Financing SMEs and Entrepreneurs 2022

44. Thailand

Key facts on SME financing

In 2020, there were approximately 3.13 million SMEs in Thailand, which constituted 99.6% of all enterprises.

According to the criteria defined by the Ministry of Industry, SMEs are categorized by the number of employees and income.

SMEs are able to access financing through commercial bank loans. In 2020, outstanding SME loans were THB 3,409,192 billion, representing 37.27% of all outstanding business loans. Furthermore, SMEs are able to source funds from other financial institutions, the capital market, crowdfunding and venture capital.

Some SMEs still face problems including collateral constraints and a lack of credit history, which limit their access to bank loans. Government policies have been put into place to address these constraints.

For example, the Thai Credit Guarantee Corporation (TCG) provides credit guarantees for viable SMEs to ensure that SMEs with insufficient collateral have access to bank loans. In Thailand, credit guarantees are provided in the form of portfolio guarantees, which allow Financial Institutions (FIs) to select SMEs that are qualified as viable on their own. As a result, the viability of each individual SME is determined by their own assessment and criteria. The outstanding guarantee amount has increased over the years and totalled THB 451 billion at the end of 2020, covering 166 419 SMEs in TCG’s portfolio.

Moreover, the Business Collateral Act B.E. 2558 (2015) simplified the process of security interest creation and expanded the types of collateral which SMEs can register and use to secure loans.

To proactively boost SMEs’ financial access, the Bank of Thailand (BOT) has promoted new innovative financial services and products for SMEs, such as digital personal loan and digital factoring as well as new infrastructure to support operational efficiency and competitive environment in financial sector, including a central web service to deal with double-financing for invoice finance. In addition, the government has launched and developed capacity-building programmes to enhance SMEs’ competitiveness and opportunity for financial access.

During the COVID-19 pandemic, the BOT collaborated with the government in introducing financial and loan measures to support Thai people and businesses, particularly SMEs heavily affected by the crisis. These measures include loan payment holidays for all SMEs to reduce their financial burden and a soft loan facility to provide liquidity to severely affected SMEs. Furthermore, the loan facility is also supported by a credit guarantee scheme through the TCG, with additional exemptions or reductions on relevant taxes and fees. As part of the loan facility, the BOT will provide funding to financial institutions at low funding rate to channel liquidity to businesses in need.

Table 44.1. Scoreboard for Thailand

Indicator	Unit	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020
Outstanding business loans, SMEs	THB billion	2 753	2 565	2 749	3 145	3 481	3 968	4 266	4 511	4 574	4 703	4 893	4 877	3 409
Outstanding business loans, total	THB billion	5 117	4 863	5 298	6 080	6 723	7 473	7 774	8 017	8 066	8 362	8 726	8 652	9 146
Share of SME outstanding loans	% of total outstanding business loans	53.81	52.75	51.89	51.74	51.78	53.11	54.88	56.24	56.69	56.25	56.07	56.36	37.27
Government loan guarantee, SMEs	THB billion	..	..	73	113	180	244	270	309	331	353	373	388	451
Non-performing loans, total	% of all business loans	5.77	5.32	3.96	2.97	2.36	2.13	2.07	2.55	2.88	3.01	3.05	3.01	3.23
Non-performing loans, SMEs	% of all SME loans	..	7.11	5.38	3.97	3.46	3.29	3.11	3.5	4.35	4.51	4.56	4.63	6.97

Source: Bank of Thailand and Thai Credit Guarantee Corporation (Outstanding loans and non-performing loans include only Thai commercial banks, excluding specialized financial institutions).

SMEs in the national economy

There were approximately 3.13 million SMEs in Thailand in 2020, which altogether constituted 99.6% of all enterprises which composed of 2,673,922 micro enterprises (85.3%), 415,673 small enterprises (13.3%), and 44,847 medium enterprises (1.4%) (see Table 44.2). Based on the types of business registration, SMEs established in 2020 can be divided into three categories: juristic person (756,344 enterprises), ordinary person & others (2,286,326 enterprises), and community enterprise (91,772 enterprises).

Table 44.2. Distribution of SMEs in Thailand, 2020

By firm size

Enterprise size (employees/income)	Number	%
Total SMEs	3 134 442	100
Micro Enterprises	2 673 922	85.3
Small Enterprises	415 673	13.3
Medium Enterprises	44 847	1.4

Source: Thai Office of SMEs Promotion.

Over 41.1% of Thai SMEs are in the wholesale and retail sectors, followed by 40.1% in other services, 17.0% in manufacturing, and 1.8% in agriculture (see Table 44.3).

Table 44.3. Distribution of firms in Thailand by sector, 2020

By sector

Sector	Number of SMEs	%
Wholesale and Retail	1 288 256	41.1
Service	1 256 755	40.1
Manufacturing	532 104	17.0
Agriculture	57 327	1.8

Source: Thai Office of SMEs Promotion.

According to a Ministerial regulation issued by the Ministry of Industry in 2020, the recent definition and classification of SMEs is based on number of employees and income (See Table 44.4).

Table 44.4. Definition of SMEs

Type	Micro		Small		Medium
	Number of Employees	Income (THB million)	Number of Employees	Income (THB million)	Number of Employees	Income (THB million)
Manufacturing	No more than 5	No more than 1.8	No more than 50	No more than 100	No more than 200	No more than 500
Wholesale and retail, Service	No more than 5	No more than 1.8	No more than 50	No more than 50	No more than 100	No more than 300

Source: Office of the Council of State.

SME lending

Commercial bank lending is the largest source of external financing to SMEs. In 2020, outstanding SME loans totalled THB 3,409,192 billion representing 37.27% of all outstanding business loans. That year, the number of SMEs with loans from Thai commercial banks (not including specialized financial institutions) was 722,287.

SMEs can also obtain loans from specialized financial institutions, non-banks providing personal loan and nanofinance1, cooperatives, and other community-level financial institutions.

Recently, the BOT has enhanced access of SMEs to financial services by implementing regulatory frameworks to support new innovative financial providers. For instance Peer-to-Peer lending platforms providing online services to match borrowers who are individuals including business owners with lenders, and digital personal lenders providing loans by adopting digital technology for all lending processes and incorporating alternative data for loan analysis instead of traditional financial documents.

Moreover, the BOT has been promoting digital transformation of the factoring business under “Digital Factoring Ecosystem Development Project” to improve efficiency and inclusion of Micro SMEs in accessing factoring services. The key elements to be developed under the project are: (1) infrastructures which are digital invoice standard to reduce the risks of fraud and central web service that allows banks and non-banks to check against the risks of double-financing, and (2) digital factoring-related processes by engaging with private sector in the Proof-of-Concept (PoC) testing for the processes which would be further recommended for all stakeholders.

Table 44.5. Number of SMEs with financing from Thai commercial banks, as of Dec 2020

All SMEs (Number)	SMEs with financing from Thai commercial banks (Number)
	Overall	Juristic Persons	Individual Persons
3 134 442	722 287	149 829	572 458
100%	23.0%	4.8%	18.3%

Source: Bank of Thailand.

Credit conditions

On the loan quality front, debtors affected by COVID-19 continued to receive credit assistance from banks. As a result, the gross non-performing ratio of the SMEs increased to 6.97 in 2020.

Alternative sources of SME financing

SMEs in Thailand have access to alternative sources of funding such as the Market for Alternative Investments (MAI) exchange, crowdfunding, venture capital and private placement.

The Market for Alternative Investments (MAI) is a stock exchange for smaller firms. It provides SMEs with a platform to raise capital at a lower paid-up capital than in the Stock Exchange of Thailand. Through the MAI exchange, SMEs can raise capital if they have over THB 50 million in paid-up capital following an IPO. In 2020, 182 companies were listed on MAI.

Crowdfunding is another channel for SMEs to access funds. Under the supervision of the Securities and Exchange Commission, companies may raise funds from a pool of investors through equity-based crowdfunding.

Venture capital provides an opportunity for companies to access funding from investors, including financial institutions. Venture capital funds in Thailand benefit from certain tax privileges such as exemption from income tax. The Bank of Thailand revised its Regulations on Venture Capital and FinTech Businesses of Financially Consolidated Groups. The objectives of the revision were to increase unlisted companies’ access to alternative funding, especially for SMEs and FinTech firms, and to enhance effective development of financial services provided by financial institutions and conglomerates.

The Securities and Exchange Commission of Thailand (SEC) has enacted regulations enabling SMEs and startup companies to raise funds in the capital markets by way of private placement for offering newly issued shares or convertible debentures (CD), so-called PP-SME. SMEs and start-up companies are also required to register for PP-SME with the Office of Small and Medium Enterprises Promotion (OSMEP) and prepare SME Factsheet (i.e. information describing business operations, financial, type of securities, and related risks) as newly issued shares or CD are being offered to pre-selected investors or institutions.

Government policy response

SME access to commercial bank loans is constrained due to their general lack of credit history, collateral, and reliable financial statements. To tackle these limitations, the government has introduced various measures to ease SME access to funding. In addition, the government has launched capacity-building programmes to boost SMEs’ competitiveness.

For example, the Thai Credit Guarantee Corporation (TCG) was established to ease SMEs’ financial constraints by providing credit guarantees for viable small enterprises with inadequate collateral. In 2009, the TCG introduced the Portfolio Guarantee Scheme designed to stimulate bank loans to SMEs. Since then, there have been five Portfolio Guarantee Schemes include schemes for general SMEs, micro SMEs as well as SMEs affected by the COVID-19 . The outstanding guarantee amount has increased over the years and totalled THB 451 billion at the end of 2020, guaranteeing 166,419 SMEs in TCG’s portfolio.

Another measure that has promoted SME access to finance is the Business Collateral Act B.E. 2558 (2015). Prior to the Act, lenders could create security interests over their borrowers’ property and movable assets to secure loans. However, borrowers had to physically deliver their pledged movable assets to the lender, which was operationally impractical for a number of reasons. The Act has allowed security interests to be created without the need to physically deliver assets and also expanded the types of collateral which SMEs can register and use to secure loans. Collaterals eligible to be registered as securities include receivables, inventory, and intellectual property. In conjunction, the Bank of Thailand has also revised several financial regulations. In particular, amendments have been made to regulations concerning asset classification, the provisioning of financial institutions, collateral appraisals, foreclosure procedures, credit guarantees and public auctions. All of these revisions have permitted more types of collateral to be used to secure loans and deducted from loan value prior to underwriting.

Various government agencies have also launched capacity-building programmes to boost SMEs’ competitiveness through skill development, product development, and market access. Initiatives have ranged from coaching programmes which enable knowledge transfers from capable enterprises and SMEs to local SMEs and international counterparts. In 2016, the Office of SME Promotion undertook 37 projects worth over THB 5 billion for promoting and supporting SMEs. As of March 2017, 23 projects had been completed, while 14 others were still ongoing. The results of the SMEs promotion activities in 2016 reflected the direction of SME promotion based on the Business Life Cycle. All projects were designed in response to the different needs of four groups (Startup Group, Strong and Regular Group, Turn-around Group, and Ecosystem Group), focusing on incentives aiming to develop and incubate start-ups, enhance productivity and innovation in SMEs, promote market access and internationalisation, and create a conducive legal ecosystem and infrastructure.

Furthermore, the SME One-Stop Service Center was established to gather SME data, provide free consultancy service regarding for example product development and financial management, and facilitate registration of SMEs. These initiatives are ongoing to provide continual knowledge and capital development to support SMEs.

There is also a government initiative to create a data ecosystem which allows data sharing and will be accessible to all stakeholders in order to support information-based activities including lending, this will offer more opportunities for SMEs to obtain credit.

During COVID-19, the BOT collaborated with the government in introducing financial and loan measures to support the Thai people and businesses particularly SMEs affected by the COVID-19. These measures include loan payment holiday for all SMEs to reduce financial burden and soft loan facility to provide liquidity to the SMEs severely affected. Furthermore, the loan facility is also supported by a credit guarantee scheme through the TCG with additional exemptions or reductions on relevant taxes and fees. As a part of the loan facility, the BOT will provide funding for financial institutions at low funding rate to channel liquidity to businesses in need.

Figure 44.1. Trends in SME and entrepreneurship finance in Thailand

Source: See Table 44.6.

Note: 2007 and 2008 data for SME non-performing loans not available.

Statlink

Table 44.6. Definitions and sources of indicators for Thailand’s scoreboard

Indicator	Definition	Source
Debt
Outstanding business loans, SMEs	According to the Ministry of Industry, the new official definition of SMEs has been effective since April 2020. SMEs are now defined based on number of employees and business income instead of number of employees and value of total fixed assets (excluding land). According to the new definition, firms in the manufacturing industry with number of employees not exceeding 200 people or annual business income not more than 500 million THB, and firms in the service and merchandising industries with number of employees not exceeding 100 people or annual business income not more than 300 million THB are categorized as SMEs. In the event that the number of employees and an annual revenue were classified differently, the revenue criteria should be used to dertermine the type of the enterprises. Outstanding amount of SME loans (excluded Interbank*) provided by Thai commercial banks (excluding specialized financial institutions) at the end of period.	Bank of Thailand
Outstanding business loans, total	Outstanding amount of all loans provided by Thai commercial banks (excluding specialized financial institutions) at the end of period.	Bank of Thailand
Outstanding short-term loans, SMEs	*Data in this field is no longer provided due to a change in data collection methodology.
Outstanding long-term loans, SMEs	*Data in this field is no longer provided due to a change in data collection methodology.
Government loan guarantees, SMEs	Outstanding SME loans guaranteed by Thai Credit Guarantee Corporation at the end of period.	Thai Credit Guarantee Corporation (Operating Performance Report)
Non-performing loans, total	Figures cover all enterprises in the Thai banking system.	Bank of Thailand
Non-performing loans, SMEs	SME loans that are 90 days past due date. Figures cover all SMEs in the Thai banking system.	Bank of Thailand
Interest rate, SMEs	*Data in this field is no longer provided due to a change in data collection methodology.
Interest rate, large firms	*Data in this field is no longer provided due to a change in data collection methodology.
Interest rate spread	*Data in this field is no longer provided due to a change in data collection methodology.
Collateral, SMEs	*Data in this field is no longer provided due to a change in data collection methodology.
Percentage of SME loan applications	*Data in this field is no longer provided due to a change in data collection methodology.
Rejection rate	*Data in this field is no longer provided due to a change in data collection methodology.
Other indicators
Payment delays, B2B	*Data not available from the Bank of Thailand
Bankruptcies, SMEs	*Data not available from the Bank of Thailand

References

Department of Business Development. (2015). Business Collateral Act B.E. 2558 (2015). Retrieved from Department of Business Development website: https://www.dbd.go.th/more_news.php?cid=1033&filename=law_secutran

Office of the Council of State. (n.d.). Ministerial regulation of The Ministry of Industry (2002). Retrieved from Office of the Council of State website: http://www.ratchakitcha.soc.go.th/DATA/PDF/00102303.PDF

Stock Exchange of Thailand. (2017). Market Statistics. Retrieved from Stock Exchange of Thailand website: https://www.set.or.th/th/market/market_statistics.html

Thai Credit Guarantee Corporation. (2017). Operating Performance. Retrieved from Thai Credit Guarantee Corporation website: http://www.tcg.or.th/aboutus_operating_performance.php

Thai Office of SMEs Promotion. (2017). Annual report 2016. Retrieved from Thai Office of Small and Medium Enterprises Office Promotion website: http://www.sme.go.th/upload/mod_download/รายงานประจำปี%20สสว.%202559_OSMEP%20Annual%20Report%202016-20171102231101.pdf

Thai Office of Small and Medium Enterprises Office Promotion. (2016). White Paper on Small and Medium Enterprises of Thailand 2015. Retrieved from Thai Office of Small and Medium Enterprises Office Promotion website: http://www.sme.go.th/en/download.php?modulekey=94

Note

← 1.  Nanofinance business under supervision, means finance for the purpose of business undertaking, where the credit underwriting process is flexible and consistent with the nature of debtors e.g. start up business. The total credit line for each loan must not exceed 100,000 baht, with maturity as agreed between customers and financial institutions.