Bangkok Post, Thailand, Finance Column.

Oct. 2--The success of micro-finance services and institutions in several countries compared with earlier lending programmes can be seen as a process of learning from mistakes made in the past.

The abolition of subsidised lending to special target groups through specialised development banks, in favour of non-directed financial services at cost-covering terms through viable financial institutions, is a paradigm shift.

The change is in line with a shift of clients and their sources of income. In rural Thailand, it is clear that many non-agricultural opportunities are emerging. The majority of rural households in Thailand derive only 35 percent of their income from farming. Off-farm opportunities generate demand for a new type of micro-finance.

Micro-finance is more than just a new financial technology, but a response to a new demand for financial services by an emerging class of micro-entrepreneurs. Many are women, and as they are not farmers by definition, they cannot borrow from the formal banking system.

A new attitude must emphasise the importance of a well-functioning financial system for development, and reforms must provide the legal framework for financial institutions to operate on a viable basis.

In Thailand, the rural financial system is still distorted by directed credit or "special projects" implemented by Bank for Agriculture and Agricultural Co-operatives (BAAC) in collaboration with government agencies.

The results are not always successful -- consider the recent protest by Nakhon Pathom farmers who complained that they were lured into loss-making pig ventures. Many of these projects failed and the borrowers didn't repay their loans.