LAOS - Providing access to appropriate and affordable financial services in hard-to-reach rural communities
With the emergence of commercially-oriented delivery of financial services to economically active poor, it has been a challenge to penetrate remote rural upland communities considering costs and risks involved. Thus, the majority of micro and rural finance service providers gravitate their operations within urban centers and district capitals. The same phenomenon has been observed in the Lao PDRs micro and rural finance market.
The Lao Microfinance Associasion (LMFA) provincial coordinator for Vientiane province, Ms. Sisavanh Sayodoum, is providing support to the Village Credit Committee (VCC) Manager of Ban NaMai, Muang Fuang District in explaining the VCC regulations, VCC membership criteria on accessing loan including the loan product features with the villagers who have come to the Village Credit Scheme (VSC) opening and loan registration. This activity is a very important part of the VCS opening to ensure that everyone understands the VCS regulation, and loan conditions and requirements. The VCC is responsible for managing and administering the VCS including enforcing its regulations. It is composed of a Manager, an Accountant and a Cashier, © LuxDev.
The Local development programme for Bokeo, Bolikhamxay, Khammouane and Vientiane Province, LAO/030, which supports poverty reduction in target villages in four provinces of Lao PDR, is taking this challenge head-on to develop a village-level rural finance delivery model. One support mechanism is the so-called “Village Development Fund” (VDF), which is allocated to and managed by each village. The VDF process supports participation, local democracy, improved governance and public services. It can be used for two main purposes: Village Grant Scheme (VGS) and Village Credit Scheme (VCS).
The VCCs with the support of the LMFA implementing team Field Assistant doing the loan registration process at Ban San Sai, Muang Fuang District. Loan registration allows the VCS to determine how many wanted to take loan, how much each need. Each of those that register for a loan are then asked to fill out a loan application,© LuxDev.
The VCS is designed to be a sustainable village-owned micro and rural financial services delivery structure. It provides affordable access to credit for economic activities including, primarily, agricultural production and in some cases, small family-owned business and trade activities. Aside from that, it provides a risk management mechanism for rural households by providing financial support when an emergency occurs. The VCS also give its members the opportunity to earn dividends from its operation through their fixed contributions. According to Mr. Peter Hansen, Chief Technical Advisor of LAO/030, the VDF regulations allows for up to 60% of the VDF to be used for the village credit activities and at least 40% must be available for the grant activities that benefit the poorest households.
Not all target villages will establish VCS, depending on the need and feasibility of setting up a credit scheme in the village. If the village chooses not to establish any VCS, the full amount of the VDF will be used for the grant mechanism.
To bring in international experience and practice while providing local support to capacitate the villages, LuxDev is collaborating with ADA, a Luxembourg Non-Governmental Organization (NGO) supporting financial inclusion worldwide and partnering with local microfinance networks like the Lao Microfinance Association (LMFA). Under the LAO/030 programme, ADA collaborates with LMFA to support the VCS establishment within 3 provinces (Bolikhamxay, Bokeo and Vientiane Province).
The VCC members at Ban NaMai, Muang Fuang District with the LMFA National Coordinator, Mr. Sangkhy Vongsanith, giving them coaching session on the Loan assessment process. Prior to this, the VCC participated in a 4-day training which covered the loan assessment methodology, but needed a follow up session to endure their capacity to do the loan assessment during the actual VCC opening day,© LuxDev.
In September 2020, the LAO/030 programme, through the efforts of the Project Support Office (PSO) in Vientiane Province, headed by the International Project Adviser, Ms. Emma Aguinot, and the LMFA implementing team with its provincial coordinator, Ms. Sisavanh Sayoudom, has successfully initiated the operation of VCS in 12 villages in Muang Fuang—one of the four target districts within the Vientiane province. “This is the first batch of 12 VCS that LMFA will establish in the province, out of the target of 38 VCS in the province”, as cited by Ms. Pamouane Phetthany, LMFA's Executive Director.
The LMFA, in organizing the VCS, follows a well-standardized process with 15 defined stages developed within LAO/030 under the technical guidance of the programme’s Rural Finance Expert, Mr. Sommay Vilayphan. In addition, to ensure that there is a sustainability mechanism, a Network Support Organization (NSO) will be organized to bring together the VCSs and providing them with a framework in which to operate as well as technical support services.
The Local development programme for Bokeo, Bolikhamxay, Khammouane and Vientiane Province, LAO/030 is funded by the Luxembourg Cooperation and implemented by LuxDev.↑ To the top