What is a Pico License

What is a Pico license? The microlending businesses have increased over the past few years. The number of people in Thailand applying for Pico finance has been steadily increasing. This means that more people are moving into the formal sector of loans. The middle of last year being 2023, there had been a total of just over 1,100 microlenders across 75 provinces. There was also a notable increase from two years before when there were only 870 micro-lenders. The top Thai provinces with the most applications for Pico microlending was Bangkok, Nakhon Ratchasima and Khon Kaen.

So lets explore the What is a Pico license question. The eligibility criteria for Pico finance in Thailand is stringent and was designed to ensure responsible lending. Recall the idea behind Pico loans was to limit loan sharks. Key requirements include:

– Business Operators:

– The company must be a juristic person. Be this in the form of a partnership, limited company, or public limited company.

– Must obtain approval to operate Pico Finance from the Ministry of Finance.

– Must have a paid-up registered capital or investment of at least 5 million baht.

– Cannot operate as a personal loan provider under supervision or a nano finance operator.

– Must conduct business exclusively at the location of their head office.

– The cumulative interest rate, penalty fee, service fee, and other fees must not exceed 36% *of the loan amount per year (effective rate).

– Customers:

– The customers must be individuals with a stable income and able to make repayments.

– Your customers must reside in the area where you operate.

– They can borrow up to 50,000 baht per person under agreed terms for standard operators.

– The Pico Plus operators can go up to 100,000 THB.

– Loans can be secured with or without collateral, subject to the business operator’s discretion.

These criteria aim to regulate the Pico finance sector. Likewise it is there to protect both lenders as well as the borrowers by ensuring responsible lending with acceptable interest rates.

A Pico Finance Loan involves lending money to individuals who may or may not provide assets as collateral. The borrowers must have a domicile in the same province where the business operator’s head office is located.

Key Features:

1. Collateral: 50% Loans granted with or without assets as collateral.

2. Location: 77% of borrowers domicile in the province where the lender’s head office is situated.

3. Interest Rates: 36% total interest rate, including the profit rate from lending, default interest, fines, service fees, and any other fees, must not exceed the maximum interest rate allowable under civil and commercial law.

4. Exclusions: This definition excludes loans for:

– Traveling abroad for work

– Employee welfare loans that are part of a contract between a parent organization and the business operator

– Other loans specified in the announcement of the Fiscal Policy Office

The total chargeable interest and fees must conform to the legal limits, ensuring that the combined cost does not surpass what is permissible by law.

You will note that the interest rates for Pico finance in Thailand is capped at a maximum of 36% per year*. So its 50,000 baht per person with collateral its up to 33% per year. Those with no collateral then its the maximum of 36% per year*. That is the standard Pico operator. The Pico Plus operates on the same bases but can got higher. Up to 100,000 THB with or without collateral its 28% per year. So your rates will vary depending on the amount you need as well as the Pico operator status.

Pico lending is high risk having with around 6% being bad or non performing loans. To compensate for the loss, there will be higher interest rates. So even though Pico loans are up to 36% interest per year*. This is very high compared to other types of loans.

– Personal Loans: These are generally lower than Pico rates. This will depend on a number of issues such as your financial ability and risk. Your credit history will also affect your interest rates.

– Car Loans: In Thailand the car loans are very low. They range at about 2-4% per year. You will note that these rates are much lower than the rates on a Pico loan. Now much like anywhere else, the duration and down payment.

– Credit Cards: These tend to be rather high at about 16% per year. This does vary as the Bank of Thailand do adjust the rates from time to time. The rates are however still lower than Pico rates.

– Home Loans: These are not as high as Pico rates and the interest will depend on the credit profile of the home owner. Home loans are not very high risk.

These rates are subject to change based on various factors, including the borrower’s creditworthiness and market conditions. It is advisable to check with financial institutions for the most current rates and terms.

You should also look at both the advantages and disadvantages. We have listed a few of these here so you can get a better understanding of where we are. We will start with the Pro and then add the cons after that. Likewise see also the article we wrote on qualifications for microfinance customers on here as well. So now that we know what is a Pico license.

Pico Pros:

– Accessibility:

For the low income earners in Thailand who don’t have access to the formal banking system. The Pico loans come in handy. These are mainly informal workers who simple will not get a normal bank loan. Most people in Thailand are self employed and many of these are in the informal sector. Loans for a food cart or other means of doing business, standard banks will not provide a loan for this. The Pico loans give them the ability to start or operate their small business.

– Significant Reach:

The aim of the law was to bring more people into the formal loans sector without being exploited. So the Pico loans have a large reach where more than 4 million people have had access to loans. The loans have so far placed more than 40 billion THB into the economy. Some use these loans to consolidate their debt that they had with loan sharks.

– Government Support:

The Thai government has support this Pico system for a few years now. There is also supported by state financial institutions like the Government Savings Bank (GSB) and Government Housing Bank (GH Bank). Likewise, offering refinancing options with lower interest rates.

– Consumer Protection:

There have over this time been reforms made in terms of Pico loans. Consumer protection for the micro loans industry also ensure that people are not exploited. Ongoing reforms to enhance consumer protection and improves confidence in the system.

Pico Cons:

– High Interest Rates: Even with the cap on interest at 36% per year*. This is still relatively high. You will need to see if you can obtain a better interest rate. This can be potentially problematic with people who already own large loans and have no collateral. It is not a perfect system but one also have to consider that there is an almost 6% default, non-performing loan rate. This is more than the average of 2.8% default rate for Thailand.

– Limited Loan Amount: The loan ability is limited. The maximum loan amount of 50,000 THB per person may not meet all borrowers’ needs.The Pico Plus operates can go up to 100,000 THB. The Pico loans are not there to take the space of formal bank loans but loans that the banks will not cover. As exampled that a food cart is not likely to get financed by a bank. Your scooter but not more than that.

– Geographical Limitation:

There may be an issue with some people as they can only borrow in the province where they live. Some provinces may have a few while other province may have many microlenders. The Pico licenses is only for a province. Borrowers must reside in the area where the business operator’s head office is located, potentially limiting accessibility. There are 110 lenders in Nakhon Ratchasima as well as 95 in Bangkok. There is not that many options for such populated provinces.

– Risk of Over-Indebtedness:

There will always be an issue with managing the debt of the lower and informal workers and employment might not be fixed. People could also over-borrow creating an even bigger problem.

These points underscore the balance between providing accessible credit options and preventing financial strain on borrowers. For more detailed information on eligibility and how to apply, it is best to contact a local Pico finance operator or the Fiscal Policy Office in Thailand.

Lastly note that there is Pico financing as well as Nano financing. These are not the same. Ask us if you have any more questions on the what is a Pico license.

*36% Interest – See Interest Rate Improvement