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LESSONS:

Rural Enterprise Credit Project in Thailand (Loan 1540-THA)

sector: Finance | country: Thailand | region: Greater Mekong Subregion

A variable local benchmark, transparently determined, should be used asreference for re-lending and onlending interest rates.

Appropriate credit appraisal system for all loans and competent staff is necessary to implement the system to ensure a quality loan portfolio and lead to more sustainable lending.

Factors affecting availability of internal resources and demandfor credit need to be assessed during appraisal.

Insurance against unanticipated financial crises needs to be in place to protect development finance institution loans.

Linkage and coordination with other lending agencies on policy reforms should be included in the loan covenant.

Nonperforming loans require higher loan-loss provisioning so they don t adversely affect financial performance.

The predominance of short-term lending can increase volatility. A more balanced asset structure, with a larger share of medium- to long-term lending, is necessary to reduce volatility. This would require careful monitoring to avoid maturity mismatch.

The use of full or partial guarantees and other instruments along with credit lines must be consistent with the country s financial sector development.

There is a need to require development finance institutions to hedge foreign exchange positionswith expertise provided along with the ADB loan.

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