Financial Inclusion Through Microfinance – Stakeholder Analysis

Financial Inclusion through Microfinance – Stakeholder Analysis

Introduction

To provide further access to finance to unbanked urban and rural areas, microfinance can play important roles in providing saving and credit products to the unbanked population. Nonetheless, to be able to grow, microfinance institution in Laos will require funding to further to grow. Given the growth of the banking sectors in Laos which rely on the foreign investors for growth, the 30% limited of share ownership by foreign investors for microfinance institution is seen as obstacle for growth and development of the sector.

Stakeholders Description

Bank of Laos (BoL) – Financial Institution Supervision Department (FISD) – BoL is the central bank of Laos P.D.R. In 20010 in order to oversee microfinance development activities in the country, BoL decided to set up the Financial Institution Supervision Department or FISD. Another important objective of FISD is also to promote the development of microfinance sector in Laos P.D.R.

Microfinance Institutions (MFIs) – MFIs are classified as 3 categories being Deposit Taking MFI( DTMFI), Non-Depositing Taking MFIs (NDTMFIs) and Saving & Credit Unions (SCUs). As at 2011, there are 42 MFIs which include 9 DTMFIs, 15 NDTMFIs and 18 SCUs that had been licensed or registered with BoL.

Laos Microfinance Association – According to the association website, the association is found by a group of microfinance practitioner as a platform to represent microfinance sector interests and coordinate donor activities. Its functions include knowledge management/coordination, capacity building, advocacy and organizational development. Base on MFA information portal, MFA comprised of 52 members including 32 MFIs.

Potential Foreign Investors in MFIs – FIs play crucial in the development of MFI by bringing capital to the microfinance sectors. The current regulation limited foreign investment into MFI at 30% where as there is no limit on foreign investment in the other type of finance institution such as banks or leasing companies.

Ministry of Investment and Planning MIP – The ministry is responsible for screen and issue foreign investor license to all type of sectors. Government policy related to foreign investment in microfinance sector will also involved decision/feedback from MIP

Banks – Banks are the main players in Laos in providing saving and loans in Laos. Banque Pour Le Cemmerce Exterieur Lao Public (BCEL) is the biggest state own bank. The states banks occupy 70% market shares.

Village Funds (VFs) – Village Funds are community based saving and lending organization that operated in specific village around the country. The village funds are recognized by the provincial authority however unlike the MFIs they are not regulated by the central banks.

International Non Governmental Organization (INGO) that supports MFI – In the early stage of microfinance in Laos, INGO plays the crucial roles in supporting the funding. INGO has both provide funding through loan program or in some cases take the interest equity in the company such as in the case of Fond Cooperative (an MFI) which partly owned by International Solidarity for Development and Investment (SIDI).

International Organizations (IOs) – Organization such as the World Bank, ADB, IFC and GIZ are providing various supports to microfinance sector in Laos. GIZ in particular is active in promoting the growth of the industry, it provide support to Village Fund/Bank for both capacity and limited funding.

Stakeholder’s Inter-Relationship

Given its regulatory authority over the financial sectors in Laos, BoL is considered the most significant player in the industry. For the MFIs, FISD played the crucial not only in terms of regulation but also promoting the development of the sector. MFIs must be registered with FISD for it to be able to operate legally. Most importantly, FISD regulation is directly impacting the growth of the sector.

As mentioned in the description section, MFA also played an important role in helping to promote the growth of MFIs through policy advocacy and capacity training. The organization is generally the first point of contact for those investors, INGOs or international organization that is looking to have the overall view of the sector in Laos.

For the sector to further grow, foreign capital is required for MFIs to further expand their operation. Domestic capital potential is limited given the low saving rate by the general population. Nonetheless, the 30% ownership cap limit the interest in the investment into the microfinance sector compare to other type of financial institution such as banks. More importantly, for foreign capital to flow in, it is important that government policy is supportive of foreign investment

Increasingly banks are tapping the MFIs market segment through funding provided to MFIs that are in good financial health. Given the cost of setting up branches, banks are relying on the low cost MFIs to further expand their exposure to those customers that looking to borrow up to $5,000 through their MFIs’ partner. In the financial sector in Laos, given the government policy, banks are natural investment choice for foreign investors given its market oriented approach and the allowance of 100% ownership of foreign investors into banks.

International organizations and International NGOs also play the advocacy roles through their financial inclusion or access to finance program. The program usually includes the technical assistance program directly to BoL FISD.

In conclusion, as per annex 1, it appeared that policy by FISD is crucial to unlock the potential of sector. Given its interest in developing the sector, further comparison of other country could provide information to help shape future policy making related to microfinance sector in Laos P.D.R.

Annex – Relationship Graph[pic 1][pic 2]

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Stakeholder’s Relationship Table

0 No relation; + Little relation; ++ Normal relation; +++ Strong relation

Stakeholder’s Stake Table