Microfinance in Rural Lao PDR: A National Profile

This paper presents a survey of the formal and informal credit institutions operating in Lao PDR. The paper:

• Assesses the supply and the demand of financial services in the country;
• Describes the macro policy environment.

The report presents findings that help frame the critical questions for future financially-based economic development strategies.

• Household findings:
  • Saving strategies are broadly distributed;
  • Savings are rarely converted to deposits;
  • Low level of debts to assets;
  • Limited credit access;
  • Reliance on different sources for working capital and fixed asset loans;
  • Within family loans are largest rural credit sources.
  • Banking sector findings:
    • Limited bank outreach in rural areas;
    • Uniform terms and conditions;
    • Failure to supply micro-loans;
    • Limited deposit mobilization.
  • Informal sector findings:
    • Rapid growth of Village Revolving Funds (VRF);
    • Varying terms of loan disbursal between donor/NGO;
    • Lack of saving mobilization strategies in most projects with credit component;
    • Limited sustainability and restricted role of VRFs.

The report concludes that following steps must be taken for the future:

• Promotion of financial sustainability through positive interest rates;
• Improvement in the regulatory environment;
• Improved co-ordination and clearer objectives in implementation of financial strategies;
• Prioritization of saving mobilization.