Supporting microfinance in Laos’ rural areas

Project description

Title: Microfinance in Rural Areas – Access to Finance for the Poor V
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Laos
Lead executing agency: Bank of the Lao PDR
Overall term: 2019 to 2021



The Lao People’s Democratic Republic (PDR) is categorised by the United Nations as one of the world’s least developed countries. More than two-thirds of its 7 million citizens live in rural areas and have only limited access to basic financial services, education and markets.

Despite the country’s progress in providing pro-poor financial services, only a few commercial banks and microfinance institutions operate outside of urban centres. Access to formal financial services for the rural poor remains a major challenge. People living in rural areas generally have limited financial resources and often lack the necessary reserves to cope with emergencies. Furthermore, they are not able to expand their businesses by taking out loans and cannot deposit their money safely because there are no banks within the vicinity. Moreover, many of the rural poor do not have experience and lack the skill in managing their financial affairs. 


Women and men in rural areas have increasingly benefited from financial services through more stable institutions, better financial education and an improved legal framework.



Village Banks supported through Network Support Organisations (NSO) have been identified as a sustainable and cost-efficient model to reach the rural population.

Therefore, the project is providing intensive capacity development to NSOs. The employees of the NSOs are enabled to provide high quality technical and financial services to the community managed village banks. Furthermore, the Board of Directors who are the representatives of the village banks are trained to effectively audit and control the management of the NSO to ensure that they are working in the interest of the said banks. 
At the macro level, the project is working with the Bank of the Lao PDR (BoL); the central bank of the country, to improve framework conditions for the provision of sustainable financial services. The project supports the BoL to implement strategies and regulatory documents to improve financial education and to better protect financial consumers. Additionally, the project supports BoL in establishing a national village fund strategy which should align different village fund initiatives to learn from best practices. The project is supported by the Australian Ministry of Foreign Affairs and Trade (DFAT).



The project supported BoL in the formulation and accompanying implementation guidelines of the Prime Ministerial Decree on Microfinance Institutions. AFP has also advised BoL on finalising a decree on financial consumer protection and a plan to strengthen financial literacy which was approved in 2018. Seven project-initiated network support organisations currently provide assistance to 670 village banks in 24 target districts. Five of the seven network support organisations are already generating enough operating income to cover their expenditure. 97 per cent of all village banks operate profitable, proving that the concept is financially viable. By January 2019, the 670 village banks have reached more than 153,000 members, including 79,000 women. About 40 per cent of all village bank committee members are women.  

The combined value of the savings held in these banks already exceeds 269 billion Lao Kip, or 27 million Euros. The outstanding portfolio comprises more than 31,000 loans with a total volume of 256 billion Lao Kip (25 million Euros). This model responds to the demand for convenient saving and affordable loan facilities. Its success can be seen in the growing number of people taking advantage of the financial services and the low portfolio at risk which is with 3 per cent below the international benchmark set at 5 per cent.

Financial and business literacy training have reached more than 51,000 people, with 55 per cent of the participants being women. In a cooperation with GIZ’s Vocational Education in Laos (VELA) project, the project has provided training to the teachers of 17 rural vocational schools, enabling them to pass on such knowledge to their students. In addition, a business literacy training has been designed and is being rolled out which aims to increase business skills for entrepreneurs of micro and small businesses in the target areas.


Further information