Chapter 6: Household Borrowing

One cause of poverty in less developed countries is the lack of access to credit, especially among rural households. The poor often find themselves in a vicious cycle: producing at a subsistence level makes it difficult to accumulate savings or other assets, thus making it difficult either to invest any surplus or to gain access to credit in formal financial markets, which leads to low productivity and continued poverty.

In many less developed countries, local moneylenders are a principal source of credit to rural households. However, moneylenders often charge annual interest rates of more than 100%. Given that interest rates in most formal credit markets are in the range of 10–24%, many potentially profitable projects are not undertaken in rural areas of less developed countries. Hence, finding ways to reduce delivery costs to provide sustainable credit to the poor should lead to increases in income and equity.

Commercial banks generally do not cater to the needs of the rural poor. The projects that most rural poor would undertake are small scale, requiring small loans. Therefore, the costs of obtaining the information necessary to select borrowers, evaluate their creditworthiness, monitor the use of the loans, and enforce repayment outweigh the potential profits to most lending institutions. Hence, government-led efforts to deliver formal credit to rural areas have often included setting up special agricultural banks to lend to rural borrowers. This has also been the case in the Lao PDR. However, such efforts have generally failed because such banks typically fail to enforce repayment of loans, and because subsidized interest rates and incentives to maximize the amount loaned have resulted in lending primarily to the relatively wealthy and politically connected, rather than to the poor. ²²

This chapter examines household borrowing in the Lao PDR, by lending source, by loan purpose, by strata, and by wealth quartile. It also examines household preferences for lending sources and for loan characteristics, and estimates unsatisfied demand for credit.

Household Borrowing

As noted in Chapter 3, the Lao financial sector (as is the case in the financial sectors of most developing countries) can be divided into the formal sector, semiformal sector, and informal sector. Generally speaking, loans from the formal sector tend to be larger and carry lower interest rates, while semiformal and informal loans will be smaller and often carry higher interest rates, though there may be individual exceptions (e.g., loans between family members and friends may be interest free). It is typically a goal of financial sector development to expand the outreach of the formal sector as much as feasible.

Table 6.1 [ PDF 60.6KB | 1 pages ] shows comparisons between households that borrowed in the formal and informal sectors. The table highlights:

• 35.89% of financial managers who borrowed in the formal sector had a secondary education or higher, compared to 30.00% who borrowed in the semiformal sector and 24.29% who borrowed in the informal sector–i.e., higher education level is correlated with greater access to formal sector loans;
• households who borrowed in the formal sector were slightly more likely to be engaged in industry or services as their primary activity than households who borrowed in the semiformal and informal sectors;
• conversely, households who borrowed in the semiformal and informal sectors were more likely to be engaged in agriculture as their primary activity, although even 66.67% of formal sector borrowers also engage in agriculture as their primary activity; and
• households that borrowed in the formal sector had average assets of KN105.42 million, about three times as much as households borrowing in the semiformal and informal sectors.

These findings indicate that the formal financial sector tends to favor relatively wealthy households, while poorer households are more dependent on the informal sector.

Overall, about 40% of all rural households had borrowed in the 12 months before the survey, including 41.0% of all households with male financial managers and 37.2% of all households with female financial managers. Among borrowing households, 9.4% of households with female financial managers accessed formal sector borrowing compared to 6.0% of the households with male financial managers. At the same time, 35% of households with male financial managers and 27.9% of households with female financial managers borrowed in the informal sector. Hence, contrary to the experience in many other countries, households with female financial managers (40% of all surveyed households) in the Lao PDR tend to have slightly greater access to the formal financial sector than households with male financial managers. This should not be unexpected, however, given the matriarchal tradition among the Lao Loum ethnic group, the most populous in the country.²³

Volume and Source of Borrowing

Table 6.2 [ PDF 58.3KB | 1 pages ] and Figure 6.1 [ PDF 58.3KB | 1 pages ] illustrate the total estimated number of households borrowing from formal, semiformal, and informal sources for rural households during the 12 months preceding the survey.

Overall, 40% of rural households borrowed in the 12 months before the survey. The formal sector made loans to less than 3% of rural households, while the semiformal sector reached 4% of rural households. In contrast, informal sources made loans to 33% of rural households. The poorest two quartiles relied on informal sources markedly more than the richest two quartiles; while the richest two quartiles had greater access to formal sources.

Table 6.3 [ PDF 56.1KB | 1 pages ] shows that, extrapolating from the survey sample to the population, rural households had borrowed an estimated KN636.82 billion ($59.95 million) in the 12 months preceding the survey.

Borrowing from family and friends was the most common. Some 25.05% of households borrowed from friends or family in the preceding 12 months, in an amount equal to KN307 billion when extrapolating to the rural population of the Lao PDR. The average original loan size was KN1.38 million ($130). Friends and family accounted for 48.22% of loans by value.

Supplier credit was the next common means of financing, with loans taken by 6.14% of households, with estimated overall borrowing in the previous 12 months being KN134.81 billion. The average original loan size from suppliers was KN3.76 million ($354).

The third most common means of financing, in terms of the number of households borrowing, was VRFs. An estimated 19,812 or 2.18% of rural households borrowed from VRFs in the 12 months preceding the survey. The average original loan size was KN612,000 (about $58).

APB was the fourth most common means of financing, reaching an estimated 18,267 rural households, or 2.01% of all rural households in the 12 months preceding the survey. It is noteworthy that APB reports about 87,000 total borrowers in the Lao PDR. The survey findings indicate that only about 18,267 of these borrowers (or about 21% of all APB borrowers) are located in rural areas, suggesting that APB lends predominantly to urban households despite its rural mandate. This is also consistent with APB's lending records, which indicate that the large urban areas of Vientiane, Savannakhet, Pakse, and Luang Prabang absorb the vast majority of its lending. Average loan size for APB's rural borrowers was KN2.65 million ($249).

Moneylenders provided loans to an estimated 16,994 households (1.87% of rural households) in the 12 months preceding the survey, with an average loan size of KN1.61 million ($152), while VSCGs catered to an estimated 14,177 households with smaller loans averaging KN0.25 million ($24).

For an estimated 8,633 rural households (less than 1%), other commercial banks provided larger loans averaging KN11.9 million ($1,120). No households reported borrowing both from APB and from another commercial bank, implying that 26,900, or only 2.96%, of rural households borrowed from a formal bank during the 12 months preceding the survey.

Houays, SCUs, and other sources of credit all accounted for small numbers of borrowers. Houays, provided larger loans, averaging an estimated KN10.0 million ($941).

Figure 6.2 [ PDF 56.1KB | 1 pages ] compares sources of borrowing for the rural population as whole with sources for the poorest and richest quartiles.

Overall 30.3% of households in the richest quartile had borrowed from some source, compared to 43.1% of the households in the poorest quartile. While borrowing from friends and family was the most common means of borrowing, 28.4% of the households in the poorest quartile borrowed from this source, but only 15.2% of households in the richest quartile did so. Higher percentages of households in the poorest quartile also borrowed from suppliers, moneylenders, and VSCGs.

However, a higher percentage of the households in the richest quartile than in the poorest quartile borrowed from APB and other banks, indicating that the outreach of these formal sources is more often to the richest than the poorest. Specifically, 5.5% of households in the richest quartile borrowed from a bank, while only 1.9% of households in the poorest quartile did so. and despite APB's mandate to provide subsidized loans to the poor, its richest-quartile clients outnumbered its poorest-quartile clients by more than 3 to 1. However, outreach of APB and other banks was extremely low to all rural households and all quartiles.

Table 6.4 [ PDF 60.9KB | 1 pages ] shows average household borrowing by source in the 12 months preceding the survey by stratum and wealth quartile.

The table illustrates the marked differences between Peri-Urban households with average borrowing of KN1.71 million ($161) and other households on average, being: 1.60 times the average borrowings of Provincial Capital households; 5.12 times the average borrowings of Rural Mekong households; and 3.41 times the average borrowings of Other Rural households. The difference comes almost entirely from borrowing from friends and family. Households in the Provincial Capital stratum also borrow markedly more than all other households from both APB and other banks.

The variations are more marked when borrowings are examined by wealth group, and these differences are brought out in Figure 6.3, which compares the richest and poorest quartiles. Households in the poorest quartile borrowed just KN126,620 ($12) on average, compared to the richest quartile which borrowed KN2.15 million ($202) on average (some 17 times as much as the poorest households). In terms of access to the formal sector, households in the richest quartile borrowed 33.6 times as much as households in the poorest quartile from banks. This included 12.6 times as much from APB.

Figure 6.4 [ PDF 70.7KB | 1 pages ] shows the composition of total borrowing by value in the 12 months preceding the survey for rural households as a whole and for the richest and poorest quartiles. The figure shows the greater access of the richest formal sources is more often to the richest than the poorest. Specifically, 5.5% of households in the richest quartile borrowed from a bank, while only 1.9% of households in the poorest quartile did so. and despite APB's mandate to provide subsidized loans to the poor, its richest-quartile clients outnumbered its poorest-quartile clients by more than 3 to 1. However, outreach of APB and other banks was extremely low to all rural households and all quartiles.

Table 6.4 [ PDF 60.9KB | 1 pages ] shows average household borrowing by source in the 12 months preceding the survey by stratum and wealth quartile.

The table illustrates the marked differences between Peri-Urban households with average borrowing of KN1.71 million ($161) and other households on average, being: 1.60 times the average borrowings of Provincial Capital households; 5.12 times the average borrowings of Rural Mekong households; and 3.41 times the average borrowings of Other Rural households. The difference comes almost entirely from borrowing from friends and family. Households in the Provincial Capital stratum also borrow markedly more than all other households from both APB and other banks.

The variations are more marked when borrowings are examined by wealth group, and these differences are brought out in Figure 6.3 [ PDF 70.7KB | 1 pages ], which compares the richest and poorest quartiles. Households in the poorest quartile borrowed just KN126,620 ($12) on average, compared to the richest quartile which borrowed KN2.15 million ($202) on average (some 17 times as much as the poorest households). In terms of access to the formal sector, households in the richest quartile borrowed 33.6 times as much as households in the poorest quartile from banks. This included 12.6 times as much from APB.

Figure 6.4 shows the composition of total borrowing by value in the 12 months preceding the survey for rural households as a whole and for the richest and poorest quartiles. The figure shows the greater access of the richest quartile to the banks and supplier credit in particular as a percentage of their overall borrowing, and the greater reliance of the poorest households on family and friends.

Figure 6.5 [ PDF 67.6KB | 1 pages ] shows that overall, the richest quartile accounted for 76.6% of the borrowing by value in the 12 months preceding the survey. It also shows that 77.7% of the borrowing from APB by value was by households in the richest quartile. This further evidences that APB lending is not specially oriented to the poorest households, and that the richest quartile of households are APB's main clients in value terms.

Preferences for Lending Sources

Table 6.5 [ PDF 67.6KB | 1 pages ] shows the preferences of rural households for different sources of loans. Specifically, households were asked, "If your household needed a loan, please indicate the first three sources of finance you would approach in order of preference." In the survey, 94.63% of households expressed a first preference for a borrowing source, 55.77% expressed a second preference, and 21.83% expressed a third preference; 5.37% expressed no preference.

Overall, 57.22% of households said borrowing from family and friends was their first preference; 74.88% said borrowing from family or friends was either their first, second, or third preference.

Next in order of first preference, 18.94% of rural households expressed a first preference for APB as a source of loans, and 36.16% expressed some preference for this. This compared to only 5.78% that expressed a first preference for borrowing from another bank and smaller percentages that expressed a first preference for other sources. It will be recalled, from Table 6.3, that only 2% of rural households actually borrowed from APB in the 12 months before the survey. Hence, despite this limited outreach, a large number of households (36.16%) expressed some preference for borrowing from APB. There is clearly a significant untapped market for APB, and perhaps for other lenders.

Table 6.6 [ PDF 75.6KB | 1 pages ] shows rural households' borrowing first preferences by stratum and wealth quartile. Figure 6.6 [ PDF 75.6KB | 1 pages ] illustrates these first preferences for rural households as a whole and for the poorest and richest quartiles.

Across strata and wealth quartiles, preferences are dominated by (i) friends and family, (ii) APB, and (iii) other commercial banks. Each other source of loans was firstpreferred by less than 4% of households. The results indicate that the richer the household, on average, the greater the preference for borrowing from APB and other banks. In contrast, the poorer the household, on average, the greater preference for borrowing from family and friends. While 13.01% of the poorest quartile of rural households expressed a first preference for borrowing from APB and 1.72% had a first preference for other commercial banks as a source of loans, 24.99% of the richest quartile of rural households expressed a first preference for APB and 10.82% a first preference for other commercial banks. In contrast, while 66.77% of the poorest quartile households had a first preference to borrow from family and friends, only 47.75% of the richest quartile of households expressed this preference.

No strong pattern emerges from analyzing the stratum results. However, it is noteworthy, given APB's mandate for channelling policy loans to rice farmers in the Rural Mekong region, that Rural Mekong households expressed less preference for APB (15.02%) than the other strata, and expressed a greater preference for friends and family (69.67%) than the other strata.

Borrowing Characteristic Preferences

In the survey, rural households were asked to state what the important characteristics were for them when choosing where to apply for a loan. (Households were not asked to rank characteristics or express them in any order of preference).

Table 6.7 [ PDF 67.8KB | 1 pages ] and Figure 6.7 [ PDF 78.2KB | 1 pages ] show the characteristics that rural households considered important in choosing where to apply for a loan.

Consistently across all wealth quartiles, confidence that a loan would be made was the most frequently cited important characteristic–households want to be sure of being able to access the loan. Almost 60% of households regarded this as an important factor in choosing where to apply for a loan. In all wealth groups, this was more frequently cited as important than the interest rate. Households in the poorest quartile named this characteristic almost twice as frequently as the interest rate (52.89% to 27.64%), indicating that confidence about receiving a loan (i.e., access to the loan) is markedly more important than price for them. By contrast, while the richest quartile stated even more frequently than the poor that confidence that a loan will be made is important when choosing where to apply for a loan (65.11%), they cited the interest rate almost as often (50%). These results for the Lao PDR are consistent with results in other countries: the poor are more concerned with sustained access to financial services than they are with low interest rates.

For the poorest quartile of rural households, convenience in terms of a short journey to the source of the loan was almost as important as price (24.35% of the poorest quartile citing this as an important factor compared to 27.64% who said the interest rate was an important factor in their choice). For the richest quartile, 50% of households cited interest rates as being an important factor compared to only 26.68% who cited a short journey to the loan provider as being important.

The availability of long-term loans, low collateral requirements, and simple loan procedures were the next most important factors across all households. While longterm loan availability was the fourth most frequently cited important characteristic when determining where to apply for a loan, it is noteworthy that only 22.32% cited this. Hence, 77.68% did not consider this important. A considerable amount of policy lending by the Government, as well as donor credit lines (including those from ADB), has been justified by the perception that there is a high demand for long-term loans. The evidence of this survey indicates that such policies may be misguided.

For the poorest quartile of households, flexible repayment terms were more frequently cited as important than for the richest quartile, while for the richest quartile simple procedures and friendly service were more frequently cited as important than for the poorest quartile, but still less important than other factors.

Loan Purpose

Table 6.8 [ PDF 60.3KB | 1 pages ] presents the estimated total borrowing by rural households (extrapolated to the entire rural population) in the 12 months prior to the survey, broken down by loan purpose, strata, and quartile. Table 6.9 does the same for the total number of loans borrowed by rural households. ²⁴

Table 6.8 [ PDF 60.3KB | 1 pages ] indicates that, for all rural households combined, borrowing is concentrated in the transport, services, and trade businesses, as well as livestock, rice production, and medicine and health care. Virtually all borrowing for service businesses takes place in Peri-Urban areas (99.3%); and virtually all is borrowed by households in the richest quartile (99.5%). While borrowing for trade is more equally distributed across strata, it is also concentrated in the richest quartile, who borrow 90.6% of such lending. Similarly, borrowing for transport businesses is concentrated in Peri-Urban households (67.3%) and households in the richest quartile (91.7%).

Table 6.8 [ PDF 60.3KB | 1 pages ] also indicates the dominance of borrowing for rice production in Provincial Capital and Rural Mekong households, which together comprise 81% of such borrowing. Again, however, such borrowing is concentrated in the richest quartile, which borrowed 63% of total lending for rice production. Borrowing for livestock production is clearly concentrated in Other Rural households, which borrowed 96.7% of such lending; again, the richest quartile account for most of this, borrowing 95% of total lending for livestock.

Finally, Table 6.8 [ PDF 60.3KB | 1 pages ] points to the importance of loans for health and medical purposes in Other Rural areas, and in the three poorer quartiles, which together borrowed 95% of such lending. Households in the poorest quartile borrowed over five times as much as households in the richest quartile for health and medicines, and this accounted for 34.9% by value of poorest quartile households borrowings, compared to 0.4% by value of the borrowings of the households in the richest quartile. Domestic consumption goods accounted for 9.5% of the borrowing by value of households in the poorest quartile, compared to 0.8% of borrowing for richest quartile households. The importance of credit for nonproductive purposes by the poorest households is demonstrated by this pattern.

Table 6.9 [ PDF 68.3KB | 1 pages ] (showing the number of loans borrowed) confirms many of the findings from Table 6.8 (showing the amount borrowed). But it also brings out in stark relief the large number of loans borrowed for health and medical care. This loan purpose alone makes up 26.7% of all loans borrowed. The average size of these loans was KN370,000 ($34). Borrowing for medicine and health care was concentrated in the more remote Other Rural and Rural Mekong strata, as well as in the three poorer quartiles–they made up 36.4% of all loans borrowed by the poorest quartile, while they comprised only 6% of loans borrowed by the richest quartile.

A further 14.93% of all loans, with an average size of KN0.28 million ($26), were for domestic consumption goods. These were concentrated in the Other Rural stratum (53.6% of such loans) and in the two poorest quartiles (combined, 79.8% of such loans).

Overall, an estimated 308,884 loans or just over 72% of all loans were for nonproductive purposes (house construction, domestic consumption goods, health and medicines, education, marriage, funereal or other purposes) ²⁵ at an average size of KN990,000 ($93), evidencing the very substantial demand for the type of lending that can often be delivered through MFIs more effectively than through the formal banking system.

Borrowing and Repaying In Cash and Kind / Loan and Collateral Agreements / Loan Terms

Table 6.10 [ PDF 36.1KB | 1 pages ] summarizes some key facts about household borrowing. The table highlights:

• 81.34% of loans by value and 79.53% of loans by number were taken in cash; 18.66% by value and 20.47% by number were taken in kind;
• Provincial Capital households borrowed markedly more (45.67%) in-kind than households in other strata;
• households in the two poorest quartiles tended to borrow and repay in kind more than households in the two richest quartiles;
• only 22.81% of loans had written loan agreements and only 9.87% had written collateral agreements;
• written loan agreements and collateral agreements were most common in Provincial Capital households and least common in Rural Mekong households; and they were most common for households in the richest quartile, reflecting these households' greater access to the formal sector; and
• the average loan term is around 6 months, but some loans of up to 4- and 5 year-duration were found in households outside Peri-Urban areas.

Interest Rates

Table 6.11 [ PDF 36.1KB | 1 pages ] shows the distribution of effective annual interest rates paid by rural households on their loans. About half of all loans (50.71%) had zero interest–the vast majority of these came from family and friends. At the same time, 23.75% of loans had effective interest rates of more than 100% per year, and 13.50% had effective rates in excess of 200% per year. In other words, the vast majority of loans were either at zero interest or at extremely high interest–only a small minority fell in the mid range.

This illustrates clearly that any preoccupation with continuing to deliver subsidized credit through the formal sector in the Lao PDR is misguided. In a sustainable microfinance sector, effective interest rates are likely to be between 30% and 50%. Although this is higher than, for example, the administratively influenced rates of APB and other commercial banks, it is well below the average effective rates currently faced by many borrowers in rural the Lao PDR.

Figures 6.8 [ PDF 88.6KB | 1 pages ] and Figures 6.9 [ PDF 92.5KB | 1 pages ] illustrate the differences in the distribution of interest rates on loans to all rural households, and the richest and poorest quartiles, by number of loans and percentage of loans respectively. The figures show that although the poorest quartile of households benefit from a higher number and percentage of interest-free loans (53.7% of their loans compared to 26% of loans borrowed by the richest quartile and 50.7% of loans borrowed by the population as a whole), they are much less able to access interest-bearing loans at the rates prevailing in the commercial banking sector or typical of microfinance (in the region of 20–60% per year). More specifically, only 8.9% of the interest-bearing loans received by the poorest quartile of households were at less than 60% interest per year, while 42.6% of the interest-bearing loans received by the richest quartile were at less than 60% per year. In contrast, 37.5% of interest-bearing loans received by the poorest quartile of households were at interest rates of over 60%, compared to 31.3% of such loans for the richest quartile of households. Moreover, in sheer numbers, the poorest quartile borrowed at high interest more than twice as frequently as the richest quartile. It is estimated that, nationwide, the poorest rural households borrowed 22,485 loans at interest rates over 100%, while the richest rural households borrowed 10,698 loans at these interest rates. Clearly, delivering sustainable, marketoriented credit to the poor through MFIs and APB could make a significant contribution to the well-being of the poor.

Physical Proximity to Credit Sources

Table 6.12 and Figure 6.10 [ PDF 53KB | 1 pages ] show the average distances that borrowing households reported they had to travel to the sources of their loans.²⁶

The data shows the "grassroots" level of the semiformal sector and informal moneylenders and houays compared to the more urban locations of formal banks. Distances of borrowers to their informal and semiformal sources, especially in the more remote Rural Mekong and Other Rural Strata, are considerably less than distances of borrowers to formal sources. In contrast, distances for rural borrowers to their formal sector sources are relatively high reflecting the location of APB and other commercial bank branches in urban areas. The data also illustrate the greater proximity of APB and other commercial banks to rural households in the Provincial Capital and Rural Mekong areas compared to Other Rural areas. (It should be recalled that Peri-Urban households, by definition, are located in the area outside the municipal boundaries, but within 25 km of the urban center. Hence, they inevitably have to travel some distance to the nearest branches that are located in the urban centers).

Similarly, the poor (who depend much more on informal sources than formal sources) are on average much closer than the relatively rich to their informal and semi-formal sources of loans.

Important policy conclusions derive from these results. The poor typically have less mobility than the relatively wealthy, both because they have less to spend on transportation and because of lower transportation infrastructure in poor, remote areas. Accordingly, financial services need to be taken to the poor. In the Lao PDR, policy makers have focused on two means of doing this: APB, through its mobile credit officers, and village level organizations. The data shows that APB is failing in extending its catchment area through mobile credit officers - it is only serving areas slightly larger than ordinary commercial banks, and in so doing, it is primarily reaching rural households in the richer quartiles and urban households.

The data also reflect the paucity of outreach of sustainable microfinance institutions, which typically work at more of a grassroots level and practice mobile banking that reaches more villages. These results should encourage policies to develop sustainable MFIs operating at the village level.

Unsatisfied Loan Demand

Table 6.13 [ PDF 71.3KB | 1 pages ] and Figure 6.11 [ PDF 69.7KB | 1 pages ] show the estimated unsatisfied loan demand of rural households by stratum, quartile, and loan purpose. Specifically, each survey household was asked, "Was your household unable to carry out planned activities in the last 12 months because it could not borrow sufficient funds?" If a household answered "yes" then it was asked to specify the amounts and purposes of loans that it was unable to obtain.

The results show the considerable unsatisfied demand for credit among rural households. Overall, unsatisfied demand equals KN4,341 billion for all rural households, which is 6.7 times the amount actually borrowed over the 12 months before the survey. This difference between actual borrowing and unsatisfied demand is most pronounced among households in the poorest quartile–unsatisfied demand is 39 times as large as actual borrowing. In contrast, for households in the richest quartile, unsatisfied demand is only 3.93 times as large as actual borrowing. Currently, the Lao rural finance system is clearly failing to satisfy the demand for credit from poorest households. ²⁷

Table 6.13 [ PDF 71.3KB | 1 pages ] shows that the highest unmet demand is for livestock loans, which account for 23.5% of total unsatisfied demand; Other Rural households account for 73% of this unmet demand. This is followed closely by unsatisfied demand for non-income generating activities (e.g., education, medicine and heath care, marriage and funeral ceremonies, domestic consumption), which accounts for 22.9% of unsatisfied demand; the poorest quartile accounts for 45% of this. The third highest unsatisfied demand is for "other crop production" (i.e., non-rice crops), which comprises 15.3% of all unmet demand; the richest quartile accounts for 90% of this. High unsatisfied demand (exceeding KN140 billion) also exists for trade, rice production, house construction, transport business, and services business.

Geographically, the largest unmet demand is in the remote Other Rural households, with unsatisfied borrowing of KN2,250 billion. This accounts for 52% of all unmet demand in the country and is likely a result of the low level of outreach in the more remote areas. Relative to actual borrowing, Provincial Capital households and Other Rural households are the most underserved–with unmet demand exceeding actual borrowing by factors of 15.76 and 11.43, respectively. This contrasts with Provincial Capital households, whose unmet demand is only 2.28 times their actual borrowing.

In Peri-Urban areas the highest demand (after nonincome generating purposes) is for trade. In Provincial Capital areas the demand for loans for non-rice crop production is the highest and comprises 79% of such demand. In the Rural Mekong and Other Rural areas, demand for livestock loans is highest.

The conclusion is clear: there is a huge unsatisfied demand for loans by rural households, covering a wide range of production opportunities and nonproduction needs.

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