Chapter 1: Introduction-The Rural and Microfinance Survey

The Government of the Lao People's Democratic Republic (Lao PDR) has committed to carrying out a major reform program in rural and microfinance consistent with the Policy Statement on Sustainable Rural and Microfinance, which the Prime Minister's Office issued in late 2003. This program includes: (i) restructuring the Agriculture Promotion Bank (APB) to be a financially self-sustainable, market-oriented rural finance institution; (ii) adopting and implementing an appropriate regulatory framework for prudential supervision of APB; (iii) preparing an enabling legal and regulatory framework for a diversity of microfinance institution (MFI) models with minimum starting regulations, interest rate autonomy, and private and foreign investment; and (iv) actively promoting the creation of best-practice MFIs that are private, autonomous, professionally managed, and financially self-sustainable.

Prior to the present study, the most recent national survey of rural and microfinance had been conducted in 1996 with support from the United Nations Development Programme (UNDP). Results of this survey are still widely quoted as representing the situation and outreach of rural and microfinance in the Lao PDR. However, the data from this survey are now outdated and therefore not appropriate as a basis either to inform national policy formulation or project design. They do not present an accurate picture of current outreach by APB, MFIs, international nongovernment organizations (INGOs), Lao Women's Union (LWU), or other development projects with microfinance components. Nor do they present an accurate picture of the characteristics, including poverty level, of the typical client. Hence, the degree to which existing programs are reaching the poor or various rural strata and therefore contributing to poverty reduction is not clearly known. Similarly, the sources and terms of finance for different strata of households are not clear. Moreover, the perception of potential clients regarding the financial services that they demand and their willingness to pay for such services is not well understood. Now that the Government has committed to a major reform program in rural and microfinance, it also wishes to monitor development of the sector to assess the impact of reform and to make adjustments as necessary. For these reasons, it was timely for the 1996 data to be updated through a new survey of rural and microfinance in the Lao PDR. It is hoped that the survey results will inform policy decisions and the design of microfinance initiatives, as well as provide a baseline from which the Government can assess the effectiveness of its reform program.

Survey Components and Design

The work that follows is based on a survey carried out in early 2004. The overall approach had two distinct components that required different survey designs and techniques.

First, a Household Survey gathered information on the household economy, financial management, assets and liabilities, and attitudes. This survey utilized a random sample of households in rural and semi-rural areas of the Lao PDR.

Second, a Rural Financial Services Survey was carried out with banks, multilateral and bilateral development agencies, INGOs and MFIs to capture information about the services provided, the outreach of services, and the terms of savings and credit offered.

A survey of moneylenders was undertaken to supplement this data, and was carried out in conjunction with the Household Survey.

The Household Survey

The Household Survey used four geographical areas to stratify villages. For rural areas that were not close to urban centers, villages were assigned to strata using farming systems delineations for the Lao PDR developed by the United Nations Food and Agricultural Organization (FAO).Map 1 [ PDF 134.1KB | 1 pages ] illustrates the villages selected.

The strata used were:

• "Peri-urban" (areas within 25 kilometers (km) of, but outside, the country's four largest urban areas of Vientiane, Savannakhet, Luang Prabang, and Pakse);
• "Provincial Capital" (areas within 10 km of, but outside, the other provincial capital towns);
• "Rural Mekong" (areas with lowland rice farming systems, which do not fall within the Peri-urban or Provincial Capital strata areas); and
• "Other Rural" (areas using upland intensive and extensive systems, which do not fall within the Peri-urban or Provincial Capital strata).

These strata mirror those used in the 1996 UNDPfinanced survey, and are based on the a priori assumption that the range and scale of economic activity are different in these different areas. It was expected that, while economic activity would be centered on agriculture in the Rural Mekong and Other Rural strata, there would be more nonagricultural diversity in the areas just outside provincial capitals and the major cities.

The sampling process involved classifying all villages in the Lao PDR into their strata according to their geographical location and the subsequent random selection of a predetermined number of villages within each stratum: 17 villages in each of the Peri-urban and Provincial Capital strata and 25 villages for each of the Rural Mekong and Other Rural strata. There was no intermediate stratification by district or province. In each village, a random sample of 20 households was drawn using the most recent census data. The survey covered 1,189 households, being on average 14.15 households in each of the 84 villages surveyed. In total, there were 226 observations for the Peri-urban stratum, 256 observations for the Provincial Capital stratum, 333 observations for the Rural Mekong stratum, and 374 observations for the Other Rural stratum. Table 1.1 [ PDF 68.3KB | 1 pages ] presents data on the sample.

The Household Survey questionnaire collected information on the following topics:

• household demographics;
• household financial manager;
• household economic activities;
• household assets;
• household liabilities; and
• attitudes and opinions to financial services.

To enhance the survey results, the analysis was also carried out by wealth quartile. To assign households to wealth quartiles for each household in the sample the probability that each household was sampled was calculated. The inverse of this probability was calculated to give the number of households that a sampled household represents in the population. Households were then sorted by wealth. Starting from the poorest household in ascending order of wealth, households in the survey were assigned to the poorest quartile until the cumulative number of households represented reached 25% of the total population. The process was continued in ascending order of wealth to assign households to the remaining three quartiles. The result was 291 survey observations for the poorest quartile, 290 observations for the second poorest quartile, 287 observations for the third poorest quartile, and 321 observations for the richest quartile.

The Rural Financial Services Survey

The Rural Financial Services Survey sought 100% coverage for the state-owned and private commercial banks operating in the Lao PDR. Every bank was interviewed. The Bank of Lao PDR (BOL) provided supplementary data. ²

For multilateral and bilateral development agencies, INGOs, and MFIs, an initial telephone survey was carried out to establish which semiformal agents were active in rural and microfinance in the Lao PDR. Of the 25 semiformal agents that said they were active, a 100% coverage survey was then attempted. Six multilateral and bilateral development agencies, 14 INGOs, and 3 MFIs (a total of 23 organizations) responded to the survey.

A small sample survey of informal moneylenders was undertaken in conjunction with the Household Survey. In each village, the village head was asked to identify informal moneylenders, if any, in each sample village. Every informal moneylender identified was interviewed, if possible. ³ A total of 17 moneylenders were interviewed.

Separate questionnaires were designed for banks; multilateral and bilateral development agencies, INGO, and MFI projects; and informal moneylenders. In general, the questionnaires collected similar information including the following:

• general information on the credit supplier, including the outreach of the institution;
• lending activities and loan portfolios; and
• savings services.

Survey Implementation

The Household Survey was carried out in January and February 2004. The survey of banks was carried out in November 2003 and was supplemented with data from BOL in February 2004. The survey of multilateral and bilateral development agencies, INGOs, and MFIs was carried out intermittently between January and June 2004. ⁴

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