English
Français
The project background
Since 2017, we are implementing the KfW project “Consulting Services for Capacity Building and Training Measures in the Lao PDR Microfinance in Rural Areas – Access to Finance for the Poor” (LAFF). By end of 2022, the project has provided wholesale loans to the seven selected partner financial institutions (PFIs) which again provided on-lending as sub-loans to 4,255 MSEs, with a total loan amount of about LAK 120 billion [~EUR 6.7m].
One of the deposit-taking Microfinance Institutions (DTMFI), Ekphatthana, short EMI, was selected to be a PFI of LAFF, representing the microfinance sector. It is the first privately-owned microfinance institution in Laos that was licensed by the Bank of Lao PDR and has established a reputation for offering a range of financial services to individuals and small businesses in Laos. EMI's services employ a "meeting center" approach which allows the institution to expand its outreach rapidly and serve rural populations. This approach allows the institution to provide services to a diverse range of clients, including those without a salary or collateral. Recently, the PFI also begun incorporating technology into its services, including implementing online loan application processes and a system for monitoring clients.
EMI received a wholesale loan of LAK 10 billion [~EUR 556,395] in June 2022, for the purpose of on-lending to MSEs. EMI consequently expanded its services to a new, fourth geographical area— Luang Phrabang province. So far, the PFI provided sub-loans to 1,7491 MSEs, who can choose between three different loan products:
- Group loan: also known as "meeting center", is a lending approach for rural people that does not require physical collateral and has a maximum loan amount of LAK 10m.
- Easy loan: a loan for clients who do not feel comfortable with other types of loans and have no physical collateral, with a maximum loan amount of LAK 5m.
- Individual or MSMEs loan: for individual entrepreneurs and MSMEs, which require suitable physical collateral and have a maximum loan amount of LAK 300m.
The outcome
The LAFF fund has played a significant role in the expansion of financial services provided by EMI's Luang Phrabang Service Unit: 386 sub-loans were disbursed, including 322 group sub-loans. These 27 microfinance groups, also known as "meeting centers", help to strengthen solidarity among members by holding weekly meetings, where they save money, receive micro-loans, and learn how to manage their loans by investing in income generating activities. The group also plays a main role as stimulation of the productive activities for each member, based on their conditions and potentials, in order to response to the need of the local markets.
The impact
One of these microfinance groups, called "Huay Eauth Village Group" was selected for a case study to evaluate the economic impact on the group members. The group formed in February 2022, consisting of 15 members, with an average savings amount of LAK 750,000 [~EUR 42] per member. They received training on regular savings, loans, and household budget management, and shared experiences in managing income-generating activities. They also saved money on a weekly basis. In addition to savings, members also received micro-loans to invest in income-generating activities such as grocery shops, local food processing, vegetable gardening and fresh fruit selling, which helped to raise their monthly cash income by 90% on average. The group's members reported that they have used the main part of their cash income earned to send their children for further studying and to meet a minor part for their families’ expenses.
Lessons learnt
All in all, the EMI Luang Phrabang Service Unit has been fast in expanding its services and to ensure a good quality of loan portfolio despite being in operation for less than a year, demonstrating the effectiveness and efficiency of EMI's lending methodologies and technology.
Furthermore, the group members highly value the non-financial services such as financial education and group management. They also consider the loan interest rate as reasonable and acceptable in light of the high profit of their investment returns. Lastly, holding weekly meetings for savings and loan repayment, supported by a credit officer, as well as the creation of group’s byelaws, that support governance and fixed meeting dates, has helped the members to participate regularly and share experiences, enhancing solidarity among group members.
About the project
In 2014, a project-based wholesale loan facility for commercial banks and deposit-taking Microfinance Institutions (DTMFI) called “Lao Access to Finance Fund” (LAFF) was established at the Bank of Lao PDR (BoL), funded by the German Federal Ministry of Economic Cooperation and Development (BMZ) through the German Development Bank KfW. The objective of the LAFF is to support access to finance for micro and small enterprises (MSEs) by providing wholesale loans to operationally and financially strong banks and DTMFIs with a strategic focus on the MSEs segment for the purpose of on-lending to MSEs including household-based income generating activities.
For further information please contact Jakob.Lutz [at] afci.de