Trade associations in Thailand are stuck with a frustrating rule — they can only keep their income in savings accounts. This limits their ability to make smarter investments that could grow their funds. Without a change in the law, they will keep missing opportunities to increase resources and offer more value to their members.
Trade associations play a key role in supporting business owners and entrepreneurs, who are essential to Thailand’s economy. They provide these businesses with a platform to share industry knowledge, exchange ideas, and organise activities that foster growth and collaboration.
In 2023, Thailand had more than 3.2 million businesses, according to the Office of SMEs Promotion. By 2024, the country was home to over 3,032 trade associations, as reported by the Department of Business Development, the Ministry of Commerce.
Trade associations generate income through membership fees, donations, and services, such as rentals, consulting fees, and business training for outsiders. However, the law prohibits them from running profit-driven businesses or distributing profits among members. Instead, the funds must be used according to the association’s founding objectives.
Under Thailand’s Trade Associations Act, B.E. 2509 (1966), trade associations cannot engage in business operations themselves, nor can they invest directly in their members’ businesses or hold shares, except when they receive bonds or shares in listed companies as donations.
Due to this legal restriction, trade associations cannot invest in other financial products such as shares, bonds, or even government sovereign bonds to grow their funds. They can only put the money in bank savings accounts to earn interest, which is very mininal.
As a result, trade associations are missing out. They have lost an opportunity to seek better returns that could benefit their members through more comprehensive services and activities to enhance their businesses.
Take government bonds, for example. These are a great investment because they are low-risk and highly secure. They offer better returns than regular savings accounts and are just as safe. If trade associations were allowed to invest in them, they could boost their income and use the gains to support more activities such as seminars on concerning legal matters, new technological innovations, and international trade fairs.
These activities help members grow and support entrepreneurs without counting as profit-sharing. They stay true to the spirit of the law, which encourages trade associations to come together for the benefit of their members.
Trade associations in other countries have more financial flexibility. In the United States, for example, there is no central law specifically governing trade associations like in Thailand. Trade associations only need to declare financial details for their tax-exempt status, register as lobbying groups under the Lobbying Disclosure Act of 1995, and follow strict rules on political donations set by the Federal Election Commission.
Because of this freedom, US trade associations create their own internal rules for managing investments and handling finances. These policies help them avoid conflicts of interest and stay transparent.
A case in point is the National Association of Realtors (NAR), which can invest its funds in stocks and bonds but with well-balanced portfolios with clear investment and risk-spreading policies, not investing in only one single asset. The investments can be managed internally by trade association personnel or external financial managers. But the portfolio must be reviewed quarterly by an investment advisory board to ensure accountability.
The NAR’s investment policy also comes with strict rules. They can’t invest more than 2% of their portfolio in any single company or issuer. Nor can they invest in unlisted securities. Additionally, they cannot allocate funds to assets unrelated to the association’s operations, such as precious metals, jewellery, or speculative futures trading.
Other types of associations have similar investment policies, like trade associations.For example, the American Medical Association (AMA) can invest in stocks, mutual funds, government bonds, and corporate bonds to boost revenue for its core activities and better serve its members.
Thai trade associations could benefit from a setup like this. However, this is possible only if Thailand amends the 1966 Trade Associations Act to allow low-risk financial investment, which gives higher returns than bank deposits. With proper rules to ensure transparency and accountability, the members will benefit from more impactful programmes and ultimately make a bigger contribution to the economy.
To ensure responsible risk management, the government agency could introduce specific safeguards to unlock investment opportunities. For instance, it could allow investment only in low-risk options like government bonds. Another approach is to limit the amount of funds that can be invested, such as capping investments at no more than 25% of the association’s total cash reserves. The government agency should also consider setting a rule that ensures investment returns are used exclusively for members’ development.
Bond market returns have shifted over time, now providing a safer investment option. It makes sense to amend the trade association law to allow investments in low-risk products like government bonds. These changes would help associations build a stronger financial foundation while staying true to the law’s original intent.
The Trade Associations Act, now 58 years old, is outdated and no longer reflects the needs of today’s economy. Reform is essential.
Allowing trade associations to tap into capital markets could turn them into real engines of growth. With more financial flexibility, they could support their members more effectively and make a bigger difference in the economy.
Writter : Konchawan Kanthasut and Thanthip Srisuwannaket Thailand Development Research Institute.
Note : This article is part of the series ‘Capital Market Regulatory Guillotine Project’ by the Thailand Development Research Institute and the Capital Market Development Fund (CMDF).
First Publish : Bangkok Post On 26 November 2024