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MSMEs and informal businesses represent nearly 100% of all enterprises in the Lao PDR. However, they face difficulties in accessing adequate financing which is one of the main constraints for rural development and sustainable economic growth of the Lao economy.
Aiming to improve this situation, AFC Agriculture and Finance Consultants has recently completed a KfW funded technical assistance (TA) project in Laos, to establish and develop the Lao Access to Finance Fund (LAFF)— with great success.
The LAFF was established in 2014 under the cooperation agreement between the Lao and German government, with the objective to contribute towards the improvement of productivity and competitiveness of the private sector in Laos, to reduce poverty by supporting lending to MSMEs. The LAFF was implemented by the Bank of the Lao PDR (BOL) through a dedicated LAFF management unit (LMU), for providing credit lines in local currency to selected commercial banks and microfinance institutions.
Our team of experts was responsible for the TA under both Phase I (May 2017 to August 2020) and Phase II (September 2020 to August 2023). Our strong credential as a leader in TA provision with strong technical capability, a deep understanding of LAFF operations and familiarity of the Lao country context with special focus on the financial sector, contributed to this success.
The primary focus of TA was on strengthening the LAFF and its staff to make the fund disbursement mechanism operationally efficient and a self-sustaining operation. This resulted in the establishment of a strong governance and management structure with staff who are well trained and skilled to perform the key tasks, in line with international best practices in MSME lending, ESMS, and responsible finance. LAFF operations are now equipped with processes, tools and reporting mechanisms governed by an approved LAFF operational manual.
The second key TA component focused on developing the capacity of the seven partner financial institutions (PFIs). This was also an important element in the delivery of financial services to the targeted MSMEs. The TA needs of PFIs were often already identified at the time of due diligence process but were still on demand basis. Risk management, green finance, digital finance, client protection and environmental and social management system (ESMS) are some of the topics that were covered for the benefit of the sector.
LAFF is a success story in wholesale financing, even by international standards. It came to have a well-oiled operational mechanism, following international best practices and a sustainable portfolio of LAK 120 Bio. (~EUR 5.6m), and a total disbursements of 7.209 loans to MSMEs, worth LAK 155 Bio. (~EUR 7.3m) all being clear evidence of good use of KfW funds. LAFF presently works with seven financial institutions present in 14 of the 18 provinces of Laos. Its success is further demonstrated by the interest of multi-lateral funding agencies to partner with LAFF in related activities.
AFC is proud of its contribution to LAFF’s success and underlines its appreciation of the support by all key stakeholders who make our TA project a milestone in MSME financing in Laos. During the six-year implementation period, the cooperation with both KfW and BOL was excellent – and we are much looking forward to continuing communication and cooperation!
For further information contact jakob.lutz [at] afci.de