ESTABLISHING THE CREDIT GUARANTEE FUND –IMPROVING FINANCIAL INCLUSION IN LAOS

In Laos, we are currently establishing a Credit Guarantee Scheme that offers loan guarantees to participating partner financial institutions (PFIs). The PFIs in turn will give access to finance to privately-owned MSMEs.

In the Lao PDR, micro, small and medium-sized enterprises (MSMEs) account for about 99% of all registered firms and employ over 80% of Laotian workforce. Despite their importance for the socio-economic development of the country, they contribute less than 20% to the national GDP. In addition, the breakout of the Covid-19 pandemic and the following lockdowns have negatively hit the MSME sector, especially in the country’s dominant sectors – tourism and manufacturing.

One of the main reasons preventing MSMEs to advance is the lack of access to finance, which is mainly due to missing collateral. The Lao financial sector does currently not provide enough capital to MSMEs, which hinders them from growing and recovering from the economic pandemic consequences.

Against this background, the Department of SME Promotion (DoSMEP) within the Ministry of Industry and Commerce, together with the World Bank supports privately owned MSMEs by providing loan guarantees. They set up the project to establish a Credit Guarantee Fund. The fund offers loan guarantees to participating partner financial institutions (PFIs). The PFIs will then enhance access to finance for MSMEs. Thereby, they contribute to overcome the negative effects of the pandemic. The guarantees are only to be issued if the bank would otherwise not provide a loan. Thus, MSMEs, which had formerly been excluded due to the lack of accepted collateral, will gain credits nowadays through the credit scheme.

Jointly with the colleagues from DoSMEP, our team of experts will firstly draft the business plan for the scheme, and then establish and operationalise the Credit Guarantee Fund. The project has started in February 2023 and will run until June 2025.

In addition to the Credit Guarantee Scheme, AFC is furthermore in charge of the following three international projects in Laos:

• KfW-supported Lao Access to Finance fund (LAFF);

• ADB financed-project on matching grants and climate friendly agribusinesses; and

• World Bank-project providing Technical Assistance to PFIs

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