Package of Loans and Grants to Boost Rural Finance in Lao PDR
MANILA, PHILIPPINES - A package of loans and grants totaling over US$13.4 million will help promote a sound rural and microfinance sector in the Lao People’s Democratic Republic (Lao PDR). Maintaining high growth rates in the Lao PDR’s rural areas, which account for 80% of the country’s population and 90% of the country’s poor, is essential to reduce poverty and to sustain the country’s development. “For a dynamic rural economy, sustainable and market-oriented rural and microfinance institutions are needed,” says Brett Coleman, an ADB Senior Microfinance Specialist. “However, few Lao households and microenterprises are reached by formal financial services.” Microfinance institutions (MFIs) are virtually nonexistent in Lao PDR, and the four largest MFIs collectively reach only about 6,000 clients. While the Government-established Agriculture Promotion Bank (APB) serves about 14% of the country’s households, most of these are in urban areas and only about 2% of rural households are served. Because it has mainly conducted policy lending, at subsidized interest rates, APB has been unable to build up capital or mobilize commercial funding. At the same time, APB’s subsidized interest rates have crowded out MFIs. A $7.684 million loan from ADB’s concessional Asian Development Fund will help the Government improve policies and regulations to encourage the growth of MFIs. It should also help transform APB into a more market-oriented institution by increasing transparency, improving governance, and possibly recapitalizing it. A separate $2.316 million loan from the Asian Development Fund will strengthen APB’s risk management, accounting, management information system, and information and communications technology system. The first loan carries a 24-year term, while the second loan carries a 32-year term. Both have a grace period of 8 years and an annual interest charge of 1% during the grace period and 1.5% after. The Financial Sector Reform and Strengthening Initiative will provide a parallel grant of $281,000 to build capacity in the Bank of the Lao PDR (BOL) to implement the improved microfinance regulatory and supervisory framework. In addition, the Japan Fund for Poverty Reduction, from the Government of Japan, will provide a $1.98 million grant for a microfinance fund that will be used for seed capital, equipment, and training in new and young microfinance institutions that focus on sustainability and poverty reduction. The grant will also disseminate international best practices and experience to provincial Lao officials and microfinance practitioners. The Japan Fund for Information and Communications Technology, also from the Government of Japan, will provide a $472,000 grant to assist APB to upgrade its information and communications technology system. Finally, a $700,000 technical assistance grant, $400,000 of which comes from ADB and $300,000 from the Government of Denmark, will help BOL and APB carry out the program. “A key feature of the improved policy framework is to allow privately owned and managed MFIs to operate in the Lao PDR for the first time. This, in addition to the transformation of APB into a market-driven financial institution, will benefit rural households by increasing their access to credit and savings services. New businesses and the expansion of existing ones will also lead to more jobs,” adds Mr. Coleman. The total cost carrying out the program is estimated at $19.2 million, which will be cofinanced by additional grants from various sources. The balance will be shouldered by the Government. BOL is the executing agency for the program, which will be carried out over four years to September 2010. About ADB | 
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