“I would like to open a small shop to earn more money” says Kaum, “but nobody wants to give me a loan.” She informs me that her home does not qualify as collateral, which prevents her from securing loans to improve productivity or expand her farm.
Government programs for skills training or small business development do not exist, and the few non-governmental organizations (NGOs) operating in Vientiane only have enough resources to reach a small proportion of the people who would benefit from their work. As Oxfam country director Dominique van der Borght points out, the country’s education system falls well short of delivering the services needed in a country that has a rapidly growing economy. Consequently, foreign firms operating in Laos often bring their own staff and laborers because local workers lack the necessary skills and linguistic training. Only the lowest level jobs are given to local residents.
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The Asian Trends Monitoring survey on urban poverty and service provision, conducted in September 2012, showed that among ten categories of basic needs “finding work opportunities” and “saving money” were rated as the most difficult to fulfill for Laos’ poor.
Micro-entrepreneurs who want to take advantage of new opportunities in the emerging non-agricultural economy face a different kind of obstacle. Up until 2004, Laos had no laws governing microfinance institutions (MFI) and formal financial services were inaccessible to the poor. Eight years later a number of MFIs are offering savings and loan products, but they largely deal exclusively with clients who have collateral. Moreover, their branch network is focused on Vientiane where they a serve small, but established entrepreneurial class in the city.
In a way, the risk-averse business model of any financial organization favors individuals and companies who already have established their business model. For those without collateral, the MFIs are starting to offer group loans, but the reach of these initiatives is still limited. The MFI capacity to provide free business training and actively support aspiring entrepreneurs is even more limited. The MFIs themselves are still struggling to build reliable client bases to secure their long-term survival in an increasingly competitive market.
Founder and executive director of Laos’ first MFI, Ekphattana Microfinance Institution (EMI), Somphone Sisenglath, states that MFIs also try to emphasize to clients the importance of saving part of their incomes. “Savings are part of our mission,” Sisenglath tells me. “Access to credit is one thing, but if there is nothing left [at the end of repayment], they are still poor.” Accordingly, EMI requires that all its clients save 10% of their initial loan in order to instill in them the importance of building wealth.
Access to microloans coupled with educational opportunities to learn about small business management would go a long way towards building an additional stream of income for families like Kaum’s. Unfortunately, as members of the bottom echelon of society, Kaum’s family and countless others like them do not have access to these kinds of services.
Mr. van der Borght describes the situation in Laos as having a “different face of poverty.” He explains that importing solutions from places of scarcity may not work in a country like Laos, which has an abundance of natural resources but suffers from a chronic lack of infrastructure and a grossly underfunded social service system. Expanding access to education and financial services to families like Kaum’s, as well as integrating them more fully into supply chains, are crucial if Laos is to boost household income for the vast majority of its citizens working in agriculture and non-agriculture industries.
Johannes Loh is a research associate at the Asian Trends Monitoring Bulletin at the Lee Kuan Yew School of Public Policy, University of Singapore.