EXPANDING COMMUNITY APPROACHES IN SOUTHERN THAILAND | KM NOTE 10 Access to Finance: The Case of Muslim Minority in Southernmost Provinces of Thailand Another important factor in consideration is strict compliance to religious faith. Muslims who form part of the majority of the world’s poor tend to avoid using nancial services due to their strict compliance to religion, as interests which are one of the key features of nancial services are not Background shariah-compliant. At present, many Islamic Banks have been established around the world including in Thailand. Access to nance by the poor is one of the world’s biggest problems. The poor people are in no position to increase Thailand’s rst Islamic nancial institution is the Islamic their income nor improve the livelihoods of themselves or Co-operative of Pattani Limited (ISCOP) founded in 1987, their families. Studies show that poor people in developing whereas the Islamic Bank of Thailand (ibank) was countries cannot access the nancial market due to lack established in 2003. Currently there are over 42 Islamic of information, and contract enforcement problem relating cooperatives active in Thailand. (DCA,2012). Meanwhile, to loan payback. Financial institutions want clients who Bank of Agriculture and Agricultural Cooperatives, and the can provide collateral and lending to the poor may not make Government Savings Bank operate the “Islamic Windows” a good business case. The majority of poor people in of nancial services. Islamic cooperatives have shown their developing countries do not own land or property rights robust performance, able to expand their services and that qualify as collateral and so they are unable to access coverage, contributing to better economic and social the nancial market. well-beings of their members. 1 Expanding Community Approaches in Con ict Situations Although Islamic nancial institutions in Thailand have made The study aims to survey the demand for and supply of Islamic great stride in the last decade or so, study into Islamic nance nancial services in the area with the following objectives: in Thailand is limited. Most studies conducted to date focus 1) To survey the range of products and services offered by on fundamental principles, client’s satisfaction, and the Islamic Bank, Islamic cooperatives and other nancial management of Islamic nancial institutions. These studies institutions in the southern border region. indicate that the Islamic Bank of Thailand along with Islamic 2) To study key criteria these nancial institutions require in cooperatives offer a variety of products ranging from savings order to access service. account, investment account, small-scale credit and other 3) To sur vey the needs of Islamic nancial ser vice welfare-related services. Clients and members express high by community enterprises supported by ECACS Project. satisfaction with the services of Islamic nancial institutions. However, there exists a gap of study into the actual needs for To achieve the objectives above, the following research nancial services for Muslims who are poor for the purpose questions are posed: of strengthening community enterprise, and into requirements 1) What are the Islamic nancial products offered by Islamic to be eligible to get those services which are important factors cooperatives in the southern border provinces? in evaluating the ability to access by the poor and small 2) What are required of each type of Islamic nancial product? enterprise. This research therefore seeks to examine the 3) What are the nancial products that community enterprises demand side on one end and on the other hand, rules, supported by ECACS Project want? regulations and criteria set by nancial institutions in 4) What are the barriers to access nancial services by these Pattani, Yala and Narathiwat. community enterprises? 5) What are the solutions to overcome the barriers/ constraints identi ed above? 2 in the Southernmost Provincesin Thailand (ECACS) The research applied a mixed quantitative and qualitative method. For quantitative component, the researcher collected data using survey and questionnaire among a sample group totaling 237 individuals from ECACS-supported community enterprises. The qualitative component involves desk review, and interviews conducted along a list of set questions, with representatives of community enterprises and managers of area-based nancial institutions. Findings Key ndings into access to nance by ECACS-supported community enterprises are: Financial products offered by Islamic financial institutions Islamic nancial institutions in three southernmost provinces offer a variety of products for clients to choose from according to their needs. These range from murabahah credit, micro-credit, wadiah savings account, mudarabah investment savings account, and hajj savings account. In addition, Islamic nancial institutions offer services relating to clients’ welfare. Some cooperatives operate Ar-Rahnu pawn broking service for members who need contingency nance. Research ndings also show that members are aware of the existence of Islamic nancial institutions, but they know very little about details of products and services on offer. This could be attributed to the fact that they are not members of these cooperatives. Cooperatives would only service members, and details of product information and services will only be available post-membership. Public communications on these nancial institutions may not be adequate so far. ECACS enterprise members remarked that if needs arise for expansion of community-based enterprises in the future, they would then study details and conditions of these nancial products thereafter. 3 Expanding Community Approaches in Con ict Situations Key requirements for eligibility to financial service The ndings above show that ECACS-supported community Requirements for receiving nancial services of different enterprises can access the whole range of nancial services institutions vary. For Islamic cooperatives, membership is offered by Islamic nancial institutions to meet the nancial compulsory, as legislated in the Cooperatives Act B.E.2542 needs according to what Islamic religion allows. These needs (amended B.E.2553). For the Islamic Bank of Thailand, include livelihoods support, welfare, and advancement of requirements are similar to ordinary commercial banks. well-beings of members and their families. The enterprise Products that are most suitable to community enterprises may use credit to expand business opportunity, and then would be micro-credit and other 7 types of business-related allow members to subscribe to welfare group membership credit. Terms and conditions vary according to types of within a cooperative so that they are eligible to receive welfare service, the total sum involved and time frame. Credit service when needed. At the same time, the wadiah savings account operated by cooperatives is subject to individual co-operative and Ar-Rahnu pawn broking service will enable the enterprise to set the requirements for service. to manage its liquidity systematically. If the enterprise has suf cient capital, it can then open an investment account with an Islamic nancial institution, in order to diversify the risk. In any case, the most important requirement to be eligible to the service is membership in a cooperative. 4 in the Southernmost Provincesin Thailand (ECACS) Community Enterprises’ Demand for Islamic Financial Product Data analysis establishes a pattern of behavior in nancial service seeking. Enterprise members use both Islamic and other routine nancial services, with heavy usage of savings account and ATM to facilitate straightforward transactions such as withdrawal-deposit, receiving and transferring money, and receiving salary or wage. In any case, enterprises at the moment seem to have no immediate need of nance to expand the business. Should need for capital arise to expand in the future, they would go for Islamic nance service. The ndings show that members of community enterprise are not so nancially well off. Their needs for nancial service Research ndings also indicate that members choose not to vary. Their usage behavior is similar to common citizens. But use Islamic nancial service despite being adequately as Muslims, their top choice would be Islamic nancial informed about products (murabahah credit) and if actual institutions, unless there is no other choice but resorting to needs arise, they can certainly seek more information from common nancial institutions. service providers in the area. Enterprises can thus use the service but they must comply with terms and conditions set Barrier to Islamic Financial Service Access by individual service provider and in line with product by Community Enterprises prescription. Product pricing and formats are not major issues Research data analysis shows that barriers to access where access is concerned. However, income prospects and Islamic nancial service among ECACS-supported community risks of enterprise gure prominently as members’ concern. enterprises revolve around absence of demand, rather than Members are not con dent to serve as individual guarantor the question of supply. In a nutshell, this is a case of voluntary or represent the enterprise in applying for credit. Most self-exclusion as members see no need to use the service, members do not wish to bear the liability of default due to not because of “involuntary exclusion.” uncertainty of the income stream. 5 Expanding Community Approaches in Con ict Situations Recommendations for Application (1) Community enterprises should generate knowledge and understanding about Islamic nance and its range of products and services, terms and conditions in using the service, as well as seeking to cooperate with nancial institutions based in the area. This is to serve the objective of providing options for enterprise members to advance their well-beings and strengthen the enterprise’s own capacity to grow business going forward. A possible solution could be to organise for an enterprise as an entity to become a group member of one of theIslamic cooperatives. (2) ECACS Project should facilitate knowledge dissemination Recommendations for Future Research Work and host training about nancial service that could provide (1) A comparative study of nancial service provision for options for enterprise to grow business. These could be community enterprises to grow their business in the incorporated into ongoing regular training activities that future, such as credit line, joint investment, in order to the Project operates. clearly identify and compare strengths and weaknesses of products offered by different nancial institutions. (3) ECACS Project should continue to support community enterprises for a good stretch of time in order to cultivate (2) A study of appropriate approach to forge a partnership organization and business management skill to prepare between community enterprise and Islamic nancial them for potential expansion. In the next stage, the Project institution, and thus enabling the latter to achieve the may choose some successful enterprises to pilot a formula ultimate socio-economic goal of Islamic nance. of synergy through pairing with one of the Islamic nancial service providers operating in the region. (4) Area-based Islamic nancial service providers should actively This note was prepared by Tawat Noipom, Ph.D, College of disseminate information on what they do and what they Islamic Studies, Prince of Songkhla University offer, providing details on products, terms of services, and Knowledge Management Notes are produced under the bene ts of shariah nancing. The aim of this is for community State and Peace-building Fund (SPF) and Korean Trust enterprises and residents to understand and choose Fund (KTF) products and services that suit their needs. These undertakings would encourage Islamic nancial institutions For more information on the project, contact: to be part of the socio-economic solutions, which are the Pamornrat Tansanguanwong ultimate purpose of Islamic nance. ptansanguanwong@worldbank.org Poonyanuch Chockanapitaksa pchockanapitaksa@worldbank.org Tel: +662 686-8300 6 in the Southernmost Provincesin Thailand (ECACS) Knowledge Management Note Series No. Title 1. The In uence of Con ict Research on the Design of the Piloting Community Approaches in Con ict Situation Project 2. Gender and Development in Thailand’s Con ict Areas 3. Youth-focused Community Driven Development: Results and Lessons Learned 4. Creating “Space” for Interaction: Description of CACS Project Operations 5. CACS Project: Monitoring and Evaluation 6. Community Driven Development: Findings and Applied Learning 7. Peace-building Partnership Fund: Findings and Applied Learning 8. Practical Lessons for Improving Livelihoods Opportunities in Con ict Contexts 9. Facilitating Community Driven Development in Con ict-Affected Deep South 10. Access to Finance: The Case of Muslim Minority in Southern Thailand 11. Deep South Incident Database: Context, Development, Applications and Impact 7 World Bank Thailand 30th Floor, Siam Piwat Tower, 989 Rama 1 Road Pathumwan, Bangkok 10330 Tel: +66 2686 8300 Email: thailand@worldbank.org http://www.worldbank.org/thailand Supported by