Terms of reference: Conduct Research and Develop Information Package(s) on the Financial Institutions, Services and Products Available for MSMEs in Lao PDR

Objective

The Lao National Chamber of Commerce and Industry (LNCCI), in cooperation with the International Labour Organization (ILO) and Plan International, with funding from the Swiss Agency for Development and Cooperation (SDC) and the European Union (EU), is seeking an external consultant to “Conduct Research and Develop Information Package(s) on the Financial Institutions, Services and Products Available for MSMEs In Lao PDR”. The purpose of this assignment is to identify, map and inform MSMEs of all financial services and products (e.g. loans, grants, micro-finance, tax breaks, etc.) from commercial and government banks as well as alternative institutions that are available for MSMEs in Lao PDR to approach in order to access finance. Special attention should be paid to financial services or products for sustainable businesses (e.g. “green financing”) as well as to MSMEs in the tourism industry which has been one of the hardest impacted by the pandemic.

Background

The Lao People’s Democratic Republic (Lao PDR) has in recent years seen strong economic growth which has contributed to reduced poverty and improved living standards. However, the country is still facing challenges when it comes to its socio-economic development. With extreme poverty falling from 46 percent in 1992 to 23 percent in 2012/13 and to 18 percent in 2018/19, the elasticity of poverty to GDP growth in Lao PDR was significantly lower compared to most neighbouring countries. Consumption growth had also been historically lower than GDP growth, with consumption growth of the bottom 40 percent lagging particularly behind1 . The country is part of the group of Least Developed Countries (LDC). With the COVID-19 outbreak, which has resulted in a global health emergency and economic crisis, Lao PDR’s development trajectory is at risk and the country could potentially face devastating consequences. The micro, small and medium-sized enterprises (MSME) sector in Laos constitute the backbone for job creation and employment, accounting for more than 80 percent of employment in the country. The sector is already severely impacted by the COVID-19 pandemic, which has caused a nation-wide lockdown. In particular, the tourism sector has been one of the hardest impacted by the national and international lockdowns caused by the pandemic. However, if provided with support, the Lao MSME sector could play a vital role in responding to the COVID-19 crisis and in driving a sustainable and resilient recovery.

Problem statement

The MSME sector in Lao PDR has faced challenges in doing business and are further constrained following the economic downturn from the Covid-19 pandemic. In 2019, the World Bank Enterprise survey identified the top three constraints faced by SMEs as:

1) Access to Finance: because of lack of SMEs proper business and financial planning and management, low financial literacy, lack of variety of financial services offered to SMEs, especially in rural areas, and high interest rates.

2) Practices of informal competitors: practices of competitors in the informal sector – such as poor compliance with regulations combined with inconsistent enforcement by the authorities – result in an unfair disadvantage for formal firms.

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