1. Introduction
1.1. Country Brief of Laos
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1. Introduction
1.1. Country Brief of Laos
The country of Laos, officially named the Lao People's Democratic Republic (Lao PDR).
Laos is located in Southeast Asia and has no direct access to the sea or a landlocked country.
Laos is bordered by 5 neighboring countries. Thailand borders Laos to the Southwest and west while Cambodia also lies to the Southwest; China and Myanmar (Burma) are from the northwest boundary while Vietnam is to the east.
Laos is one of the poorest countries in East Asia and is classified by the United Nations (UN, 2015) as a Least Developed Country (LDC). With a land area of 236,800 square km, it has a population of 6,492,288. The population is relatively young: 4% of the population aged 65 years and over, 32% aged 0-14 years and 64% being the working age between 15-64 years (United Nations Fund for Population Activities [UNFPA], Swiss Agency for Development and Cooperation[SDC], World Bank [WB], and United Nations Children's Fund [UNICEF], 2015).
Laos was established in 1975. It has a moderately centralized political system grounded on the principle of “democratic centralism” that supports the idea of bottom up deliberation but top down decision making. The system has been balanced by a process of decentralization and entrusting some authority to the provincial level. Even though policy is centrally decided, provincial governors and ministers who are party members share the same political rank and have significant independence in administering and implementing policy. There are 11-person politburo who lead the Lao People’s Revolutionary Party (LPRP) that is the only political party and policy making body of the nation.
From the mid-1970s to early 1980, the Laos implemented a centrally planned economy where the economic decision was highly controlled by the government. During this period the county was extremely poor and isolated. However, the government introduced market-oriented reforms under New Economic Mechanism (NEM) in 1986. In the early stage of NEM, there were many changes such as removing price controls, unifying exchange rates, expanding foreign and inter-provincial trades, and supporting private enterprise in both agricultural and manufacturing sectors. In the 1990s, a legislative program continued to reform in order to
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provide the foundation for market-oriented rules and private sector development (Asian Development Bank [ADB], 2013).
The reforms produced significant results, from 1990 to 1997, before the Asian Financial Crisis (AFC), Gross Domestic Product (GDP) growth rate was about 6.4% on average per year.
Even though the economic growth was affected by the AFC in 1998, it had recovered by 1999.
Sustained growth produced an impressive outcome on GDP per capita by increasing its value more than two times from $227 in 1990 to $592 in 2011(ADB,2013). Laos has significant natural resources like forestry, minerals, and hydro-electric power, which also play a significant role in economic growth. From 2014 – 2018 the economy had strong growth with an average of approximately 7%, which generates the estimated per capita of US$2,599 (Bank of Lao PDR [BoL] ,2018). However, the proportion of the population below the national poverty line is still high, 29% in 2015 (The ASEAN Secretariat, 2017).
Globally, approximately 736 million people lived under the international poverty line or below $1.90 a day (WB, 2020). About 10% of the global population live in extreme poverty and face difficulties in receiving the basic needs for instance healthcare, education, access to clean water, sanitation, and so on (UN, 2015). About 3.8 billion people or 69% of adults worldwide have a bank account, but 1.7 billion adults remain unbanked (World Bank Group, 2017).
In Laos, about 47% of adults use at least one regulated financial service (World bank[WB], 2018). Financial access helps households and businesses plan for their long-term goals and unexpected circumstances, expand businesses, invest in education or health, manage risks, which can enhance the standard of living (WB, 2018). As quoted by the late Milton Friedman, Nobel Prize winner in the Economics 1976, “The poor stay poor not because they are lazy but because they have no access to capital”. Microfinance is a significant accelerator for poverty alleviation. It allows poor people to access financial services, to generate income, and to enhance their ability to pay for social services, their quality of living can thus be improved (Consultative Group to Assist the Poor, 2010).
Referring to the United Nations Capital Development Fund (UNCDF, 2005), microfinance not only underpins the achievements of many Millennium Development Goals
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(MDGs) but also is a significant key role in many MDGs strategies. These are because microfinance can nurture financially self-sufficient private sectors domestically and generate wealth for low-income people. The UN launches the International Year of Microcredit aiming to support poor and low-income people to have more access to financial services by providing greater access to credit, savings, insurance, money transfer, and other financial services in the effort of moving forwards to more secure life and flourishing futures (UN,2005). The UN also aims to raise public awareness on microcredit and microfinance as well as to promote innovative partnerships among governments, donors, international organizations, non-governmental organizations, private sector, academia and microfinance clients to recognize how significant microfinance can help people to get out of poverty.
In the following year 2006, Muhammad Yunus and the Grameen Bank of Bangladesh jointly received Nobel Peace Prize for pioneering the provision of small loans to millions of poor people—also known as microcredit. He stated that “I firmly believe that we can create a poverty-free world if we collectively believe in it. In a poverty-free world, the only place you would be able to see poverty is in the poverty museums”. Kofi Annan, United Nations Secretary-General also quoted " Microfinance has proved its value, in many countries, as a weapon against poverty and hunger. It really can change peoples’ lives for the better especially the lives of those who need it most."
While international communities have been working on poverty reduction by using microfinance as one of the significant tools, the government of Laos has also been working on implementing the 8th National Socio – Economics Development Plan (NSEDP) 2016-2020 to reduce poverty. This implementation may help Laos graduate from being a Least Developed Country because poverty reduction is one of the significant issues that needs to be solved. The government has afforded much effort to improve the microfinance sector. The government also believes that microfinance can boost economic growth and poverty reduction. Hence, in the framework of the National Growth and Poverty Eradication Strategy (NGPES), the microfinance sector was pushed into the top development programs in the agriculture and forestry sectors for the purposes of economic sustainable and poverty reduction (NGPES, 2004).
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