Case study

The Role of the Asian Development Bank in Promoting the Development of Microfinance in Lao PDR and Viet Nam

A summary of ADB's aid to rural and microfinance sectors

This paper outlines ADB's assistance to rural and microfinance (RMF) sector, based on a coherent and strategic approach, as outlined in its microfinance development strategy.

The paper elaborates that the RMF sector in Lao is characterized by weak policy environment and limited outreach. In 2000, ADB approved US $2 million TA (Technical Assistance) for developing a sustainable market oriented rural financial system. As a result, significant progress has been made in the following areas:

  • Building of awareness, understanding and training capacity in rural finance;
  • Establishment of pilot credit unions;
  • Pilot tests of best practices in rural finance;
  • Institutional reforms of Lao's premier rural finance agency.

Further the document states that the financial system in Vietnam is languishing due to directed lending, interest rate subsidies and poor management practices. To redeem order in the financial system, ADB has initiated a series of TA projects:

  • US $900,000 TA to strengthen the corporate governance of the Vietnam Bank for Agriculture and Rural Development (VBARD);
  • Loan of US $80 million to support VBARD's lending for rural enterprise projects;
  • Preparation of the policy framework, as well as to draft legislation for regulation of the RMF sector, through TA.

The article concludes that based on a positive review of the above initiatives, ADB is contemplating further investments in the Lao and Vietnam.