Paper

Rural Finance in the Lao People's Democratic Republic: Demand, Supply, and Sustainability

The potential of new market-oriented policies in expanding rural financial services in Lao PDR
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This study is based on a national survey of nearly 1,200 rural households, as well as all commercial banks and known microfinance initiatives in 2004, and provides a comprehensive overview of rural finance in the Lao PDR. The study finds that the formal sector (banks) and semiformal sector (microfinance initiatives) are not meeting the demand for financial services of the vast majority of rural households in the Lao PDR. However, the study notes that the Government's new market-oriented policy has the potential to have a significant positive impact on sector development.

Further the key recommendations of the study include the following:

  • Carrying out concrete actions to operationalize the new market-oriented policy;
  • Phasing out directed lending from the banking sector;
  • Supporting commercial microfinance initiatives through improvements in the policy, legal, and regulatory environment;
  • Attracting foreign investment in the microfinance sector;
  • Ensuring that private microfinance initiatives follow good practices and focus on sustainability from the outset;
  • Holding regular stakeholder meetings to provide feedback to the authorities and propose new solutions to further develop the rural finance sector.