IFC helps Laos SMEs to obtain bank loans

IFC helps Laos SMEs to obtain bank loans

Laos can learn from its neighbour Vietnam, which has made remarkable progress in helping small and medium d enterprises to access financing more easily, according to the International Finance Corporation (IFC).

The IFC, which is the private arm of the World Bank, recently arranged for a group of officials from the Lao Ministry of Finance to visit Vietnam to learn how it had helped SMEs to obtain bank loans so they could grow their business.

With help from the IFC, Vietnam set up an electronic registration system for secured transactions in March this year. The system allows banks to register borrowers' so-called “movable assets” such as machinery, equipment or vehicles as security for loans. This makes it easier for SMEs to obtain credit for their b usiness needs.

The Lao government strongly supports SMEs, believing that business expansion in this sector will lead to sustained economic growth. It sees growth in this sector as a future alternative to the country's current reliance on the exploitation of natural resources.

Despite the government's investment promotion policy, many micro, small and medium businesses, which make up more than 90 percent of the private sector in Laos, have trouble getting bank loans to finance their expansion.

“ We were able to meet banks and their customers who use Vietnam's online secured transaction registration system daily. We learned how they solved practical problems they had experienced,” said Director General of the State Assets Management Department of the Ministry of Finance , Mr Chanhthanom Phithasone.

Lao banks often only accept real estate as security against a loan, as they have no way to secure their interest in movable assets. This effectively means that Lao business operators who do not own land or cannot make personal guarantees cannot borrow money from a bank.

“It's really important to have an electronic registration system in Laos so that SMEs and even smaller operations can get a loan,” Mr Chanhthanom said.

“The IFC has provided technical support for legal and policy reform, such as for secured transactions regulations, as well as training of our staff.”

During their trip, the Lao officials saw how Vietnam's electronic secured transaction registration system works, which will help them to design Laos' own registry.

“For an economy like Laos looking to sustain high growth rates, it is crucial to expand the credit market for small enterprises - the country's key engine to drive private sector development,” said IFC Resident Representative in Laos Mr Aimilios Chatzinikolaou.

The Ministry of Finance expects to get the secured transaction registry up and running by mid-2013

vientiane times