Microfinance in Rural Areas – Access to Finance for the Poor

Project description

Title: Microfinance in Rural Areas – Access to Finance for the Poor
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Laos
Lead executing agency: Bank of the Lao PDR
Overall term: 2014 to 2017

Project staff explains village bank procedures to members during their annual meeting. Photo credit © GIZ / Rene Roesler

Context

Laos, a sparsely populated republic in south-east Asia, is categorised by the United Nations as one of the world’s least developed countries. More than two-thirds of its 6.5 million citizens live in rural areas and have limited access to basic infrastructure services, education and formal markets.

Despite the country’s progress in providing pro-poor financial services, only a few commercial banks and microfinance institutions operate outside the urban centres. Access to formal financial services is therefore severely limited for the rural poor, and this remains a major challenge for both the Lao economy and individual households. 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 their reach.

Objective

A growing proportion of the rural population makes use of sustainable financial services provided by village banks.

AFP2: Village Bank Committee during Saving Day.  © GIZ/ Andreas Hub

Approach

At the national level, the project is working with the Bank of the Lao PDR (BoL) to improve conditions for the provision of sustainable financial services and to establish a nationwide financial literacy strategy. Together with the Microfinance Association, it also aims to develop the capacity of stakeholders in the Lao microfinance sector.

At the provincial level, the project is supporting seven microfinance institutions in their role as network support organisations for local village bank networks. These organisations provide their members with regular on-site technical assistance, including on-the-job coaching and training on bookkeeping and credit management.

Building financial knowledge and 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 the project activities.

The project receives financial contributions from Australian Aid and MMG/Lane Xang Minerals Ltd.

Results achieved so far

The project supported BoL in the formulation of the new Prime Ministerial Decree on Microfinance Institutions and its accompanying Implementation Guidelines, which came into force in November 2012 and May 2016 respectively. It is no assisting the central bank in establishing financial services consumer protection and a national strategy for financial literacy. AFC Consultants International supported the project by installing supervision software in the central bank’s Financial Institution Supervision Department. The project also played a lead role in establishing the Lao Microfinance Association. This supports organisations working in the microfinance sector, encourages them to provide input, when requested, for the development of new regulations, and builds the capacities of the sector’s workforce through its Microfinance Management Certificate course.

Seven network support organisations currently provide assistance to local village banks in 22 target districts. Three of the organisations are already generating enough operating income to cover their expenditure, proving that the concept is financially viable. By January 2017, the project had facilitated the formation of more than 540 village banks, which manage almost 63,000 active accounts. While most of these are family accounts, women hold 54 per cent of the individually held accounts.

The combined value of the savings held in these banks already exceeds LAK 117 billion (EUR 13.9 million). The outstanding portfolio comprises 19,200 loans with a total volume of LAK 105 billion (EUR 12.5 million). This model responds to the demand for safe saving and accessible loan facilities. Its success can be seen in the growing number of people taking advantage of the financial services offered.
Financial literacy training has reached more than 17,000 people in the target villages. In a cooperation with GIZ’s vocational education project in Laos, the microfinance project has provided training to teachers in 17 rural vocational schools, enabling them to pass on such knowledge to their students.

Women during Financial Literacy Activity.  © GIZ/Rene Roesler

Downloads

Assessing Financial Literacy in Rural Laos. Survey results from the provinces Champasak, Salavan, and Savannaketh (GIZ 2015) Statistical Report: Microfinance in the Lao PDR 2011 (GIZ 2012) Poster Overview: Financial inclusion of Women in Rural Laos (GIZ 2014) PowerPoint Presentation: Financial Inclusion and Gender under AFP. An Assessment of Gender in Households and Village Banks (GIZ 2012) Handbook: Operating Village Banks (GIZ 2014) PowerPoint Presentation: Report on Project Progress at the Annual Microfinance Stakeholder Forum 2013/14 PowerPoint Presentation: Selected Results from the Financial Baseline Survey 2014 Statistical Report: Microfinance in the Lao PDR 2011 (GIZ 2012) Poster Overview: Financial inclusion of Women in Rural Laos (GIZ 2014) PowerPoint Presentation: Financial Inclusion and Gender under AFP. An Assessment of Gender in Households and Village Banks (GIZ 2012) Handbook: Operating Village Banks (GIZ 2014) PowerPoint Presentation: Report on Project Progress at the Annual Microfinance Stakeholder Forum 2013/14 PowerPoint Presentation: Selected Results from the Financial Baseline Survey 2014 Microfinance in Rural Areas – Access to Finance for the Poor (AFP) (GIZ 2017) German Development Cooperation: Sustainable Economic Development in Laos. Summary of GIZ's involvement, approach and results (GIZ 2013) Statistical Report: Microfinance in the Lao PDR 2009 (GIZ 2010) Microfinance Statistics 2012 (Bank of the Lao PDR 2013) Demand Assessment: Rural Finance in Laos. GIZ Experience in Remote Rural Areas (GIZ 2012) PowerPoint Presentation: Demand for Microfinance in Laos. An Assessment of the Current Clients and the Future Potential of Microfinance in Rural Laos (GIZ 2012)

Further information