Webinar on “Savings and Credit in Rural Lao PDR: With a Focus on the Village-level Savings Groups”

In the fifth instalment in the Webinar Series on “Financial Transformation, Credit Markets and Household Debt in Southeast Asia“, Prof Koichi Fujita, Prof Akihiko Ohno, Dr Chansathith Chaleunsinh and Prof Hans Dieter Seibel shared on the status of savings and credit in rural Lao.

Webinar Series 2020-2021: Financial Transformation, Credit Markets and Household Debt in Southeast Asia

Thursday, 14 January 2021 – ISEAS – Yusof Ishak Institute hosted a webinar on “Savings and Credit in Rural Lao PDR: With a Focus on the Village-level Savings Groups” which was delivered by Professor Koichi Fujita (Center for Southeast Asian Studies, Kyoto University; and Convener, National Institutes for Humanities project on “South Asian Area Studies”). He was joined by the discussants Professor Hans Dieter Seibel (Professor Emeritus, Cologne University), Dr Chansathith Chaleunsinh (founder of volunteer group Who Have Heart based in Vientiane, Lao PDR), and Professor Akihiko Ohono (Aoyama Gakuin University).

Professor Koichi Fujita
Professor Koichi Fujita observed that poorer households appear to be reluctant to join SGs as they fear the inability to contribute regular savings continuously. (Credit: ISEAS – Yusof Ishak Institute)

Professor Koichi began the presentation of his study conducted in the early 2010s with the background of Lao PDR and explained the system of Saving Groups (SGs). SGs accumulate funds through monthly savings of members, disburse short-term and emergency loans and share profits amongst the members and committee. Of the 12 villages studied, most households in remote rural areas with poor infrastructure do not have high savings amounts. However, there were high demands for loans for emergency and daily consumption needs. This results in demands exceeding the SGs’ savings capacity, resulting in SGs being too weak to grow.

Professor Koichi also revealed that most SGs in Vientiane Municipality function smoothly. Wealthier households have higher participation rates in SGs, while poorer households have higher dependency rates on SGs for credit. Poorer households appear to be reluctant to join as they fear the inability to contribute regular savings continuously. Thus, SGs appear to function as an intermediary between households with excess funds and households in need of funds within the same village. SGs also fill the intermediate role between the Agricultural Promotion Bank (APB) where loans are mainly for production purposes, and informal loans from moneylenders that are mainly used for emergencies. Professor Koichi notes that if SGs can disburse loans for production purposes and support these sectors’ growth, the SGs can grow.

However, for some SGs that grow smoothly, the savings will exceed the demand for loans within the village after 4-5 years of launching operations. SGs with such excess funds problem face issues such as decreasing profit and dividend rates. If not dealt properly, it might result in SGs dissolving. Professor Koichi shares that the accumulation of excess funds is due to the lack of transferring mechanism of funds to the external financial market, including other fund-deficit SGs. Comparing the loans to savings ratio of SGs reveal that many SGs face such an issue.

In closing, Professor Koichi mentions that the rise of the SG system came about from the unsatisfactory performance of the APB in rural Lao. The SG system is efficient with low transaction costs and fits the Laotian rural society. In addition, the availability of such loans has even reduced poverty rates. Although the interest rate for SG loans is much higher than that of the APB, it is still significantly lower than the rate for informal loans provided by moneylenders. In addition, SGs benefits village savers with high dividend rates. Compared to the Grameen Bank model, Professor Koichi posits that the SG system is more advantageous due to its financial autonomy, viability, and outreach.

The webinar concluded with Professor Koichi, Professor Hans Dieter Seibel, Dr Chansathith Chaleunsinh and Professor Akihiko Ohno answering questions posed by the audience. Questions covered the crisis from a reduction in dividend rate from surplus funds, women empowerment in SGs, commercialisation and digitalisation of SGs, and SGs criteria for attributing loans to borrowers.

Professor Hans Dieter Seibel, Dr Chansathith Chaleunsinh, and Professor Akihiko Ohono engaged in an insightful Q&A session, with Dr Nicole Lainez as moderator of the panel. (Credit: ISEAS – Yusof Ishak Institute)