DeFi – the evolution of pico finance and peer-to-peer lending in Thailand

The #DeFi challenge for Thailand’s pico-finance and peer-2-peer lending markets

Decentralized Finance (DeFi) or Open Finance has the same value proposition as pico finance to bank the unbanked and to serve the unserved. DeFi offers a global alternative to every financial service — savings, loans, trading, insurance and more. Buzz words for this new technology are smart contracts, blockchain, Ethereum, stablecoins, and decentralized apps (dApps). However, DeFi is in today’s reality restricted mainly to overcollateralized loans based on a MakerDAO Collateralized Debt Position (CDP). 

Permissionless to create, permissionless to participate: Based on the technical concept of automated contracts and lending protocols, users interact as lender or borrower directly from their crypto wallets. The DeFi dApps can run themselves – for example, to lend money peer to peer – with little to no human intervention.

DeFi regulations: DeFi allows everyone to take out or supply a loan without approval from a third party. The large majority of lending products use popular cryptocurrencies to secure outstanding loans. Thailand introduced with the Digital Asset Business Decree a regulatory framework for crypto ventures. Whether next-generation financial products of DeFi fall under the explicit categories of the decree, or whether the SEC-Act or announcements of the Bank of Thailand are applicable, should be carefully examined on a case-to-case basis.

Poor Thais, the typical borrowers under pico finance schemes, are typically not familiar with cryptocurrencies. Therefore, the implementation of DeFi in Thailand’s consumer finance is mostly not a current use case.

DeFi projects under Thailand’s person-to-person lending regulations

Loan sharks and underground debts: The granting of credit by Thai banks is not the only way to obtain a loan in Thailand. While private and non-licensed credit transactions are harmless in individual cases and within the family or circle of friends, the underground debt problem has long been a thorn in the side of the authorities. Similar schemes are the corporate microfinance system but pico-finance is reserved for individual borrowers and households. Non-bank alternative credits are provided by community financial institutions, savings cooperatives, and village funds.

Pico finance was initiated by Thailand’s Ministry of Finance in 2017 to address the loan shark problem and encourage underground lenders to enter the formal lending system. Standard pico-finance operators are allowed to extend a loan worth no more than THB 50,000 per applicant, with an effective yearly lending interest rate of no more than 36%. Pico-plus operators are enabled to lend additional THB 50,000 to the same applicant at an interest of not more than 28% p.a.

Nano finance follows different rules and regulations, especially Notification No.2, dated December 28, 2015, of the Ministry of Finance. The terms pico financing, microfinancing, nano financing, and peer-to-peer financing are in practice overlapping terms and the name itself is just a remote indication for the applicable rules and regulations. 

P2P lending platforms: Under a notification of the Ministry of Finance as of September 10, 2018, the maximum yearly interest rate is set to 15% in case of peer-to-peer lending platforms.


Pico license: Pico lending platform operators, as well as pico-plus operators, require a license, limited to the province in which the applicant has its registered head office. License requirements relate to the corporate structure (typically a Co., Ltd. with registered capital of THB 5 respectively THB 10 million), the shareholders, as well as the directors and officers. The pico operations have to be non-custodial, the platform is not allowed to hold cash or securities of the participants.

Pico loan participants: Pico finance licenses limit the circle of eligible lenders and borrowers. This relates to the lender’s total credit exposure and defines specific qualified lenders with fewer regulatory restrictions. The regulations also require a certain KYC examination whether the borrower is capable to repay the loan. Foreign lenders are welcome under the regulations. Whether the credit structure qualifies as restricted financial service under Thailand’s foreigner legislation, has to be examined on a case-by-case basis.

Relevant authorities are the Bank of Thailand and the Fiscal Policy Office. The FPO is a policy unit of the Ministry of Finance, responsible for economic, monetary and fiscal policies.

Professional services in Thailand’s traditional finance and DeFi sector

PUGNATORIUS Ltd. is the Bangkok-based specialist provider of transactional legal and tax advice on foreign investments in Thailand. The law firm advises on the regulatory requirements for a pico-finance business and accomplishes the formation or restructuring of Thai businesses to be in compliance with pico-finance, nano finance, microfinance and/or peer-to-peer finance regulations. It advises on the requirement to realize DeFi ventures in Thailand, including legal opinions on the license requirements und licensing Thai authorities.

Details can be found at “Legal advice, tax structuring, transaction support services and business matchmaking on Fintech, cryptocurrency and digital asset ventures“.

Disclaimer: A little knowledge is a dangerous thing. This low-resolution high-level outlook constitutes neither legal advice nor an attorney-client relationship. Secure your #DeFi in paradise.

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