Endnotes

¹ www.fao.org/countryprofiles/Maps/LAO/01/fs/index.html illustrates the farming systems boundaries used. The farming systems classification was developed by the Food and Agricultural Organization (FAO) for the World Bank as part of Dixon J., Gulliver A., and Gibbon D., 2001, "Global Farming Systems Study–Challenges and Priorities to 2030." This study identifies four farming systems for the Lao PDR: lowland rice (areas assigned to the Rural Mekong stratum in the Household Survey), Upland Intensive, Upland Extensive, and Sparse Forest (areas assigned to the Other Rural stratum in the Household Survey).

^1-1 No effort was made to determine if households were under the official Lao poverty line as the data collection necessary for this was beyond the scope of this study. However, the poverty rate in rural Lao PDR is 37.6% according to Lao Info Common Indicators Database System, National Statistics Center (the overall poverty rate in Lao PDR is 33.5%). Hence, as a rough approximation, all households in the poorest quartile, as well as about half of households in the second quartile, can be considered poor.

^1-2 The section draws on BOL, The Banking and Financial Sector of Lao PDR: Financial Sector Note, 15 July 2002.

^1-3 See Map 2 [ PDF 147.8KB | 1 pages ] for locations of semiformal sector projects.

² Where data on individual banks is considered confidential, the survey results are reported on aggregate.

^2-1 The seven SOCBs were (with year of creation in parentheses): Nakhornluang Bank (1988), Sethathirath Bank (1988), BCEL (1989), Lao May Bank (1990), Phaktai Bank (1990), Lanexang Bank (1991), and Arounmay Bank (1991).

^2-2 Chapters 5 and 6, which report the results of the household survey, present data on the rural coverage of various sources of financial services.

³ It is common for informal moneylenders not to want to be identified. Even where moneylenders are identified, they may have been reluctant to provide full information about their business. Accordingly, data from the moneylender survey can only be used to supplement data about household borrowing, and since the aggregate incidence of money lending is not necessarily indicated accurately by the survey (because of nondisclosure of moneylending activities), the overall scale of moneylending is best assessed from information collected in the household survey about sources of loans.

^3-1 Incomes include the value of household production consumed by the household itself.

^3-2 The status of APB–as a state-owned commercial bank (SOCB) or as a policy bank–was unclear after 1997. The wording of the revised decree and regulations indicated that they applied equally to APB (e.g, the revised decree included "agriculture promotion bank" in its definition of commercial banks). However, in practice, APB continued to be treated as a policy bank that was exempt from prudential regulations, and it was not supervised by BOL. Only in June 2005 did BOL clarify its status by issuing a directive notifying APB that it will be considered an SOCB and will be subject to the applicable regulations and supervision.

^3-2 In a pre-survey review of INGOs, Concern Worldwide and CUSO stated they were each managing one project with a microfinance component. Both organizations were invited to participate in the survey but did not respond.

⁴ Multilateral and bilateral development agency projects with microfinance components, international nongovernment organizations (INGOs), and microfinance institutions (MFIs) faced considerable difficulty in providing much of the information requested in the questionnaires. INGOs, in particular, had difficulty providing information on financial performance and loan portfolios in a form that allowed an analysis of financial performance.

^4-1 In the survey the average income reported by the second poorest quartile was KN7.80 million compared to the marginally higher average income reported for households in the poorest quartile of KN7.67 million. For the purpose of assigning households to the wealth quartiles, assets rather than income were used because assets represent the cumulative wealth position of the household, while income data applies only to the 12 months preceding the survey. While it is beyond the scope of this analysis to investigate this further, it is noted that there are differences in the pattern of primary activities between the poorest quartile and the second poorest quartile. The second poorest quartile is more dependent on other crops and handicrafts as primary sources of income, and less dependent on rice crop production and livestock production than the poorest quartile of households.

^4-2 Inflation as measured by the consumer price index was 12.6% between December 2002 and December 2003, implying real growth in banking assets of about 13.7%. See IMF. 2005. Lao People's Democratic Republic: Selected Issues and Statistical Appendix. January, p. 33.

^4-3 At the time of the survey, the establishment of three member-owned savings and credit unions (SCUs) with support from ADB was getting underway, but the SCUs had not opened for business and are not reported on here. Moreover, these three SCUs would fall outside the rural boundaries as defined in Chapter 1.

⁵ Within the limits of the survey budget and because of the confidentiality of records on individual bank customers, it was not possible to determine from bank records whether a borrower was "rural" as defined in this study, and therefore not possible to determine to which rural strata borrowers belonged. Instead, outreach of banks to rural areas (and to different wealth quartiles) must be inferred from the survey of 1,189 households, which is reported in Chapter 6.

^5-1 In the analysis that follows, each of the 16 cooperatives and components is treated as a separate microfinance initiative as each has considerable autonomy in determining its own products and prices. Hence, the number of observations for sustainable MFIs in the analysis is 16 and not 3.

⁶

⁷ At the request of BOL and some of the commercial banks, bank performance is reported here only in aggregate or by groups of banks to protect the confidentiality of data and performance specific to individual banks.

^7-1 In view of the amounts involved, three callbacks were made on FIAM during the survey period to request the missing information, but FIAM did not provide information on its loan portfolio or invested funds.

⁸ While APB did not result from the merger of other SOCBs, it inherited some agriculture loans that other SOCBs earlier made.

^8-1 See the next section for details of loans.

⁹ This includes 20,880 savers reported by FIAM.

¹⁰ In-kind disbursement may not be limited to a single commodity. "Multiple in-kind" refers to a combination of rice grain, other seeds and grain, buffalo, cow, pig, goat, poultry, or fertilizer.

¹¹ Lao Lux Development offers 7-year loans (84 months) for fruit trees. Other than this, the next longest loan term for multilateral and bilateral agencies is 60 months.

¹² The cost of microfinance is higher than the cost of bank lending for various reasons. Some administrative costs for making a loan are fixed, regardless of the size of the loan. If those costs were $ 10, then they would require an additional interest rate margin of 10% on a 12-month $ 100 loan, but only 1% on a $ 1,000 loan. Microfinance clients also tend to be more remotely located, and need MFIs to bring the services to them, adding additional transaction costs. Finally, microfinance clients tend to be poorer, with no documented credit history and unable to provide collateral, adding to the costs of screening out risky borrowers.

¹³ Consultative Group to Assist the Poor (CGAP). 2002. Making Sense of Microcredit Interest Rates. Donor Brief No. 6. September. (Emphasis in the original.)

¹⁴ Nonperforming loan (NPL) rates were not available from these microfinance initiatives, which were able to report only the amounts of the installments overdue, rather than the full amount of the loan overdue. As a percentage of total loans outstanding, installments overdue amounted to 3.59% for multilateral and bilateral components, 8.95% for INGO components, and 2.19% for MFIs.

¹⁵ The estimate for household borrowing from friends and family from rural households receiving loans in the same period is KN307.09 billion ($28.91 million). This suggests that an estimated KN100.24 billion ($9.4 million) was being lent by rural households to friends and family in nonrural households.

¹⁶ The percentage of the number of loans overdue based on borrower reporting was 2.35%, suggesting underreporting of overdue loans by borrowers.

¹⁷ E.g., Rutherford, Stuart. 2000. The Poor and Their Money. New Delhi: Oxford University Press; and Robinson, Marguerite. 2001. Savings and the New Microfinance, in The Microfinance Revolution. World Bank. Washington, DC. This section also draws on CGAP. 2002. Savings Are As Important As Credit: Deposit Services For the Poor. Donor Brief No. 4. June.

¹⁸ "Cash" means cash in bank or other formal or semiformal financial institution or cash in hand.

¹⁹ Rotating savings and credit associations, known in the Lao PDR as houay are commonly observed throughout the world, primarily but not exclusively in less developed countries. In a houay, members make a regular contribution to a fund, which is withdrawn for use by one member. For example, 12 members may contribute KN100,000 each month, with one of these members withdrawing this money (KN1.2 million) for use. Members who withdraw money early in a houay cycle are effectively net borrowers, while members who withdraw money late in the cycle are effectively net savers. Many variations of this basic model exist, including bidding on the fund and gradually increasing the amount paid into the fund during the cycle to ensure that savers receive a positive rate of return.

²⁰ See Chapter 3 for further details of the supply of formal sector financial services.

²¹ Some figures are conflicting. The UNDP/UNCDF survey in 1996 reported 1,650 village credit associations established in Lao PDR, often with the assistance of international donors and/or LWU. In the present survey, international donors reported that they helped establish additional village-based schemes in 580 villages. So, at a minimum, it would appear that some 2,230 schemes have been created, though it is unclear how many are still operating. Moreover, not all are VSCGs (which accept deposits)–many are less sustainable village revolving funds (VRFs) that do not accept deposits and have been frequently decapitalizaed. See Chapter 4 for a more detailed discussion of the supply of financial services by semiformal institutions.

²² This introduction draws on B. E. Coleman, "The Impact of Group Lending in Northeast Thailand," Journal of Development Economics, October 1999.

²³ Further analysis, broken down by ethnic group, would presumably indicate greater access by men in patriarchal ethnic groups, but this analysis has not been done on the current data set.

²⁴ It should be noted that the stated purpose of a loan may be different from the actual impact of the loan. For example, a household might state that it is borrowing to finance a marriage and might indeed use its loan to pay for the marriage. However, without the loan, the household might sell a water buffalo to finance the marriage. Hence, the impact of the loan would be to prevent the sale of a water buffalo, rather than to finance the marriage, which would have been financed even without the loan. For a fuller discussion of the difficulties and methodology of measuring impact, see B. E. Coleman, "The Impact of Group Lending in Northeast Thailand," Journal of Development Economics, October 1999.

²⁵ This is not to ignore the important increases in productivity that can be obtained through improved health, education, housing, etc. Rather, it is to emphasize the number of loans that are not invested directly in production activities.

²⁶ These data are only for borrowing households to the sources of their own loans. The data do not include distances of non-borrowing households to the various potential sources of loans.

²⁷ This is not to say that prudent lending decisions would necessarily satisfy the entire difference between actual and unmet demand for borrowing. On the other hand, the poor have, time and time again, in the Lao PDR and other countries, demonstrated high repayment rates when loans are structured to meet their needs and when cost-saving measures are introduced to reduce the higher transaction costs of serving the poor. In the Lao PDR, nonperforming loan rates of sustainable MFIs, which target the poor, are considerably lower than NPLs in the stateowned commercial banks. The data presented here, therefore, merely suggest the degree to which the current system is failing to serve the needs of the poor.

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