Risk Management

Pico-finance lenders in Thailand are highly regulated. Operators must be licensed by the Finance Ministry and supervised by the Fiscal Policy Office (FPO). The scheme was launched in 2017. The aim was to bring small loans into the formal sector for underserved borrowers. As of mid-2025 there are over 1,155 active provincial micro-lenders in 75 provinces. This is microloans or microfinance.

They had more than 5 million loan accounts and total lending exceeding ฿50 billion. By law a “Pico Finance” company must be a registered Thai entity. This with at least ฿5 million paid-up capital (or ฿10 million for a “Pico Plus” lender) and is permitted to make loans up to ฿50,000 (Pico) or ฿100,000 (Pico Plus) per borrower. Note that all interest, fees and charges combined are strictly capped at an effective 36% per year. Licensing brings benefits but also burdens. This is where risk management comes in with microloans. 

Risk Management for Micro Loans

On the plus side of this. You will note that a formal pico-finance license lets operators displace informal moneylenders. Likewise to legally serve rural customers at a controlled rate. Much like it was noted, the pico license gives

“access to those who don’t have access to the mainstream banking system to formal credit with a controlled interest rate”.But licensees must also meet detailed regulatory requirements. In particular, regulators now demand a documented risk management plan covering every aspect of lending.  For example, the Finance Ministry recently announced that only pico lenders with such a plan can expand their service areas beyond a single province.

These risk management plans must spell out how borrowers are identified and screened, how loan disbursements and repayments are tracked, how debtors are reminded to pay, and what criteria are used to approve or reject loans. In short, new entrants must build robust processes for client screening, credit assessment and collections.

A Thai Finance Ministry official (shown above) has emphasized that pico-finance firms need formal risk management plans – including ID checks, repayment reminders and clear loan-approval criteria – before they can lend across provinces .

Regulators also impose ongoing compliance tasks. Licensed operators must submit periodic reports to the FPO and adhere to strict consumer-protection rules. For example, firms must file regular data on their lending activities and financial status to the Finance Ministry and they must ensure every borrower undergoes KYC/AML screening (no borrower with a disqualifying criminal or financial history).  

Internal controls – such as automated installment reminders and debt-collection follow-ups – are expected to be in place, both to protect borrowers and to curb strategic defaults. In practice, this means small lenders often invest in loan-management software and back-office systems to handle compliance workloads efficiently.
 

Modern digital tools and records are commonly used by licensed pico-financiers to manage loans and compliance checks. For example, Thai lender Lease It PCL describes in its report how it has “upgraded the screening of customers” and automated payment reminders to prevent future non-performing.

Key compliance requirements include: maintaining the statutory interest cap (36% per annum). Likewise performing strict Anti-Money Laundering (AML) and Know-Your-Customer (KYC) checks on every borrower and filing timely reports and tax documentation with the FPO and other agencies. In effect, even very small operators must adopt many of the same safeguards expected of traditional finance companies. The motivation is to protect fragile borrowers and ensure that lenders follow “fair lending” and debt-recovery practices under the law.
 
The risks in the pico-finance sector are evident from the data. Non-Performing Loans (NPLs) in provincial micro-lending have historically been very high – around 23–24% of outstanding loans – far above the average for banks. According to the Finance Ministry’s FPO, the pico NPL ratio stood at 23.40% as of Q1 2025 (slightly down from 23.69% a year earlier). This reflects the inherently higher credit risk of underserved borrowers, many of whom have no formal income documentation. In addition, at least 106 pico-finance operators have surrendered their licenses since the program began in 2017. Officials report that most license returns occurred during the COVID-19 shock (in 2020) and were blamed on pandemic-related defaults and staff shortages.
 
Even so, the Ministry stresses that new licences still outnumber returns, indicating continued interest in the sector. Nevertheless, the high NPL ratio is a stark warning: new lenders must expect significant default rates unless they enforce conservative underwriting.
  

In this challenging environment, diligent credit assessment and contingency planning are vital. Before making any loan, operators should carefully verify the borrower’s identity and ability to repay. This exactly the measures regulators now require. For example, lenders are advised to collect government ID copies and proof of income, and to perform informal business checks (visiting the borrower’s home or workplace) when practical. 

Underwriting should be conservative: many pico loans are collateralized, and interest rates vary depending on collateral presence (up to 33% with collateral vs. 36% without, per Ministry rules.
 
Collections processes must be proactive: firms should schedule installment reminders and have escalation paths (e.g. legal notices) for overdue accounts. All of these steps – essentially the backbone of a risk management plan – have been explicitly mandated by regulators for any expansion of lending area.

Borrower verification and screening. Confirm identities, conduct background/credit checks if possible, and flag any red flags. (Lease It PCL reports that it has “upgraded the screening of customers” to select only borrowers with strong repayment ability.
 
Rigorous loan underwriting. Set clear limits on loan size relative to income, require collateral or co-signers where possible, and adhere to written approval criteria for every loan.

Automated repayment tracking. Use software or SMS reminders to ensure timely repayments; document all communications. (Regulators specifically mention installment collection and debtor reminders as mandatory plan.
 
Collections and follow-up. Define steps for delinquency: letters, calls, local community liaison, and, if needed, legal action. Lease It notes that it continuously reviews “the process of rights to receive payment transferring and debt collection” as part of its risk.
 
Credit review and provisioning. Regularly re-assess loan portfolios and set aside provisions for expected losses. In an economic slowdown, updating credit models and provisioning (Expected Credit Losses) can make the difference between survival and insolvency.

Case studies illustrate these points. For example, Lease It Public Company Limited (stock ticker LIT) is a Thai finance firm that has embraced the pico-finance framework via a subsidiary (LIT Service Management Co., Ltd.) which holds a Pico Plus license. In its mid-2024 investor report, Lease It explicitly describes the risk management actions it is taking amid rising defaults.

The company states it has “upgraded the screening of customers” and increased the frequency of reviewing customers’ repayment capacity, and that it closely monitors payment transfers and collection procedures to cope with uncertainties. These practices – rigorous KYC, dynamic credit review, and follow-up collections – exemplify the sort of processes all new pico lenders should adopt.

 
 New entrants should also be mindful of the cost of compliance. You will note that the obligations. This ranging from the capital maintenance to reporting systems. These cost are not a trivial cost for a small firm. For example, anti-money laundering laws (AMLA) require licensed lenders to report large cash transactions. 

Likewise they should also monitor suspicious activity, and maintain audit trails. All customer data must be handled in accordance with the Personal Data Protection Act (PDPA). In addition because the interest cap limits earnings. All, pico lenders must operate efficiently (using digital platforms and lean staffing) to be profitable on small loans. Likewise firms must weigh the benefits of a formal pico license. This includes the legal certainty as well as new market access. Compared to the overhead of compliance. This includes reporting, audits, KYC as well as consumer-law checks.
 
In reality most Thai pico lenders find a balance by starting very small. Then scaling the business carefully. Many begin by serving borrowers in a single local area. This way they building a track record before expanding. They typically invest in simple tech solutions.

An example of this is using basic loan-management apps or messaging systems. This is to cut cost and to automate KYC checks and payment reminders. They also draft a written risk plan (now required for cross-province lending) and train staff on it. Regulators explicitly caution that any expansion of lending beyond a province is only allowed for firms with such a documented plan. This underscores a broader point: documented processes are not optional but mandatory under current law.
 
It is important to watch the sector trends closely. Presently the Thai government and FPO periodically issue guidance and license announcements. Let take a look at an example from July 2025. This was when the Finance Ministry proposed a ministerial revision. This was to let licensed pico lenders serve adjacent provinces. Likewise they can meet the the capital and plan criteria.
 
Staying abreast of these announcements (via the Gazette, FPO notices or news outlets) is essential. It’s also wise to consult legal or accounting experts. This as many Thai start-ups do to ensure all procedures are updated. In sum, entering Thailand’s pico-finance market requires a careful, compliance-focused approach: thorough credit checks and robust debt collection to mitigate the sector’s high default rate, combined with diligent adherence to regulatory rules on reporting, interest rates and AML/KYC. Operators that build strong risk-control systems from the start will be best positioned to serve underserved borrowers while maintaining viability in this challenging but socially important niche.
 
Sources: Official statements and reports from Thailand’s Ministry of Finance and Fiscal Policy Office, along with press coverage and industry reports.