Laos Microfinance Country Profile

This paper discusses the status of microfinance sector in Lao, one of the most underdeveloped economies in Asia.The paper presents the need for microfinance:

• Formal or semi-formal financial institutions serve only 75% of the population;
• Estimated potential market for microfinance is 268,000 borrowers and 560,000 depositors.

Against this background, the paper discusses the evolution and the current state of microfinance:

• The sector is in an early stage of development and is fraught with subsidized and credit-oriented projects;
• It suffers from government interference and lack of regulatory framework;
• The delivery methods are mainly community-based approaches such as self-help groups, village banking, cooperatives and credit unions;
• The formal sector is constrained by subsidies and interest rate ceilings and the major player are:
  • State-owned Agricultural Promotion Bank (APB);
  • Formal cooperatives and credit unions;
  • Government programs implemented through mass organizations.
• In the semi-formal sector, only few of the development projects by NGOs and donor agencies have the potential to transform into sustainable microfinance programs;
• Informal sector, with Rotating Savings and Credit Associations (RoSCAs) and moneylenders, enjoyed the largest outreach.

The paper concludes by discussing the joint efforts of the government and funding organizations to support the sector:

• Asian Development Bank has provided financial assistance for the promotion of commercial-based microfinance organizations;
• Capacity building and research initiatives have been started.