soon after harvest, due to severely depressed market prices. Short-term production loans are based on credit needs per rai, fixed by crop, but adjusted to reflect local conditions in provinces. Individual borrowers, who are unable to provide collateral, are required to join a small informal guarantee group, which enables BAAC to take advantage of the socio-economic sanctions arising from the joint liability characteristics of these groups, particularly in the case of repayment. Each member is liable for his/her own loan and for other loans guaranteed by the group. The minimum group size is five. The maximum loan amount per group member is B 30,000 ($1,304), but not exceeding 60% of the value of the expected marketable surplus produced. For loans between B 30,000 ($1,304) and B 1,000,000 ($43,478) the farmer is required to mortgage his assets with BAAC. The interest on these loans is 14% with a repayment period of 1 to 1/2 years. Mediumrterm loans are provided mainly for purchase of farm machinery and equipment, draught animals, land and refinancing of old debt. The security requirements and interest rate charged are the same as for short-term loans. The loan repayment period is 3-5 years. Long-term loans are provided for refinancing old debt and long-term investments in agricul- ture. For investment in agriculture, repayment is by installment with a repayment period of up to 20 years, and farmers must submit detailed invest- ment proposals for BAAC's consideration. Farmers are also required to furnish an equity contribution of at least 20% of the project's total investment costs, and are required to mortgage their fixed assets with BAAC. Loans for refinancing old debt are provided to enable farmers to repurchase or redeem previously owned land, which has been mortgaged or forfeited to private moneylenders. Government committees assist BAAC in screening farmers who apply for this type of loan. - 36 - ANNEX 1 Page 4 8. Loans to Agricultural Cooperatives and Farmers Associations. Miost of BAAC's loans to cooperatives and associations are made available under credit line agreements extended for five and three years, respec- tively, and renewed annually; these loans therefore function in a manner similar to a revolving fund. However, BAAC stipulates the amount to be used for short-term and for medium-term investments respectively. The loan purposes include: (a) on-lending to members in the form of short- and medium-term loans for agricultural purposes; (b) purchase of produce from members; and (c) purchases of farm inputs and supplies sold to members. The limit on the amount of loans is 12 times the owned funds for cooperatives and 10 times for associations. BAAC also provides a small amount of long-term loans for construction of cooperative-owned facilities such as rice mills and storage facilities. Interest rates to cooperatives and associations vary from 6% to 10%. Table 1 summarizes the terms and conditions of BAAC's ongoing term lending. 9. In addition to its regular loan operations, BAAC provides credit to a sizeable portion of the farming population under special area develop- ment projects, in cooperation with several Government agencies. These special projects include new village development, land consolidation, acidic soils improvement in land reform areas, oil palm promotion and shrimp farming. In FY80, BAAC also initiated a new program of credit in kind, to provide farmers with quality inputs at reasonable prices. About 46,000 farmers were issued order forms in lieu of loans and, upon submission of these forms to designated local merchants, were provided with the desired inputs. The selection of inputs has been based on technology packages designed for specific crops in selected areas. This scheme has benefited farmers in remote rural areas, where the timely supply of inputs of reliable quality and reasonable prices has been a serious problem in the past. 10. Credit Operations. Over the past four years, BAAC's agricultural credit operations have grown at an annual rate of about 20%, with loans disbursed increasing from about $189 million in 1976 to $463 million in FY81. In FY81, disbursements to individual farmers were $348 million (75% of the total), to cooperatives $112 million (24% of the total) and to associations $4 million (1% of the total). There has been no significant change in the proportion of loan disbursements between these categories over the past few years. Short-term loans to individual farmers accounted for 55% of the total loan disbursements in FY81. Table 2 shows the loan disbursements by type and maturity from 1976 to FY81 and Table 3 shows the breakdown by region. 11. One of the most striking features of BAAC-s credit operations is its remarkably wide coverage. The following table shows the number of farmers serviced by BAAC directly or through cooperatives and associations: - 37 - ANNEX I Annual growth 1977 1978 1979 1980 1981 rate --------------- ( °000) -------------- - (%) Number of farmers registered with BAAC 702 780 886 960 1,038 10.3 Members of agricultural cooperatives serviced by BAAC 598 674 731 774 792 9.8 Members of Farmers' Associations serviced by BAAC 297 284 274 254 230 (6.0) Total number of farmers receiving credit directly or indirectly from BAAC 1,597 1,738 1,891 1,988 2,060 12. At present about 2 million farm families have benefited from BAAC's operations. This represents about 40% of the number of farm families in Thailand. (Note, however, that once a farmer registers with BAAC, it is not clear to what extent he continues to borrow in later years.) It is estimated that about 60% of the total number of farmers registered with BAAC live in the North and Northeast, which are the poorest regions of Thailand. It is difficult to estimate the number of small farmers who are benefici- aries of BAAC's credit operations. The Bank's First Agricultural Credit Project finances BAAC's ongoing term lending in the North and Northeast, and it is estimated that about 60% of these loans are extended to small farmers.11 /1 A small farmer is defined as a person, primarily engaged in farming activities who farms a holding smaller than the average-sized holding in the particular province. - 38 - ANNEX I Page 6 Financial! Aspects 13. Financial Position. BAAC-s financial structure as of March 31, 1982 was as follows: Amount Source (million baht) x Own capital funds 2,182 11 Deposits from general public 3,221 16 Deposits from commercial banks 8,181 41 Borrowings 2,422 12 Notes payable 3,500 17 Others 544 3 Total 20,050 100 As shown above, the bulk of BAAC's sources comes from the compulsory deposits of the commercial banks. Since 1975, most of the increase in BAAC-s assets has been funded by these deposits and subsidized loans from the BOT, namely captive sources, with negative consequences for new deposit mobilization, efficiency of overall financial intermediation and burden on scarce public resources (see Figure 1.1). 14. From FY77 to FY81, BAAC-s total assets grew at an average annual rate of 20%, and reached B 20.2 billion in March 1982. Total current assets, excluding the current portion of the loan portfolio, increased during the same period to about B 7.0 billion at an average annual rate of about 29%. The loan portfolio (net of provisions for bad debt) increased at an annual average rate of 16% from B 7.4 billion in FY77 to B 13.5 billion in FY81. The rapid growth in borrowings from the BOT and foreign sources, and increases in deposits, supported the growth of BAAC-s portfolio, raising the total debt/equity ratio from 5.0:1 in FY77 to 7.7:1 in FY81. During the same period, the current ratio increased from 3.2:1 to 3.5:1. Total equity as a percent of total assets declined from 16.7% in FY77 to 10.8% in FY81. In the future, given the high risks and costs involved in BAAC-s lending, its equity capital would have to increase to enable it to expand its operations. Table 4 shows BAAC-s comparative balance sheets for the past five years. 15. Financial Performance. BAAC-s gross income increased from B 901 million in FY77 to B 2.3 billion in FY81. The interest expenses during the FIGURE 1.1 BAAC: CAPTIVE SOURCES OF FUNDING | _ AS PERCEN OF LO,WrS O Noj m)t ...-,...I.s s...... AS RIXcINT CF UE taE DTS 3.RZN'rs -_ ------- \LLEU=rO 200.0- - 200.0 150.0 , 150.0 IQ0.0 ------------------------------------------..- - 100.0 50.0 - 50.0 o. 0 L. o 0.0-f'- --0. -50.0 -50.0 -IG0.0 . -wX--100.0 i 70 71 72 73 7i 75 7 6 77 78 79 80 fD@ U;Xl $ .wig a S'6 NOD U',.o CA.&' ANNEX 1 - 40 - Page 8 same period increased from B 512 million (57% of gross income) to B 1,393 million (61% of gross income) and the net income increased from B 52 million to B 132 million. The net income figures shown, however, do not accurately reflect the true income situation of BAAC. Firstly, BAAC is heavily dependent on the BOT's rediscounting facilities, with subsidized interest rates of 1%-3.5%, to enable it to make a profit. Secondly, in FY31 the potential loss due to the devaluation of the Baht against foreign currencies amounted to B 140 million. If this were reflected in the income statement, there would be a net loss of B 3 million. In order to improve BAAC-s financial performance, its interest rate levels for lending should be increased, and it should not be made to bear the foreign exchange risk. Table 5 shows BAAC's comparative income statements from 1976 to FY81, and Table 6 shows BAACGs income, expenses and net profit as a percentage of average total assets. 16. Loan Repayments. Individual Loans: Over the past three years BAAC-s loan collection performance has remained more or less the same as can be seen in Table 7. In FY81, the repayment rate for individual loans was 78% for short-term and 62% for medium-and long-term, resulting in an overall repayment rate of 73%. The higher repayment rate for short-term loans is attributed to two main reasons. First, if a farmer, who has taken out both short- and medium/long-term loans, has difficulties in meeting his repayment obligations, then BAAC requests that payment of the short-term loan take precedence over the other term loans. Second, the close mutual supervision amongst short-term loan borrower members of joint liability groups ensures that the repayment rate for their loans is high. Table 3 shows the aging of loan amounts in arrears. In FY80, the accumulated amount of principal in arrears for three years and over was only 1.9%'o of the total amount of the outstanding principal. A fair portion of the amount in arrears was repaid after one year. The amount of write-offs appear to be negligible. The reasons for the failures to repay are difficult to establish. BAAC-s annual reports give statistical analyses of reasons for non-repayment for the different types of loans. The reasons it gives for nonr-repayment include: (a) crop losses and misuse of loan proceeds; (b) willful default; (c) unexpected household expenses; (d) low proceeds from sale of products; (e) loss of assets due to legal suits; (f) heavy in debt to other creditors; and (g) other reasons. 17. Institutional Loans: The repayment of loans from cooperatives and associations is at a critically low level, especially the short-term loans for orr-lenling to members. In FYSO, the repayment rate from cooperatives and associations was estimated to be about 45% and 35%, respectively. In the case of cooperatives, this poor repayment performance can be attributed to a number of reasons, including lack of a concerted effort to recover past due loans from members, lack of attention to internal auditing, and the poor example set by many of the cooperatives' administrators. In FY30, BAAC had reports of financial mismanagement and corruption in 173 of 822 cooperatives that borrow from BAAC. Of these cooperatives, 140 had taken or were in the process of taking corrective measures, BAAC had recalled the loans of 14, and ANNEX 1 - 41 - Page 9 3 had been taken to court to face legal action. With regard to BAAC's requirement that cooperatives repay an amount not less than 80% of the members repayments, only 54% of the cooperatives whose loans to members matured during the year, were able to comply. The Bank's Agricultural Credit Project (Loan 1816-TH) finances consultants to assist in a program of strengthening the cooperative system through the restructuring of cooperatives in poor financial condition. It is hoped that with the training and corrective measures introduced, the repayment performance of cooperatives would improve. The poor repayment performance of farmers associations is due to mismanagement of funds and corruptions. BAAC has had to resort to recalling loans and filing suit in court against some of the associations. Issues and Future Outlook 18. BAAC is a well-managed bank within the rules and interest rate regime imposed on it by the Government. However, major improvements could be made toward making BAAC a financially self-sustaining institution, thus enabling it to better serve the needs of the rural people. The principal problem facing BAAC is the artificially low interest rates at which it is required to make its loans. Despite the fact that BAAC's rates were allowed to increase by 1% in April 1982, the rates are still too low. The case for allowing BAAC to charge a higher than the presently mandated rate is supported by several factors. The argument of offseting agricultural taxes by providing a subsidy elsewhere is simply a case for causing distortions twice over, with added administrative problems and associated costs. If agricultural taxes are considered to be an undue burden on the farmers, they should be reduced rather than an attempt being made to offset that burden by providing a subsidy in the form of lower interest rates. There exists an informal financial market approximately equal in size to the formal institutional market, where interest rates are reportedly in the range of 2-5% per month. The existence of such a large informal market and such high interest rates means that the genuine demand for credit is not being met by competitive institutional sources and that borrowers are in fact able and willing to pay significantly higher rates than mandated for BAAC. An increase in BAAC-s lending rate is also necessary if it is to start actively seeking rural deposits for which it is uniquely qualified. To date, BAAC has had no incentive to mobilize rural savings, particularly time deposits, for which it must pay 13-14%. 19. BAAC's loan recoveries have been extremely poor in the case of cooperatives and farmers associations. Improvements would have to be made in this area if BAAC is to be financially viable. THAILAND SECOND AGRICULTURAL CREDIT PROJECT BAAC - Terms and Conditions of Ongoinig Lending Programn /a Maximum Interest /b Term Type of loan Purpose Maximumn loan amount Collateral rate p.a. (years) Approval authority Individual Farmers Short-term Marketing For all short- and medium-term loans: Pledging of produce and 14% 1-1 1/2 For all loans (excluding (1) B 30,000 per borrower under group group guarantee refinancing): guarantee Agricultural (2) B I million per borrower who mortga- Group guarantee and/or -Branch manager, up to production ges fixed assets collateral B 80,000 (3) Up to 60%, in exceptional cases 80%, Medium-term Draft animals, of the marketable surplus for agri- Same as above 14% 3-5 -Deputy General Manager, pumps, etc. cultural production loans B 80,000 to B I million Long-term Agricultural Up to 80% of the appraised investment Mortgage of fixed 14%-B 600,000 -Board of Directors, over B 2 million Refinancing of B 40,000 Same as above 14% 10-12 > old debt K Agricultural Coopera- tives Cash credit (renewed Onlending to B 3 million; 12 times the equity of Mortgage of immovable 11% (compound) 5 All loan approval author- every five years) members coops after 3 years of operation property ity rests with Head Office as follows: Purchase of 6 times equity Same as above 6% 1 inputs -General Manager, up to B 2 million Marketing 80% of value of pledged produce and Pledge of produce and 14% (compound) I B 5 million mortgage of immovable -Board of Directors, over property B 2 million Long-term Investments In B 10 million Mortgage of immovable 11% 15- 20 agriculture property plus equity contribution of 20% of investment costs Farmers Associations Cash credit Onlending to 10 times equity Mortgage of immovable 11% (compound) 3 Same as above. members property Purchase of 4 times equity Same as above 6% 1 inputs Long-term Investments in B 5 million Same as above llX 15-20 r ts agriculture A /a Commencing April 1, 1982. /b Simple interest unless otherwise stated. THA r1.AND SECONI) AGRICULTIJRAL CREDIT PROJECT BAAC: Loans Disbursed by Maturity/Type /a (Amotunts in B million) Actuial Projections 1976 1977/78 1078/79 1979/80 1980/81 19R1/82 19882/83 1983/84 1984/85 Ant. =t Amt. kn Amt. 4 Amtt. % mt. 7 Amt. 7 Amt. 1 Amt. , Amt. ' Individual Farmers Short-term loans 1,951 2,603 2,966 3,660 4,136 5,845 6,64R 7 ,505 8,411 Medium-term loans 1,160 1,241 1,468 1,551 1,254 1,285 1,246 1,407 1,577 Long-term loans 123 17(1 443 725 560 871 1,170) 1,454 1,734 Subtotal 3,234 75 4,014 73 4,877 73 5,936 75 5,950 7? 8,001 75 9,064 71 10,366 72 11,722 73 Cooperatives OTlIending to mem- bers /b 691 1,069 1,407 1,573 1,7'00 2,029 2,146 2,278 2,417 Puirchasing of agric. inputs 51 101 122 165 176 187 301 3(0 300 1 Marketing 1 2 79 113 1l/4 110 116 122 128 w Long-term loans /c 72 36 33 3 2 1 11 15 15 Suibtotal 815 19 1,2(8 23 1,641 24 1,854 23 1,992 27 2,327 22 2,574 2( 2,715 19 2,860 18 Farmers' Associations Onlending to mem- bers /b 282 256 179 163 88 80 74 69 64 Purchasing of agric. inpuits 6 7 4 2 2 1 3 3 3 Long-term loanis /c - I - - - - 4 1 9 Su1htotal 288 6 264 4 183 3 165 2 90 1 81 1 81 1 73 1 68 1 Special Governiment Projects - - - - 253 249 2 1,051) 8 1,2(0 8 1,35() 8 Total 4,337 lO 5,486 100 6,71)1 lO 7,955 10O 8,285 100 10,658 12,769 14,354 16,000 /a 1976 is on a calendar y"ar basis; from 1977 onwards, it is a fiscal year basis (April 1 to March 31). 1977/78 covers a 15-moith )period. /b For relending as short- and medium-term loans. Tc For inivestments In fixed assets, mainlv rice mills and storage godowns. X Z v z5 -44 - ANNEX 1 Table 3 THAILAND SECOND AGRICULTURAL CREDIT PROJECT BAAC Loan Disbursements to Individual Farmers, Classified by Type and Region - 1980/81 (Amounts in B million) North Northeast Central South Total -Amt. -%- -Amt.F % Amt. % Amt. % Amt. Z Short-Term Loans Crops - Rice 545 406 716 261 1,928 - Cassava 6 410 159 18 593 - Maize 207 112 140 3 462 - Others 219 103 91 311 724 Subtotal 977 1,031 1,106 593 3,707 Livestock, poultry, dairying 76 85 64 156 381 Marine, fishing, sericulture 1 - 22 22 45 Other - - 2 1 3 Total 1,054 25 1,116 27 1,194 29 772 19 4,136 100 MediumrTerm Loans Investment in buildings and farm equipment 60 14 126 151 351 Investment in land for agriculture 88 25 103 186 402 investment in livestock 120 192 48 46 406 Other 2 2 31 60 95 Total 270 22 233 19 308 24 443 35 1,254 100 Long-Term Loans Investment in buildings and 5arm equipment 60 20 64 47 191 Investment in land for agriculture 46 12 83 111 252 Investment in livestock 23 50 12 10 95 Other 2 6 8 6 22 Total 131 24 88 16 167 30 174 31 560 100 GRAND TOTAL 1,455 25 1,437 24 1,669 28 1,389 23 5,950 100 - 45 - ANNEX I Tahle 4 THAILAND SECOND AGRICULTURAL CREDIT PROJECT BAAC: Comparative Balance Sheet, 1977/78 - 1981/82 (B million) Actual 1977/78 1978/79 1979/80 1980/81 1981/82 Assets Cash on hand and due from banks/a 2,262 3,571 3,838 5,035 6,353 Government bond 80 1,825 59 Other 65 24 34 1l1 137 Subtotal 2,327 3,595 3,952 6,971 6,549 Loans to cooperatives 2,536 3,008 3,263 3,615 4,098 Loans for farmers' associations 521 482 464 415 362 Accrued interest 41 32 37 47 46 Less: Provision for doubtful debt (145) (306) (431) (505) (537) Institutional Loans Outstanding 2,953 3,216 3,333 3,572 3,969 Loans to individual farmers 4,403 5,680 6,944 7,317 8,993 Accrued Interest 306 408 468 549 729 Less: Provision for doubtful debt (207) (241) (339) (396) (568) Individual Loans Outstanding 4,502 5,847 7,073 7,470 9,154 Fixed assets less depreciation 124 152 183 243 310 Provision for exchange rate fluctuation - - - 171 200 Total Assets 9,q06 12,810 14,541 18,427 20,182 Liabilities and Equity Liabilities Savings deposits 281 431 509 510 1,013 Time deposits 1,298 1,591 1,445 1,791 2,205 Other deposits 284 145 36 - 3 Deposits from commercial banks 4,539 5,586 6,401 7,187 8,181 Other liahilities 127 66 133 137 300 Accrued interest payable 168 189 109 142 256 Subtotal 6,697 8,008 8,633 9,767 11,958 BOT rediscount 1,006 1,990 2,500 4,500 3,500 Long-term borrowing 544 954 1,413 2,034 2,410 Total Liabilities 8,247 10,952 12,546 16,301 17,868 Equity Paid-up capital 1,300 1,420 1,490 1,541 1,605 Reserves 57 57 57 57 57 Accumulated profit 302 381 448 440 520 Unappropriated profit - - - 88 132 Total Equity 1,659 1,858 1,995 2,126 2,314 Total Liabilities and Equity 9,906 12,810 14,541 18,427 20,182 Estimated current ratio lb 3.2:1 3.5:1 4.2:1 4.9:1 3.5:1 Total debt/equity 5.0:1 5.9:1 6.3:1 7.7:1 7.7:1 /a The average during the year is substantially lower than shown here. This is because the CBs deposit their funds between December and March and BAAC deposits them back with the CBs temporarily until funds are needed for loan disbursements in the spring. /b Current assets includes an estimate of loans maturing within one year and culrreat liahilities excludes interbank deposits. Source: BAAC 46 ANNEX 1 Table5 T TMAILANTD SECOND AGRICULTURAL CREDIT PROJECT BAAC: C. oarativelncome Statements, 1976/77 to 1981/82 /a (B million) 1976 1977/78 1978/79 1979/80 1980/81 1981/82 income Interest earned on: Loans to cooperatives and associations 206 261 319 347 369 453 Loans to individual groups 380 546 704 856 1,036 1,264 Deposits 23 76 152 207 283 462 Government bonds - - - 68 87 87 Miscellaneous income 1 18 3 4 7 27 Total 610 901 1,178 1,482 1,782 2,293 Expenses Interest paid on: Borrowings 53 66 105 130 81 143 Deposits - General public }286 }446 116 177 216 313 - Commercial banks} } 417 558 791 937 Administrative expenses 173 208 259 320 475 564 Provision for bad debt 84 129 196 222 131 204 Total 596 849 1,093 1,407 1,694 2,161 Net Income 14 52 85 75 88 132 /a 1976 is on a calendar year basis; from 1977 onwards, BAAC changed to a fis- cal year basis (April to March 31). - 47 ANNEX I Table 6 THAILAND SECOND AGRICULTURAL CREDIT PROJECT BAAC's Income and Expenses as a Percent of Average Total Assets, 1977/78 - 1981/82 1977/78 1978/79 1979/80 1980/81 1981/82 …Baht million - Average total assets 8,688 11,358 13,675 16,484 19,312 --- % of average total assets ---…- Interest earned: Loans 9.29 9.01 8.80 8.52 8.89 Deposits 0.87 1.34 1.51 1.72 2.39 Government bonds - - 0.50 0.53 0.45 Miscellaneous income 0.21 0.03 0.03 0.04 0.14 Total Income 10.37 10.37 10.84 10.81 11.87 Interest paid: Borrowings 0.76 0.92 0.95 0.49 0.74 Deposits - general public 5.13 1.02 1.29 1.31 1.62 Deposits - commercial banks 3.67 4.08 4.80 4.85 Total Interest Paid 5.89 5.62 6.33 6.60 7.21 Gross Margin 4.48 4.75 4.51 4.21 4.66 Administrative expenses 2.39 2.28 2.34 2.88 2.92 Provision for bad debt 1.48 1.73 1.62 0.80 1.06 Subtotal 3.87 4.01 3.96 3.68 3.98 Net income before provision for exchange rate risks 0.60 0.75 0.55 0.53 0.68 Provision for exchange rate risks - - - 1.04 1.04 Net Income 0.60 0.75 0.55 (0-51) (0.36) THAILAND SECOND AGRICULTURAL CREDIT PROJECT BAAC: Repayment Performance (Principal) ($ million) FY79 FY80 FY81 Repayment Repayment Repayment Matured Repaid rate (%) Matured Repaid rate (%) Matured Repaid rate (%) Loans to Individual Farmers Short-term loans 4,004 3,171 79 4,807 3,850 80 5,919 4,635 78 Medium-term loans 1,969 1,284 65 2,085 1,370 66 2,057 1,253 61 Long-term loans: Refinancing 69 33 48 74 38 51 75 36 48 Investment /a 263 176 67 444 306 69 598 390 65 Subtotal 6,305 4,664 74 7,410 5,564 75 8,649 6,314 73 1 Loans to Cooperatives Onlending to members /b 3,604 1,311 36 3,868 1,576 41 4,404 1,560 35 Other 302 290 96 349 328 94 560 543 97 Subtotal 3,906 1,601. 41 4,217 1,904 45 4,964 2,103 42 Loans to Associations Onlending to members /b 478 178 37 364 133 36 277 135 49 Other 4 3 75 4 2 50 3 2 67 Subtotal 482 181 38 368 135 36 280 137 49 Total 10,693 6,446 60 11,995 7,603 63 13,893 8,554 h2 /a Does not include principal deferred. lb Members loani principal matured. >l z THAILAND SECOND AGRICULTURAL CREDIT PROJECT Aging of Arrears of Individual Loans as of March 31, 1982 (B million) /b Short-term loans Medium-term loans Long-term loans Total loans Arrears Arrears Arrears Arrears (amount) % /a (amount) % /a (amount) x /a (amount) % /a Number of Years in Arrears 1 829 18.7 275 10.4 34.7 - 1,139 12.7 2 179 4.1 122 4.6 4.7 - 306 3.4 3 114 2.6 69 2.6 0.9 - 184 2.1 4 86 1.9 30 1.1 0.1 - 116 1.3 5 41 0.9 7 0.3 1.2 - 49 0.5 6 12 0.3 3 0.1 - - 15 0.2 7 5 0.0 2 0.1 - - 7 0.1 8 2 0.0 1 0.0 - - 3 0.0 9 2 0.0 I 0.0 - - 3 0.0 Over 10 14 0.3 9 0.3 - - 23 0.3 Total 1,284 28.8 519 19.5 41.6 - 1,845 20.5 Up to 3 years in arrears 1,122 25.4 466 17.6 40.3 - 1,629 18.2 Greater than 3 years in arrears 162 3.4 53 1.9 1.3 - 216 2.3 /a Arrears as % of principal outstanding. /b Includes loans for refinancing of old debt and investments in agriculture. F3 :b- aM O0 F - 50- ANEX 1 Table 9 THAILAND SECOND AGRICULTURAL CREDIT PROJECT BAAC: Projected Sources and Uses of Funds, 1982/83 to 1985/86 (B million) 1982/83 1983/84 1984/85 1985/86 Uses of Funds Loan disbursements 12,769 14,354 16,000 17,556 Incremental fixed assets 310 150 150 150 Debt repayment 26 52 78 89 Total Uses 13,105 14,556 16,228 17,795 Sources of Funds Loan repayment 10,516 11,937 13,329 14,789 Incremental deposits 1,444 1,450 1,450 1,450 Net income from operations /a 170 67 30 (74) Drawdown on cash 599 122 129 223 Incremental long-term borrowings /b 276 - - - Increase in share capital 100 100 100 100 Subtotal 13,105 13,676- 15,038 16,488 Additional fitance needed covered by proposed project loan for FY83/84 - 880 1,190 1,307 Total Sources 13,105 14,556 16,228 17,795 /a Net interest income less other operating expenses. /b OECF, Bank - Loan 1816-TH, etc. -51- ANNEX 1 Table 10 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Financial Indicators of BAAC and Three Selected Commercial Banks Thai Krung BAAC Bangkok Bank Farmers Bank Thai Bank FY79 FY80 FY79 FY80 FY79 FY80 FY79 FY80 --------------------------- (B million) --------------------------- Average All Funds 13,675 16,484 104,925 113,013 27,582 34,976 35,369 43,605 Average Net Equity 1,927 2,060 5,556 6,117 1,758 1,998 2,099 2,444 Average Total Liabilities 11,749 14,424 99,369 107,176 25,824 32,978 33,271 41,161 Average Deposits 8,072 8,939 65,777 74,205 21,352 26,716 27,056 30,339 Average Loans (outstanding)/a 11,260 12,980 84,110 89,280 20,478 24,057 23,822 26,990 Revenues: Interest and discounts on loans 1,203 1,405 10,462 13,648 2,458 3,640 2,589 3,969 Total revenues 1,482 1,782 11,934 15,647 3,012 4,753 3,313 4,785 Expenses: Interest and discount (deposits) 735 1,007 5,291 7,917 1,483 2,730 1,794 2,874 Financial costs (interest on borrowings, deposits, taxes, fees, etc.) 865 1,008 8,415 11,442 1,854 3,365 2,183 3,557 Administration (including bad debt, exchange risk, etc.) 542 606 2,218 2,765 735 899 739 843 Total costs (excl. taxes) 1,407 1,694 10,633 14,207 2,589 4,264 2,922 4,400 Dividends - - 341 510 120 143 111 162 Financial costs & dividends 865 1,088 8,756 11,952 1,974 3,507 2,294 3,719 Net profit after tax 75 88 862 881 307 322 253 187 …_ _ _ _ _ _ _ _ _ _ _ _ _ _ ( %.) …______________________________ Interest on Loan/Average Loans 10.7 10.8 13.5 15.3 12.0 15.1 10.9 14.7 Total Income/Average Total Assets 10.8 10.8 12.3 13.8 10.9 13.6 9.4 11.0 Interest on Deposits/Average Deposits 9.1 11.3 8.4 10.7 6.9 10.2 6.6 9.5 Financial Costs/Average Liabilities 7.4 7.5 9.1 10.7 7.2 10.2 6.6 8.6 Dividends/Average Net Equity - - 6.7 8.7 6.8 7.1 5.3 6.6 Financial Costs & Dividends/ Total Assets 6.3 6.6 9.0 10.6 7.2 10.0 6.5 8.5 Total Costs/Total Assets 3.0 3.1 1.6 1.7 1.8 1.8 1.5 1.5 Net Profit after Tax/Net 10.3 10.3 10.9 12.6 9.4 12.2 8.3 10.1 Equity 3.9 4.3 16.9 15.1 17.5 16.1 12.1 7.7 /a In the case of BAAC, calculated by adding monthly principals and dividing by 12. 52 - ANNEX 1 Table 11 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Average Financial Situation of BAAC Client Farmers, Classified by Region (Baht) North- Item Northern Eastern Central Eastern Western Southern Total Region Region Region Region Region Region (1) Total Assets 164,545 125,817 195,953 228,170 149,474 149,474 165,825 (2) Current Assets 11,670 15,093 15,909 11,669 21,987 12,897 14,590 Cash and deposit 5,264 4,891 4,999 8,295 10,114 6,916 5,886 Crops for sale 4,603 7,934 7,728 1,678 4,314 3,015 5,863 Livestock for sale 1,686 2,102 2,602 1,275 6,887 2,752 2,563 Unused inputs 117 166 580 421 672 214 278 (3) Operating assets 55,285 44,823 72,673 97,705 76,522 41,516 56,916 Draft animals - value 6,479 10,163 3,954 5,355 3,376 3,961 6,762 - head (1.4) (2.6) (0.8) (1.1) (0.8) (1.5) (1.6) Breeding animals 1,888 2,306 1,611 1,234 3,379 1,286 2,067 Farm machinery 11,829 4,642 16,918 29,467 24,718 8,387 11,867 House/buildings 35,n89 27,712 50,190 61,649 45,049 27,882 36,220 (4) Fixed assets 97,590 65,901 107,371 118,796 151,666 95,061 94,319 Land - value 85,618 59,023 96,710 102,486 138,353 85,628 83,987 - area (rai) (20.98) (26.25) (16.01) (26.09) (22.83) (19.96) (22.43) Others 11,972 6,878 10,661 16,310 13,313 11,433 10,332 (5) Liabilities 10,812 6,233 15,060 15,642 27,553 9,173 11,590 In debt to BAAC 9,185 5,792 11,464 12,269 15,095 7,917 8, 962 In debt to other financial institutions 410 67 156 737 5,389 112 739 In debt to private creditors 1,217 374 3,440 2,636 7,069 1,144 1,889 Net assets (1) - (5) 153,733 119,584 180,893 212,528 222,622 140,301 154,235 (6) Net capital ratio (1)-t(5) 15.22 20.18 13.01 14.59 9.08 16.29 14.31 Liabilities in year prior to registration 1,007 173 2,614 2,033 3,059 853 1,189 Source: BAAC Annual Report 1979 (February 1980 prices). 53 -ANNEX 1 Table 12 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Rural Deposits at Financial Institutions, 1972-78 (Million baht; %) Commercial Government Finance /a Annual rate banks Savings Bank BAAC companies Total of growth 1972 14,887 4,201 292 - 19,380 (76.8) (21.6) (1.6) (100.0) 1973 18,649 5,500 359 151 24,659 27.2 (75.6) (22.3) (1.4) (0.7) (100.0) 1974 25,411 6,533 651 216 32,811 33.0 (77.4) (19.9) (2.0) (0.7) (100.0) 1975 30,715 6,763 1,175 324 38,977 18.8 (78.8) (17.4) (3.0) (0.8) (100.0) 1976 39,218 7,646 1,362 449 48,675 24.8 (80.6) (15.7) (2.8) (0.9) (100.0) 1977 47,550 8,693 1,758 533 58,534 20.2 (81.2) (14.9) (3.0) (0.9) (100.0) 1978 57,507 9,788 1,995 719 70,009 19.6 (82.2) (14.0) (2.8) (1.0) (100.0) /a Includes only those finance companies which have their head office outside Bangkok. Source: Bank of Thailand. - 54 - ANNEX 1 Table 13 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Credit of Financial Institutions in Rural Areas, 1972-78 (Million baht; %) Commercial Finance Annual rate banks BAAC IFCT companies Total of growth 1972 6,212 896 N/A N/A 7,108 - (87.4) (12.6) (100.0) 1973 7,471 1,023 175 N/A 8,669 22.0 (86.2) (11.8) (2.0) (100.0) 1974 9,904 1,736 304 N/A 11,944 37.8 (82.9) (14-5) (2.6) (100.0) 1975 13,542 3,355 293 N/A 17,190 43.9 (78.8) (19.5) (1.7) (100.0) 1976 20,561 4,337 291 535 25,724 (46.5)/a (79.9) (16.9) (1.2) (2.0) (100.0) 1977 30,391 5,067 210 673 36,341 41.2 (83.6) (13-9) (0.6) (1.9) (100.0) 1978 40,952/b 6,107 860 976 48,895 34.5 (83.7) (12.5) (1.8) (2.0) (100.0) /a Excluding finance companies, for purposes of comparison. /b November figures. Source: Bank of Thailand. - 55 - ANNEX 2 Table 1 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Summary of Rates of Return and Sensitivity Analysis Financial Economic Switching values /a rate of rate of Investment Operating Farm models return return Benefits costs costs …_______________________ (%) …----------------------- Draft animal 23 24 -29 77 83 Duck egg production 21 21 -5 39 6 Hen egg production 26 26 -11 118 14 Pig fattening operation 23 24 -5 70 6 Pig breeding operation 16 17 -7 29 11 /a Percentage change beyond which the financial rate of return would be below 12%. - 5 6 - ANNEX 2 Table 2 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Financial and Economic Prices of Selected Project Outputs (Baht) 1982 1997 /a Commodity Unit Financial Economic Financial Economic Buffalo head 8,000 7,360 8,000 7,360 Cull buffalo head 6,000 5,520 6,000 5,520 Calf head 3,000 2,760 3,000 2,760 Finished pig kg 25.0 23.0 25.0 23.0 Cull sow kg 20.0 18.4 20.0 18.4 Cull boar head 3,000 2,760 3,000 2,760 Weaner head 760 644 700 644 Day-old chick head 10.0 9.2 10.0 9.2 Cull hen head 27.5 25.3 27.5 25.3 Hen egg egg 1.4 1.3 1.4 1.3 Day-old duck head 10.0 9.2 10.0 9.2 Cull duck head 55.0 50.6 55.0 50.6 Duck egg egg 1.4 1.3 1.4 1.3 /a In constant 1982 prices. THAILAND SECOND AGRICULTURAL CREDIT PROJECT Cash Flow and Financing - Draft Animal (Buffalo & Cow) Model /a (Baht) Yr 0 Yr I Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Basic Cash Flow Inflow Lease /b 0 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Calves 7c 0 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000 Cull buffalo /d 0 12,000 12,000 Residual valtue 0 12,160 Outflow Investment /e 0 16,000 Working capital /f 0 160 Operating cost 0 160 160 160 160 16,160 160 160 160 160 160 16,160 160 160 160 Net Benefit Before Financing 0 -16,160 1,840 4,840 4,840 4,840 840 4,840 4,840 4,840 4,840 4,840 840 4,840 4,840 17,000 Financial Rate of Return: 23% Inflation rate (M) /g 7.0 7.0 7.0 6.5 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Inflation factor 1.070 1.145 1.225 1.305 1.383 1.466 1.554 1.647 1.746 1.851 1.962 2.079 2.204 2.336 2.477 Inflated Net Benefit 0 -17,291 2,107 5,929 6,316 6,694 1,231 7,521 7,971 8,451 8,959 9,496 1,746 10,667 11,306 42,109 Financing Farmer's share /h 1,712 Loans received: - Long-term /i 15,408 - Short-term lj 171 1,000 3,000 Debt service: - Long-term 2,311 3,434 3,434 3,434 3,434 3,434 3,434 3,434 3,434 - Short-term 197 1,150 3,450 Net Benefit After Financing 0 0 599 1,345 2,882 3,260 797 637 4,537 5,017 5,525 9,496 1,746 10,667 11,306 42,109 Deflated Net Benefit 0 0 599 1,098 2,208 2,357 544 410 2,755 2,873 2,985 4,840 840 4,840 4,840 17,000 /a kssumed all transactions rnade at beginning of year. /b Rental of buffalo pair for 3-4 mornths. /c Assuming a calving rate of 50%; first calf sold in 18 moniths (in Year 3). /d Buffaloes are culled in 5-6 years; sold at B 6,000 per buffalo. /e Purchase of in-calf buffalo and breedable buffaloes, 3-4 years old. /f Cost of medicines asd vaccines in Year 1. I prv;CLtLonD of inflatloi. ra.es ,bsUiratcd by tie PrograiT- Dep>;tent, Aur0s> , 1902. /h Farmer's share asstumed at 10% of the investment. /i Long-term loan assumed at L5% interest rate anid an 9-year loan including a one year grace period. /j Short-term loan assuimed at 15% interest rate. /k Salvage valule of two buffaloes and working capital; buffaloes valued at 6,000 each. i1 0c C"x -58- ANNEX 2 Table 4 ThAILAND SECOND AGRICULTURAL CREDIT PROJECT Pig Breeding Operation Model (10 Sow Unit) /a (D B000) Yr 0 Yr I Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Inflow Culled sows /b 0 9.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 Culled boars7c 0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Ueaners /d 0 71.4 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 95.2 Pig Manure |e 0 3.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Boar service /f 0 3.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Residual value 0 113.2 Outf low Investment Housing /g 0 90.0 Breeding stock /h 0 39.0 Other 0 2.0 Working capltal Feed /ti 0 60.7 Medicines, etc. 0 1.5 Other 0 1.0 Operating costs Boar replacenent 0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Medicines, etc. 0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 l.5 1.5 1.5 1.5 1.5 1.5 Feed (breeding stock) 0 60.7 60.7 60.7 60.7 60.7 60.7 60.7 60.7 60.7 60.7 60.7 60.7 60.7 60.7 Feed (weaner) / 0 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 Utilities 0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Labor /k 0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Other 0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Net Benefit 0 -194.2 9.4 38.2 38.2 38.2 38.2 36.2 38.2 38.2 38.2 36.2 3R.2 38.2 38.2 151.7 Financial Bate of Return: 16% Inflation rate (%) 7.0 7.0 7.0 6.5 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Inflation factor 1.070 1.145 1.225 1.30j 1.3S3 1.466 1.554 1.647 1.746 1.851 1.962 2.079 2.204 2.336 2.477 Inflation Net Benefit 0 -207.8 10.8 46.8 49.9 52.8 56.0 59.4 62.9 66.7 70.7 74.9 79.4 84.2 89.2 375.8 Financing Farmer's share /1 20.8 Loans received: - Long-term /n 187.0 - Short-term7n 23.0 28.9 35.0 17.2 19.5 21.0 21.5 20.7 17.3 Debt service: - Long-term 28.1 41.7 41.7 41.7 41.7 41.7 41.7 41.7 41.7 - short-term 26.5 33.2 40.3 19.8 22.4 24.2 24.7 23.8 19.9 Net Benefit After Financing 0 0 5.7 7.5 10.0 12.0 14.0 16.3 18.5 21.0 22.5 55.1 79.4 84.2 89.2 375.8 Deflated Net Benefit 0 0 5.0 6.1 7.7 8.7 9.6 10.5 11.2 12.0 12.2 28.1 38.2 38.2 38.2 113.2 /a 10-sow unit includes 10 sows and I boar. /b 150 kg liveweight at B 20/kg. 3 culled sows in Year 2 and 4 from Year 3 onwards. 7W One culled boar each year at B 3,000. 7W Weaners sold at about 15 kg liveweight. Assumes 14 weaners produced per sow per year. 7e Miaston estimates. 7W Twenty services at B 200/service. H Housing for 10 cows, I boar, 2 replacements and small feed store. /h Purchase of 12 young sowa and 1 young boar at B 3,000 each. F feed for breeding stock 13 tons at B 4.67/kg. For 136 weaners requiring 8 kg per weaner feed cost at B 7.2/kg. /k One unit of labor costs for 30 sows at B 12,000 per annum. 7W 101 of investment lost. 7W 9-year loan, including a one-year grace period, at 152 interest. 7W At 15Z interest rate. - 59 - ANNEX 2 Table 5 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Pig Fattening Operation lIodel (100 Pigs Fattened/Year) Yr 0 Yr I Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Basic Cash Flow Inflow Finished pigs Ia 242.5 242.5 242.5 242.5 242.5 242.5 242.5 242.5 242.5 242.5 242.5 242.5 242.5 242.5 Pig manure 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Residual value 66.3 Outf low Investment Housing /b 50.0 Other 1.0 Working capital Purchase of pigs /c 35.0 Feed /d 35.2 Medicines, etc. 1.0 Other 1.0 Operating costs Purchase of pigs 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 70.0 Feed /d 140.9 140.9 140.9 140.9 140.9 140.9 140.9 140.9 140.9 140.9 140.9 140.9 140.9 140.9 Medicines, etc. 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Utilities 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Labor 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Other 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Net Benefit Before Financing -123.2 29.6 29.6 29.6 29.6 29.6 29.6 29.6 29.6 29.6 29.6 29.6 29.6 29.6 95.9 Financial Bate of Return: 23% Inflation rate (%) 7.0 7.0 7.0 6.5 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Inflattoo factor 1.070 1.145 1.225 1.305 1.383 1.466 1.554 1.647 1.746 1.851 1.962 2.079 2.204 2.336 2.477 Inflation Net Belnefit -131.8 33.9 36.3 38.6 40.9 43.4 46.0 49.8 51.7 54.8 58.1 61.5 65.2 69.2 237.5 Financing Farmer's share /e 13.2 Loans received: - Long-term /f 118.6 - Short-term / Debt service: - Long-term 24.9 24.9 24.9 24.9 24.9 24.9 24.9 24.9 24.9 - Short-term Net Benefit After Fia.cing 0 9 .0 11.4 13.7 16.0 18.5 21.1 23.9 26.8 29.9 58.1 61.5 65.2 69.2 237.5 Defilated Net Benefit 0 0 7.9 9.3 10.5 11.6 12.6 13.6 14.5 15.4 16.2 29.6 29.6 29.6 29.6 95.9 /a Assuning 3% mortality; finished pigs sold at 100 kg liveweight at 3 25/kg. /b 50 pigs fattened at one time. /c 50 weaners (15 kg) purchased at B 700 per weaner. 7- Feed-liveweight conversion assumed at 3.6; 4.7 (Baht/kg) x 98 (pigs) x 85 (kg) x 3.6 (conversion) - 140,900 (Baht). Three months' supply in Year 1. /e 10% of investment and working capital cost. /f 9-year loan, at 15% interest, 15% interest. AO4iIEX 2 6 60 - Table 6 TNAILAND SECOND AGRICULTURAL CRLEDIT PROJECT Duck Eggt Production.Model (200..layer unit) /a Yr 0 Sr I Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 BaSic Cash Plow Inflow Sale of eggs /b 16.8 44.8 61.6 44.8 44.8 50.4 61.6 44.8 44.8 50.4 61.6 44.8 44.8 50.4 61.6 Cull layer Ic 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 Residual val.e 17.0 .Outflow Inves tment Housing /d 11.0 Working capital Day old dock Ie 2.2 Feed: - Starter If 5.4 -LSayer /g 27.3 Medicines,estc. /h 0.3 Utilities /1 0.2 Repair, et~c. . 0.3 Labor 2.7 Operating costs Day old duck 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 Peed: - Starter 4.3 1. 1 5.4 5.4 4.3 1.1 5.4 5.4 4.3 1.1 5.4 5.4 5.4 1.1 -. Layer 35.1 45.5 31.2 31.2 35.1 42.9 31.2 31.2 35.1 42.9 31.2 31.2 31.2 42.9 Medicines, etc. 0.6 0.9 0.7 0.7 0.6 0.9 0.7 0.7 0.6 0.9 0.7 0.7 0.7 0.9 Utilities 0.4 0.5 0.4 0.4 0.4 0.5 0.4 0.4 0.4 0.5 0.4 0.4 0.4 0.5 Repair, etc 0.6 0.6 0.6 0 6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 Labor /k 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 3.7 Net Benefit Before Fin-nciag -32.6 3.2 11.9 6.1 6.1 3.3 11.9 6.1 6.1 6.8 11.9 6.1 6.1 11.7 28.9 Financial Rate of Return: 21% Inflatton rate (%) 7.0 7.0 7.0 6.5 6.0 6.0 6.0 6.0 6.0 6,0 6.0 6.0 6.0 6.0 6.0 inflation factor 1.070 1.145 1.225 1.305 1.383 1.466 1.554 1.647 1.746 1.851 1.962 2.079 2.204 2.336 2.477 Inflation Net Benefit -34.9 3.7 14.6 8.0 8.4 4.6 08.5 10.1 10.7 16.3 23.4 14.7 13.4 27.3 71.6 Ficancing Fa rmer's share /I 4.9 Lasso received: 1-Lag-term /m 30.0 -Shoct-temn7n 0.6 0.9 Debt service, -- long-tern 4.5 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 - Short-teno 0.9 1.0 Net Benefit After Fina.cing 0 0 8.0 2.3 2.7 0 11.8 4.4 5.0 10.6 17.7 7.0 7.7 27.3 71.6 Inflated Net-Benefit. 0 0 6.5 1.8 2.0 0 7.6 2.7 2.9 5.7 9.0 3.4 3.5 11.7 28.9 /a Assuming that duck laying house with water system is con structed in the first paLrt of Year 1; and day-old ducks are purchased in the Bid-year of Year 1. 7b Assued that eggs ace produced after 5 months. 20 eggs/duck/month at B 1.4/egg. 7-c Laying ducks are culled after 12. 7?d Includes duck house structure; water syaten and fence1 average coat about B 55 per duck. 7T. Purchase of day-old ducks (220 ducks, with about 10% mortality) at B 10 per duck. 7?f 1 kg required per duck about first 4 months: 5 kg x 200 ducka x B 5.4 - B 5,400. 130 go. required per day per duclk: 530 kg m 200 ducks x 30 days a B 5.0 -B 3,900 per month (for 200 ducks). 7~Assumed to be 2% of feed cost. TiAssumed to he 1% of feed cost. Assumed to be 5% of investment cost. kPact-time labor based ono one man rearing 1,000 ducks for B 50 per day: B 50 x 0.2 a 365 days B 3,650. 7?i 10% of investmnet and working capital cast. 7- Twelve-year loan, including one-year grace period, at 15% interest. 77 15% interest. - 61 - ANNEX 2 Table 7 ThAILAND SECOND AGRICULTURAL CREDIT PROJECT Hen Egg Production Model (1,000-layer Unit) Yr 0 Yr I Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Basic Cash Flo. Inflow Cull hens Ia 13.8 20.6 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 27.5 Eggs /b 192.5 288.8 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 385.0 Manure 2.5 3.8 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Residual value 15.3 Outflow Investment Houslng, 1,000 layers 100.0 Housing, 550 layers 50.0 Other 2.0 1.0 Working capital Day old cbicks (550) /c 5.5 Grower feed /d 33.3 Layer feed /e 35.0 Drugs and mWedicines 2.8 Utilities 2.0 Labor 5.0 Operating costs Day old chicks /c 5.5 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 11.0 Grower feed /d 49.9 66.5 66.5 66.5 66.5 66.5 66.5 66.5 66.5 66.5 66.5 66.5 66.5 66.5 Layer feed /e 157.5 210.0 210.0 210.0 210.0 210.0 210.0 210.0 210.0 210.0 210.0 210.0 210.0 210.0 Drugs and m;edicines 5.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Utilities 3.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 Labor 7.5 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 Net Benefit Before Financing -185.6 -70.6 0.7 105.0 105.0 105.0 105.0 105.0 105.0 105.0 105.0 105.0 105.0 105.0 120.3 Financial Rate of Return: 26X Inflation rate (. ) 7.0 7.0 7.0 6.5 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Inflation factor 1.070 1.145 1.225 1.305 1.383 1.466 1.554 1.647 1.746 1.851 1.962 2.079 2.204 2.336 2.477 Inflation Net Benefit -198.6 -80.8 0.9 137.0 145.2 153.9 163.2 172.9 183.3 194.4 206.1 218.3 231.4 245.3 260.1 Financing Farmer's share /f 19.9 Loans received: - Long-term /g 178.7 - Short-term /h 110.0 170.0 120 65.0 20.0 Debt service: - Lang-term 26.8 39.8 39.8 39.8 39.8 39.8 39.8 39.8 39.8 - Short-tern 126.5 195.5 138.0 74.8 23.0 Net Benefit After Finahcing 0 2.4 4.6 21.7 32.4 59.3 100.4 133.1 143.5 154.5 206.1 218.3 231.4 245.3 260.1 Deflated Net Benefit 0 2.1 3.8 16.7 23.4 40.5 64.6 80.8 82.2 83.5 105.0 105.0 105.0 105.0 120.3 /a 500 cull hens in Year 2; 750 in Year 3 and 1,O0O thereafter. (B 27.5/hen). 5% chick nortality; 5% layer mortality. 7b Average number of eggs: 275/hen/year. Price/egg: B 1.4. Average number of hens laying per year: 1,000 from Year 4 onwards. 7W Price: B 10/chick. Buys 550 in Years I and 2, and 1,100 thereafter. /d 11 kg/chick/year at 3 5.5/kg. Grower feed for 550 chicks - 550 x 11 x 5.5 B 33,275. 7;e 42 kg/chick/year at B 5.0/kg. Assume feed required only for 4 mths for 500 hens in Year 1. 7f 10 of investment and working capital cost. Nine-year loan, including one-year grace period, at 15%. 152 interest. - 62- ANNEX 3 Page 1 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Organization and Implementation of a Pilot Scheme in the North and Northeast 1. Objectives. The overall objectives of the pilot scheme in the North and Northeast would be to improve the provision of credit services and technical advice to small farmers, by coordinating the efforts of the Department of Agricultural (DOA), Department of Extension (DAE), and BAAC. Under the scheme, BAAC credit officers, who would work as a team with the extension agents, would provide short-term credit to target farmers to finance the purchase of a package of inputs recognized by both the research and extension services as most economic for the area. If proven successful, this pilot scheme would provide the basis for coordination between the DOA, the DAE and BAAC for similar schemes throughout the country. 2. Selection and Organization of Pilot Scheme Participants. Ordi- narily, farmers wishing to receive BAAC short-term loans must first register with BAAC and join a joint liability group composed of a number of farmers who share the liability for each group member's loan. These groups are formed to provide an alternative to collateral and, under present regulations, require that their members demonstrate an ability to annually produce a marketable surplus from which they can repay their loans. 3. Under the pilot scheme, successful medium-sized (20-30 members) joint liability groups would be expanded to include from one to five viable f-armers with below average-size holdings and without a significant production surplus. A viable farmer would be one with a potential to repay a loan with the input of new technology. Existing groups consisting of small farmers holding plots below the provincial average size would also be included in the pilot scheme. The groups with a proven record of performance would become foci for DAE's training and visit system. The pilot scheme would be implemented in four provinces in North and Northeast Thailand. After BAAC field staff prepare a list of suitable groups, final selection of partici- pating groups would be by the DAE Provincial Liaison Committee on which BAAC, DAE and provincial authorities would be represented. 4. Extension Services. At least two months prior to the start of each cropping year, DAE would formulate work plans for the participating groups, identifying the potentially most profitable crops for each pilot scheme participant and offering him/her a choice of profitable crop and livestock operations from which to select major and minor enterprises. During the planting season demonstration plots would be established on below average-size plots, owned by farmers who are respected by their neighbors, receptive to agricultural improvements and belonging to existing success- ful groups. DAE staff would train the target farmers during weekly or - 63 _ ANNEX 3 -63- ~~~~~~~Page 2 biweekly visits, and the farmers would liaise closely with the "small farmer" groups. BAAC and DAE staff would periodically meet jointly with farmers in order to coordinate credit and extension information and activities. 5. Credit Arrangements. Target farmers with below average-size holdings would receive inputs as credit-in-kind wherever possible. BAAC began the credit-in-kind service in 1980 in order to (a) provide farmers with locally available inputs and machinery at reasonable prices using registered local suppliers; (b) ensure that materials are of good quality; (c) reduce the risk of improper use of cash credit for nonfarm items by the farmer; (d) reduce BAAC's costs in supervising the use of loan proceeds and improve the productive performance of farmer borrowers; and (e) expand BAAC's dealings with the private sector. 6. Depending on the enterprise to be supported, credit-in-kind would be used to supply: contract land preparation, recommended seed and planting material, fertilizer, agricultural chemicals, and simple tools. The package of inputs supplied would be recommended by the research and extension services. THAILAND SECOND AGRICULTURAL CREDIT PROJECT Total Project Costs (B million) 1983/84 1984/85 Total Foreign ex- Project components local Foreign Total Local Foreign Total Local Foreign Total change (X) BAAC Lending Medium- and long-term lending in North and Nbrtheast to smallholders 387.7 129.3 517.0 474.8 158.2 633.0 862.5 287.5 1,150.0 25 Mediumr and long-term lending to all others 910.1 304.9 1,215.0 1,176.0 392.0 1,568.0 2, 86.1 696.9 2,783.0 25 Short-term lending to smallhol- ders in North and Mbrtheast 130.4 43.5 173.9 159.4 53.1 212.5 289.8 96.6 386.4 25 Subtotal 1,428.2 477.7 1,905.9 1,810.2 603.3 2,413.5 3,238.4 1, B1. 0 4,319.4 25 BAAC Training Component 1.0 2.0 3.0 - 1.0 1.0 1.0 3.0 4.0 75 C - ~~~- 41 BAAC Study Component 3.6 0. 4 4. 0 - - - 3.6 0. 4 4.0 Total Project Costs 1,432.8 480.1 1,912.9 1,810.2 604.3 2,414.5 3,243.0 1,c84.4 4,327.4 25 Of which: Price contingencies 71.9 27.2 99.1 203.7 74.7 278.4 275.6 101.9 377.5 27 Base Costs (end-1982 prices) 1,360.9 452.9 1,813.8 1,606.5 529.6 2,136.1 2,967.4 982.5 3,949.9 25 Note: Percentages applied to base cost (end-1982 prices) in appropriate year to give contingency factors: Project Years: 1983/84 1984/85 Local costs 5.3% 12.68% Foreign costs 6. 0X 14.10% mx1 ,. .c- THAILAND SECOND AGRICULTURAL CREDIT PROJECT Costs of Technical Assistance and Training for BAAC /a (B'000) 1983/84 1984/85 Total Foreign ex- Local Foreign Total Local Foreign Total Local Foreign Total change (%) Overseas training program _b 162 488 650 162 488 650 324 976 1,300 Technical assistance /c 160 480 640 - - - 160 480 640 Advanced degree training /d 215 646 861 215 646 861 430 1,292 1,722 Total (Base Cost) 537 1,614 2,151 377 1,134 1,511 914 2,748 3,662 75 Price contingencies 58 195 253 70 232 302 128 427 555 77 Total Cost 595 1,809 2,404 447 1,366 1,813 1,042 3,175 4,217 75 /a Base cost expressed in end-1982 prices. /b Ten staff for 2-3 weeks at B 65,000 per staff. Includes travel allowance for S.E. Asia and stipend. /c Monitoring and Evaluation of Agricultural Development Projects Training Workshop to be conducted by an advisor. /d Three middle-level staff members to be trained in the Philippines at B 287,000 per staff. lcDl4 - 66,- ANNEX 5 Page 1 THAILAND SECOND AGRICULTURAL CREDIT PROJECT Related Documents and Data Available in the Project File A. General Reports and Studies Relating to the Agricultural Sector and Rural Credit A.1 Bank of Thailand Reports (a) "Agricultural Credit Targets for Commercial Banks," February 1979. (b) "Participation of Commercial Banks in Rural Financing in Thailand," November 1980. (c) "Agricultural Credit in Thailand." May 1977. (d) "Proposed Framework for the Formulation of a Medium-term Agricultural Credit Plan," September 1979. (e) "A Project for an Organizational Set-up in the Bank for Agricultural Credit," December 1979. A.2 Kasetsart University Reports (a) "Structure of Agricultural Financial Markets in Rural Thailand," June 1980. (b) "Agricultural Credit in Thailand," May 1979. (c) "Credit, Agricultural and Food Policy of Thailand," April 1980. (d) "Burden of Debt of Thai Farmers, An Overview," August 1979. (e) "Rural Off-Farm Employment Surveys: Approaches and Methodology," May 1981. (f) "Wealth and Credit: A Descriptive Analysis of Farm Household Balance Sheets," November 1980. (g) "Formal Credit Supplies for Rural Enterprises," November 1980 (h) "Credit Needs of Thai Farmers," December 1977. (i) "Rural Financial Markets in Thailand: Assessment and Recommendations," May 1978. - 67- ANNEX 5 Page 2 B. General Reports and Studies Relating to BAAC, the Commercial Banks and Cooperatives in Thailand B.1 BAAC Reports (a) BAAC Annual Reports, 1979, 1980. (b) "Report on the Study of the Impact of OECF Sub-loans on BAAC Clients," March 1981. (c) "Progress Report on BAAC's Long-term Lending Operations," December 1981. B.2 Commercial Banks' Reports (a) Bangkok Bank Limited, Annual Reports, 1979, 1980 (b) Krung Thai Bank Limited, Statements of Condition as at June 30, 1978, 1979 and December 31, 1978, 1979, 1980. (c) Thai Farmers Bank, Report and Balance Sheet as at June 30, 1979, 1980, and December 31, 1979, 1980. (d) "The Rural Development Role of Krung Thai Bank, Ltd.," Report prepared by the Agricultural Credit Department. B.3 Reports on Cooperatives in Thailand (a) "Cooperatives in Thailand," Cooperative Promotion Department, MOAC, 1979. (b) "Cooperative-Information Note, Thailand," Copac Secretariat, October 1981. (c) "Report on the Comprehensive Performance Evaluation and Classification of Cooperatives," CPD and BAAC, 1980. C. Table of Contents of the Project File C.1 Rural Financial Sector C.2 BAAC C.3 Farm Models and Economic Analysis - 6F - ORGANIZATIONAL-FUNCTIONAL CHART OF BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVES (HEAD OFFICEI BOARD OF DIRECTOR | GENERAL TAEAEEC sRrHEll LT-DN CO.IAITTeE . EVALUATE PIDRNAC Of rD -- - - DEPUTE GENERAL MANAGERS PRAOCEDU.RES COMM A TEE CA "CCCII ..... I -IRAT RESIDE OR ASOITISS AND INSPECTION ICOA EROCESEES AND ETDS i - CONDUCTS INTERNAL AUDITING l I ACTIVITIES AND INSPECTS ENDING r LOC-'TMNf LOGS COM -I7TCE I OPERATIONS - VEVICA APP CAT ONE ICR DEE CE DC SEOTEHOET -~~~~~~~~~~~~ SCRUTINZE RANK S OFFIICE RS OR -ONO-EVE LOANS AGE _ CONDUCT GENERAL SECRETARIAL RANK S BALES AIPEDGAL AILTVORTEI o ACT AXTlES ECE T.E BOARD EMPUDSRULESCOPINEIT EIG ONAI LCANh 11 l TO GIVE ADVICE TO OTHER QORKING ED OAGE1 TON MI/ISO-S UNITS. eRANCHeS OR FIELn UNITS WITR "AIAGEE TOS-I-UT VICS REGARD TO OPERATIONAL PROCEDURES CiT ICS" OCTrONS II AND CONTROLS - SCC El C.OM ITT' E - CTEE'COIES sIVGE; PREEARED E - sTDCET CC VsON ANT CVALJAcC I ACTU VAS EI CGETED RESU ETS CANKIN ANG ACCIN NT VG GENERA, AD-INISTRATIGE I r AhLLv DEPARTMVEM DEPATMENT PLANNING DEPARTMENT LOANS DEPARTMENT IEA.KeN. .1V SIGN ENERAL AFFAIRS DIVISION PROJECT NISIS GENERAL LENDIND AFFAIRS IDIVNION ACQUIRES FUNOE FPOM o HE- REGISTRATIDN OF ESSENTIAL ' PLANNING. CORE-LATING I -ONITORING GE PROGEAMS - CUIAVESCAL SANKS DOCUMENTS, GENERAL AFFAIRS, CREODT PROJECTS FRR OVERSEAS | INANCED sr OVERSEAS LOANS - HANDLES CASH TRA-SFERS TO _ AND "lULING AND LOCAL LOANS !-ECRETARE GE LOAN CoMMITTeE AID AVOID BlANCHEs PROVIDE ANK S REGULATIONS, - COORDINATE WITH GOVERNMENT L ESL C T NIVIEUAL DEPUVITS ORDERS AND INSTRUCTIONS FOR AGENCIES, INTERNATIONAL I N BANGKOK APIA OTHER WORKING UNITS CONCERNED INSTITUTIONS. AND FOREIGN f NOllThERN REGION DIVISIGN __________________________________ - ,.R~~VICE. ASSIST AND CONTBGL g 0 PREPAR TIN0NOF MANU-LS 'OR l INSTITUTIONS B -ERANCHES. IN RESIGN.O BIN K, NO ICT 11TIES II IIC IILATIONI DIIIIICN I I 4 ~~~~~~ENDING OPERATIONS G- ENERAL PUELIC RELATIONS STATISTICAL AND BUDGETING - IIEV EW NEED FOR E-PANSICN SF ACTIIVTIES DIVISION R IIANCh NETWORK IN REGION GOCALNUINS C CISN -PAL-CATIO'E0E-AGAZINES. - PREPARATION DE ANNAAL I IEDIERE LOAN, API CATIDNS K EE AND COGETRD. V ARINAS JOURNALS. ETC. - BUDGET 'D ACTOAL D GENT TO hEAG DCIDCE l l ACCOUNTE OF THE EANK S ASSETE l | ~~~_ MONItTORING OF ACTUAL Vs. l AAC CLNTS GE THE BANE'S ASSETS BUDGETED RESULTS OR LIABILITIES LEGA DIVISION I GiLECTION O STATITIC VSION TO PTE-DE CNANCIA LANSr AAN.E LEGAL CASED DI________________ I INANCIAL ANALTSS ACCOLNTING THE EANK REGION ANAILS'S EOR BRANCHES OR OTHER _ RESEARCh AND EVALUATION I ORKING UNITS I DIAIS - ETEPATE FIIANCFAL AND ACCONToNG SERVICES DIVISION - STUDY ECONOMIC AND CD TVAL REGIGN DIDISION REPORTS ANNUAL DEPART OE - TECDRITT. AND GENERAL SOCIAL CONDITIONS - SAME AS NORTHERN REGION OPERATIONS OFFICE BUILOING MAIN GE CLIENT FARMERS | CONDUCTS ACTEV,T- ES OF TENANCE OR FARMER INSTITUTIONS | STAARS,ZIING ACCOUNTING - | NALVEISOF DELIDUENT LOANS SOIITAERNREGION GDIVISIN | RERDCEADUES OER TEC HEAD PERSONNEL DIVISION | 'AME AS NORTHERN REGIDN | ICE ANC BRANCH - PERSONNEL MANAGEMENT. MANPOWER P ANNING. VPEFOR W OKRKING STSTEM GEVELOPMENT' MAlC EV-AL ATIONGE ASK- DIVISION D OFICERS AND EMPLOYECS, i _ REVIEWANDMODIFICATIONOF 1 UGSAPET RECORODS, SALART RULES REGULATIONS. PRO_ AND sENEFITS ADMINISTRATION CEDURES. INSTRUCTIONS, MANUALSU TRAINING DIVISION I AND FDRMS RELATING TO VARIAUS ___TRA__________DIVISION _______ i__ aBUSINESS ACTIVITIES |- PROVIING TRAINING 1. TOANK SATAF - COORDINATE ACTIVITIES TITD OTHER TRAINING ETITU BN-TES|Wt R - 69 - ORGANIZATION CHART OF BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVES (BRANCH) BAAC (HEAD OFFICE) BRANCH OFFICE | BANKING AND 1 rAGRICULTURAL CREDIT | ACCOUNTING SECTION | | SECTION BANKING ACCOUNTI INSTITUTIONAL INDIVIDUAL LONG-TERM UNIT UNIT LOANS UNIT LOANS UNIT LOANS UNIT 3FILD OFFICE VVorld Bank-23894 THAILAND 104j r I SECOND AGRICULTURAL CREDIT PROJECT U M - - RBRANCHES - BANK FOR AGRICULTURE AND AGRICULTURAL COOPERATIVES IBAACI 20' 4 PROV NCES SBTH RUSC BRANCHES 20- -20 - $ 0 , -ePlAns REi:<¢t- HEAD ORF CE, BAAC rI f X = =, tt t ',,J % . * BRANCH OFFICES BAAC 1M.D Sn t t RA-----i _ REIONGAT BOUNbCAI SOUNDARIES -. -~ A NTERNATIONAL BOUNDARIES CS) I B,BE g MI.* k ) . N E P L E'S V $ LJR'CBC' ifLampan DEM. REP r \ (Sakhothaig K /=2 " Udon Th& ( 2n" N.~~~~ ~ ~~~~ T. SaEhBR-ABRE I1 P ThJo. _ * / NEkhon SChos Y x Kaonn B =; ==: * 5 wJ J ) U hEI /PRiRRB@* jJFC~ o Z<, n -\t hah i 2~~~~ ~ ~~~~ V In 7To /{ Saambun eB.C * ) ) * ?fir j- K I-. / Bah. =R ' =' W==:f= ~ ~ ~ I = *, /= f=ICAX .A= f 42 : : : ' i = g ~~ ; p Kkif; S(hkth == ir'!j-'\ =b. R-h.,2.i __ /11 V~~~~j11 ChAT., N.OH : N'"- R-h-'. / Si RSoK R,Bo= RC= r t~~~~~~~~m i ,6 *L. B. 0 B,1 R.. midltveae P \AkS- CCI¶ - A: SERB = N if t_ NaA//l A BnURfiV ! <- t2 Af = = i t - t *CBSBRBB kamt A- ,_/ ! ROARAB @f2rIROBR$t iR?BUR 2_ ' ,,DAA4AN /, DEMOCRAT DEM.IC of; >-\1; oKbabi /= 0 ; ;t ' S ~~~~ ~~~~~~~~~~~~~~~~~~~REP. \ -e PhubetO l-i [ a =6.A<1, 8-FR-BS ..S_ni \PnSr. 'B. Ti '1= t AI~ _( o srMVIET 'NAMR _E \ KAMPCH KA.PUCHEA 12'~ ~ ~ >9 /'T''S_" R; V ~~~~~~~ t: , t f I, '- ~~~~~~~~ ~ ~~~~~MALAYSIA C- ME 20 4SG eG B; I EBSp " H Ij V, SINGAPORE soo s,ofo Kl4LO Kt SO I tO f S0 M A L A Y S IBA I N D O N E S I A r -H I BoOSTeHBSnUB