SMEs to access finance via Laos-China cooperation scheme

Small and medium enterprises (SME) are set to enjoy easier access to finance thanks to a new financial cooperation scheme between Laos and China.

Under the scheme, Lao SMEs can access low-interest loans from a total pot of more than 2,487 billion kip (US$300 million), Chinese ambassador to Laos Wang Wentian told Lao and Chinese reporters in a recent interview at his embassy.

Both sides signed a Memorandum of Understanding (MOU) under which the China Development Bank will provide the loan, during a state visit to Laos by Chinese President Xi Jinping in November last year.

Acknowledging that SMEs are a significant part of the Lao economic structure, the ambassador said China was willing to help these enterprises to overcome their challenges.

“In their growing process, Lao SMEs are up against the challenge of accessing finance,” he told reporters through an interpreter.

To address the issue, the China Development Bank and the Lao Central Bank signed the MOU witnessed by President Bounnhang Vorachit and President Xi.

The two banks are working together to realise the MOU and benefit Lao businesses.

The loan to be issued by the Chinese bank will help develop and expand SMEs, creating more jobs and alleviating poverty, the ambassador said.

The development of a large and competitive SME sector is a key element of Laos’ long-term development strategy because SMEs create most jobs in the private sector, which is critical for further poverty reduction, according to the World Bank.

It is estimated that SMEs in Laos account for more than 98 percent of total registered businesses and provide jobs for 81 percent of the private sector workforce.

But it is estimated that SMEs contribute only 16 percent of Gross Domestic Product (GDP), which is low compared to other countries in the region, according to the World Bank.

The World Bank’s Enterprise Survey conducted in 2012 suggested that small (and registered) businesses in Laos consider access to finance as one of their three major obstacles to growth.

“Access to finance was also a major challenge to firm start-up, maintenance and expansion, with firms citing the extensive requirements by banks for loan documentation and collateral as key barriers,” the World Bank said.

The same survey conducted in 2016 placed access to finance in the top five major obstacles for business growth.

Bank of the Lao PDR statistics also reveal that while SMEs account for over 98 percent of enterprises in Laos, only 20 percent of bank credit goes to SMEs.

In an effort to help SMEs access finance, the government has set up the SME Promotion Fund, which releases loans for these businesses through commercial banks, Deputy Director General of the SME Promotion Department, Ministry of Industry and Commerce, Mr Sa Siliphong said.

The government allocated an initial budget of more than 33 million kip (US$4 million) to the fund.

An additional more than 165.7 billion kip (US$20 million) was loaned from the World Bank.

More than 124.3 billion kip (US$15 million) went to the fund to be loaned to SMEs, while the remaining more than 41.4 billion kip (US$5 million) was to finance technical assistance for SMEs and related banks.

Editor: John Li