Context
Lao PDR is a sparsely populated nation in South East Asia, designated by the United Nations as one of the world’s least developed countries (LDC). More than two-thirds of its seven million citizens live in rural areas and have limited access to basic infrastructure services, education and formal markets.
Despite progress in the provision of pro-poor financial services, only few commercial banks and microfinance institutions operate outside the urban centres. Severely limited access to formal financial services for the rural poor remains one of the biggest challenges for the Laotian economy and individual households. People in rural areas lack the resources to cope with emergencies; they cannot expand their businesses by taking out loans or deposit their money safely because there are no banks within their reach. People living in the project’s target regions generally have limited financial resources.
Objective
A growing proportion of the rural population makes use of the sustainable financial services provided by village banks.
Approach
At national level, the project is working with the Bank of the Lao PDR (BoL) to improve the provision of sustainable financial services and to establish a nationwide financial literacy strategy. Together with the Microfinance Association, it is also aiming to develop the capacity of stakeholders in the Lao microfinance sector.
At provincial level, the project supports eight microfinance institutions that act as network support organisations (NSOs) for local village bank networks. The NSOs provide their members with regular on-site technical assistance, including on-the-job coaching or training on bookkeeping and credit management.
Enhancing financial skills through targeted financial literacy courses complements the project’s work on improving access to finance for the rural population. Gender equality and inclusive access are fundamental principles that guide all project activities.
Results achieved so far
The project supported the BoL in formulating the new Prime Ministerial Decree on Microfinance Institutions, which came into effect in November 2012. It also helped set up a market supervision software in BoL’s Financial Institution Supervision Department.
Eight NSOs are providing assistance to local village banks in 21 target districts. Two NSOs are already covering their expenditures through operating income, proving that the concept is financially viable. By November 2014, the project had facilitated the foundation of 430 village banks, which manage more than 37,000 active accounts. While the majority of these are family accounts, women hold 55% of the single accounts. A further result of the project is that more women (28%) are now in decision-making positions in the village banks. The value of accumulated savings already exceeds LAK 31 billion (EUR 3.1 million). More than 10,000 loans have been granted with a total volume of LAK 30 billion (EUR 3.0 million). This model responds to the demand for safe saving and loan facilities, and its success can be seen in the growing number of people taking advantage of the financial services on offer.
German development cooperation acknowledges the financial contributions of DFAT/Australian Aid and MMG/Lane Xang Minerals Ltd to this project.