Govt provides 100 b in financing to SMEs

The government’s Small and Medium Enterprises (SMEs) Promotion Fund (SME PF) has injected 100 billion kip in financing for SMEs via commercial banks in the form of long-term low-interest loans.
The financing will be provided to the SMEs via four commercial banks – Lao Development Bank, Sacombank Lao, LaoVietBank and Maruhan Japan Bank Laos.
A signing ceremony for the financing took place on Friday at the Ministry of Industry and Commerce between the SME PF and the four banks.
Witnessing the ceremony were Minister of Industry and Commerce, Ms Khemmani Pholsena; Deputy Minister of Industry and Commerce and Chairman of the SME PF Executive Board, Somchith Inthamith and guests from the relevant bodies.

The three percent interest rate financing will be lent for four main prioritised sectors – agricultural product processing industry, handicrafts, crop planting and animal raising, and tourism.
The move is the government’s latest effort to ease SMEs access to finance after learning many were struggling to get loans, which has been the main hindrance to their business expansion.
Speaking at the ceremony, Director of the SME PF, Latthana Duangboupha said access to finance remained the main obstacle to starting SMEs and their development.
A survey conducted by the World Bank in 2018 suggested that accessing finance was one of the main six obstacles for SMEs with 36 percent saying it was the biggest issue for them, according to Ms Latthana.  
Many SMEs also cited the high interest rates on bank loans, demands for expensive assets as secutrity for finance, and a complicated loan application process as problems.
“Credit (loans) that most banks release for SMEs is short-term, usually not more than one to three years,” Ms Latthana said.
Banks charged high interest rates and offered short-term loans because they mobilised their capital from short-term financial sources with high interest rates, she added. 
Banks also factor in higher risk into rates as some SMEs do not have a business plan or employ proper management principles.
Making finance accessible to SMEs is crucial for them to grow their businesses and drive the economy. SMEs are a vital segment of the Lao economy.
SMEs account for about 99 percent of all registered firms in Laos, according to the World Bank.
The 2013 Economic Census conducted by the Lao Statistics Bureau recorded that SMEs accounted for 82 percent of total employment.
Acknowledging its importance and the issues SMEs face, the Lao government has amended relevant regulations and increased funding for the SME PF to 200 billion kip a year to offer to SMEs and also to finance technical assistance projects to help SMEs gain access to finance.
The 100 billion kip provided to the four banks is part of the 200 billion kip the government provides to the SME PF.
Lao Development Bank has been given 27 billion kip, Sacombank Lao 30 billion kip, LaoVietBank 30 billion kip, while Maruhan Japan Bank Laos is receiving 13 billion kip.
Maximum loans to be released for micro SMEs are set at 1.5 billion kip per an agreement, small enterprises 3 billion kip per loan and 4 billion kip for medium enterprises at the uniform interest rate of just three percent. 
Addressing the ceremony, Mr Somchith said the government was not charging the four banks interest, which will enable them to release low interest loans.
He called for effective management of the fund from the four banks to ensure its sustainability.
Strict criteria are imposed for loan applicants to reduce risk, ensure effective use and sustainability of the fund.
SMEs eligible to apply for a loan must be defined in the Prime Ministerial Decree No 25, dated January 16, 2017, on SMEs categories and the SME must:
- Have a clear business plan,
- Complete SME professional training certified by the industry and commerce sector or authorised body,
- Hold accounts in accordance with the Law on Accounting with no non-performing debt in banks or financial institutions.
Deputy Director of Sacombank Lao, Ms Monvilay Boliboun said as the bank has been a retail banking service provider; thus, it emphasises its services to SME customers striving to become a leading SME service bank in Laos. Therefore, Sacombank Lao carried out a customer survey before deciding to accept the funding. As a result, the bank is confident that it would make the most effective use of the fund in accordance with its plans. In this regard, the bank has prepared the following measures:
- Establish a particular team to provide services to SMEs including offering consultancies to customers,
- Create specific loan products under the fund in which special conditions concerning asset guarantees will be offered with a simple application procedure unlike normal loans and procedures, 
- Provide the fund to its five branches in order to enable them to release all the 30 billion kip within 2020,
- Increase cooperation with business associations and the National Chamber of Commerce and Industry in order to make sure the most effective use of the fund,
- Provide more consultancies to, monitor and assess the SMEs who were granted loans on a regular basis and help resolve any problems that may occur.
The finance provided to the four banks will be loaned for business expansion and creating more jobs, machinery replacement or technological improvement to increase productivity and enhance services. These include the utilisation of ICT (information communication technology) for administrative work or production control as well as creating innovation for production, design and business management.
The four banks are responsible for the selection of SME applicants for finance, while the SME PF will monitor and assess the implementation to ensure the finance is used in line with its intended objective.

By Souksakhone Vaenkeo
(Latest Update March 25, 2020)