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2015 (1) (2) (3) (4) (5) (6) (7) (8) (1)-(6) (1)+(3) (5)+(6) (4)-(8) Net Interest Income Non Interest Income Total Income Operational Expense Loan Loss Provision Total Expense ROA BCEL 1.01% 0.57% 1.48% 2.49% 1.49% 0.44% 1.92% 0.57% Joint State Bank 3.29% 2.41% 1.99% 5.28% 3.34% 0.88% 4.22% 1.06% Privaet Bank 3.25% 2.50% 1.16% 4.41% 3.10% 0.75% 3.85% 0.56% Subsidiary Bank 2.60% 2.14% 2.22% 4.82% 3.77% 0.46% 4.22% 0.60% ICBC 0.17% 0.17% 0.11% 0.27% 0.18% 0.00% 0.18% 0.10% Foreing Bank Branch 3.45% 3.16% 0.62% 4.06% 1.14% 0.29% 1.42% 2.64% Average 2.30% 1.83% 1.26% 3.56% 2.17% 0.47% 2.64% 0.92% 2017 Net Interest Income Non Interest Income Total Income Operational Expense Loan Loss Provision Total Expense ROA BCEL 2.39% 1.82% 0.72% 3.12% 1.53% 0.57% 2.10% 1.01% Joint State Bank 3.37% 1.30% 1.36% 4.74% 2.95% 2.07% 5.02% -0.28% Privaet Bank 3.11% 0.85% 1.67% 4.78% 3.42% 2.26% 5.68% -0.90% Subsidiary Bank 3.32% 2.98% 1.83% 5.15% 3.70% 0.34% 4.04% 1.11% ICBC 0.20% 0.14% 0.15% 0.35% 0.22% 0.06% 0.28% 0.08% Foreing Bank Branch 3.15% 2.00% 0.93% 4.08% 4.83% 1.15% 5.97% -1.90% Average 2.59% 1.52% 1.11% 3.70% 2.77% 1.07% 3.85% -0.15% －123 － 124 Figure 2-4 Income vs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Expense by Bank Type Note: The scale of vertical axis for ICBC is smaller than in the other charts.
4.
Concluding Remarks In this chapter, we discussed the reality of the banking sector associated with possible policy agendas from various angles.
As a reality of the sector, there are two kinds of key challenges: (1) getting rid of the structure of “financial repression” in the whole sector, and (2) improving industrial organization of the sectoral structure. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Needless to say, these two factors are interlinked with each other.
Int.
Income 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Total Income Total Expense BCEL Operational Expense Loan Loss Non Int.
Income 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Total Income Total Expense Joint State Bank Operational Expense Loan Loss Non Int.
Income Int.
Income 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Total Income Total Expense Private Bank Operational Expense Loan Loss Non Int.
Income Int. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Income Int.
Income 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Total Income Total Expense Foreign Subsidiary Bank Operational Expense Loan Loss Non Int.
Income Int.
Income 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30% Total Income Total Expense ICBC Operational Expense Loan Loss Non Int.
Income Int.
Income 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Total Income Total Expense Foreign Bank Branches Operational Expense Loan Loss Non Int.
Income Int. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Income Int.
Income －124 － 125 Chapter 3 Microfinance and Credit Saving Union Survey 1.
Introduction 2.
Regulated MFIs 2.1 Rapidly growing ND-MFIs 2.2 Accumulated assets and savings mobilization 2.3 Loan to deposit ratio 3.
Two leading credit union systems 3.1 Village Savings Groups 3.2 Village Banks 3.3 Loan to deposit ratio 4.
Discussion 4.1 Filling gap of long term demand 4.2 Linking domestic savings into banking sector via MFIs 4.3 Transforming VSGs into VBs 4.4 Savings underutilization 1. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Introduction Microfinance is broadly defined in Lao PDR.
According to Microfinance Institutions or MFIs No.
460/GoL67, it means provision of financial services in varied forms.
For instance, provision of loans, taking deposits, provision of security and others in the form of cash transactions to the poor, low income families and small enterprises under authorization of the Bank of Lao PDR.
Under this decree, Bank of Lao PDR (BoL) classifies microfinance institutions into three different types i.e. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
deposit-taking, non-deposit-taking microfinance institutions and microfinance projects.
Deposit-taking MFIs (DT-MFIs) are allowed to mobilize deposits from the general public, while Non- Deposit-taking MFIs (NDMFIs) can do that in the form of loans and grants. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Microfinance projects (MFPs) means village development funds, village banks or other similar projects undertaking business operations similar to micro finance established by groups of people, entities that have organizations or individuals to provide funding.
In addition, BoL also supervises micro-financial enterprises such as Savings and Credit Unions (SCUs), leasing companies, pawnshops, and money transfers as part and includes them as MFIs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
However, in this short paper we will concentrate on MFIs that mobilize savings.
2.
Regulated MFIs 2.1 Rapidly growing ND-MFIs The first MFI was established in 2006 based on the government’s Microfinance regulations.
According to administrative data from BoL, the number of DT-MFIs and SCUs have been gradually increased from 2010-2018.
Due to attractive return on investment, the number of ND-MFIs grew 67 Decree on Microfinance Institutions No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
460/GoL was signed by Prime Minister of Lao PDR on 03 October 2012 －125 － 126 rapidly from 10 establishments to 77 establishments during this period; however, the average amount of total assets of this type is relatively small compared to DT-MFIs and SCUs (3.4 billion kip vs. 61.4 billion and 5.3 billion respectively).
For making MFIs more and efficiently responsive to current needs of development, BoL announced pending license of MFIs in May 2017 with an aim to review their legal framework. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 3-1 Number of Regulated MFIs Source: BoL 2.2 Accumulated assets and savings mobilization Based on the BoL’s administrative data, aggregated total assets of regulated MFIs is recorded at 1,632 billion LAK in 2018.
Of this, DT-MFIs is the largest model sharing 75% of total assets in the regulated MFIs sector.
9 20 10 77 15 27 0 20 40 60 80 100 120 140 2010 2011 2012 2013 2014 2015 2016 2017 2018 DT-MFIs ND-MFIs SCUs －126 － 127 Figure 3-2. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Assets of Regulated MFIs in 2019:1,632 billion LAK Source: BoL Amongst the regulated MFIs, only DT-MFIs are allowed to mobilize savings from the general public.
ND-MFIs and SCUs can only take deposits from their shareholders.
However, more than 40% of their total assets are from people’s savings.
The number of depositors is 184,768 people in early 2019.
Numbers of depositors/shareholders of ND-MFIs and SUCs are smaller, 38,330 and 30,726 people respectively. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 3-3 Deposit to Asset Ratio Source: BoL DT-MFIs 75% ND-MFIs 16% SCUs 9% 78% 40% 50% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 DT-MFIs ND-MFIs SCUs －127 － 128 We are not able to obtain information on interest rates provided for deposit of shareholders in ND- MFIs and SCUs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
However, by taking cases of the largest DT-MFIs, Ekphatthana Microfinance Institution (EMI), we observe that deposit interest rate at regulated MFIs is quite attractive compared to that of the largest commercial banks like BCEL. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Table 3-1 Interest Rate: MF vs. Commercial Bank Type of financial institutions Cases Deposit interest rate (Kip) Saving deposit 1 year term deposit DT-MFIs Ekphatthana 5% 12% Commercial banks BCEL 1.89% 5.59% Source: EMI and BCEL’s websites 2.3 Loan to deposit ratio Before 2012, loan to deposit ratio of the DT-MFIs was higher than 100% implying high financial intermediary of the regulated MFIs.
However, the ratio is on a declining trend which is probably due to penetration of the ND-MFIs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
The 2018 loan to deposit ratio of the DT-MFIs is relatively low (84%), and it’s lower than that of the commercial banks (96.24%).
This indicates a similar situation of surplus fund or underutilization as happened in the banking sector.
Figure 3-4 Loan to Deposit of the DT-MFIs Source: BoL 3. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Two leading credit union systems In the hist ory of rural and microfinance in Laos, village or community based microfinance has been 109%104%102% 86% 96% 71% 82% 81% 84% 0% 20% 40% 60% 80% 100% 120% 2008 2010 2012 2014 2016 2018 2020 Loan to deposits －128 － 129 introduced as a component and/or standalone activity in many development projects to enhance solidarity, mobilize local savings, and finance income generating activities of rural households. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
With the community’s social capital, a peer monitoring/screening mechanism can be applied to reduce information asymmetry between lending agencies and their borrowers.
The well-known model is Village Credit Union68 which is called by two different names i.e.
Village Banks and Village Savings Groups. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Village Banks and Village Savings Groups.
Village Banks are village credit unions supervised by BoL and counterparts (such as GIZ and Australian Aid), and Village Savings Groups are village credit unions supervised by Lao Women’s Union and counterparts (such as FIAM and CODI)69. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Table 3-2 Village Savings Groups and Village Banks Starte d Current supervision 2019 data Number Depositor s Combined savings Village Savings Groups 1997 LWU network 3,648 236,081 512 billion kip Village Banks 2009 AFP project (BoL, GIZ) 670 153,000 269 billion kip Source: AFP and LWU 3.1 Village Savings Groups The Village Saving Group (VSG) is a microfinance model initiated as LWU’s project under the technical support of two Thai NGOs i.e. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
FIAM (Foundation for Integrated Agricultural and Environmental Management) and CODI (the Community Organizations Development Institute) since 1997 in peri-urban areas of Vientiane Capital70.
During 1997-2011, the VSG movement went well under FIAM and CODI.
The project provided technical and monitoring support through project officers and sub-district (Khet/Network) volunteers. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
By 2004, VSGs under FIAM in Xaythany district started reaching maturity where savings they mobilized exceed the demand for borrowing.
Many VSGs with surplus money lent out to people or groups outside the village in order to manage the idle 68 Credit unions follow a basic business model: Members pool their money—technically, they are buying shares in the cooperative—in order to be able to provide loans, demand deposit accounts, and other financial products and services to each other. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Any income generated is used to fund projects and services that will benefit the community and interests of its members.
69 Grameen model or group guarantee used to be piloted by a French project in the northern province (Phongsaly) for remote villagers and by Agriculture Promotion Bank (APB) for the farmer groups.
However, the model is not so applicable in the Lao context. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
70 For more information please find 2004 paper “Saving Group and Credit Markets in Rural Laos” by Akihiko OHNO and Yutaka ARIMOTO －129 － 130 fund.
In order to reduce risks, they set up Centre of Saving groups at district level to manage cross- group borrowing.
It seemed to go well until the withdrawal of both FIAM and CODI in 2011-2012, and all monitoring and technical supports stopped. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Seeing that local LWU have limited capacity to manage the increasing amount of surplus, central LWU advised setting up a ceiling for saving to screen out big investors and therefore limit ability to mobilize local financial resources.
According to LWU, cross-group lending still exists but we are not sure if technical support through the Khet/network system is still maintained. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 3-5 Structure of Village Savings Group Source: by author 3.2 Village Banks The current movement of Village Banks in Laos is led by Access to Finance for the Poor (AFP) which is a German development cooperation project that is jointly implemented by BoL and GIZ and financially supported by the German and Australian Governments.
It aims to promote financial inclusion, to enhance financial literacy and to improve the framework for client protection in financial services. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
The AFP project was started in around 2009, now it’s on the fifth phase (end in 2021).
By learning from VSG’s experiences, AFP developed a training manual and operating system, the so called Village Bank (VB).
At village level, VSG and VB models are very similar in terms of organization structure, format of the by-laws, operation system, as well as how net profit of VB is divided amongst the members at the end of the year.
However, this new version credit union system has a highlight. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
AFP developed “Meso level” approach, that links VBs to a formal financial system in a more sound and sustainable manner.
The Meso Level consists of Network Support Organization (NSO).
This NSO is licensed as MFI for supporting 40-100 VBs.
Beside provision of MF services for retail clients, NSO provides monthly technical support services to VBs at a commercial rate and also has a role to manage liquidity between VBs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
By 2019, AFP reports 7 NSOs/MFIs to support 707 VBs operating in 6 provinces (see Annex C FIAM CODI projects Centre of Saving Groups at district level Khet/network VSG VSG Khet/network VSG VSG Khet/network VSG VSG －130 － 131 for the geographic location of the VBs).
Figure 3-6 Structure of Village Banks Source: by author 3.3 Loan to deposit ratio Financial information of individual VB and VSG is not accessible so far. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
However, we manage to calculate the loan to deposit ratios using aggregated data of VBs under AFP project and data of Ban Somsavanh Savings Group –the largest VSG in Laos with total assets of 7.8 billion kip in 2019.
We observe decreasing trend of savings utilization: the ratios went down to 95% for VBs and even worse in Somsavanh (86%).
Figure 3-7 Loan to Deposit Ratio Source: AFP and LWU 4. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Remaining Agendas for upgrading and connecting non-bank sector 4.1 Filling gap of long term demand 112% 95% 104% 86% 0% 20% 40% 60% 80% 100% 120% 2014 2019 2014 2019 BoL's VBs LWU's Somsavanh SG BoL’s regulation and supervision AFP project Network Support Organization (NSO) (MFI) VB VB Network Support Organization (NSO) (MFI) VB VB Network Support Organization (NSO) (MFI) VB VB －131 － 132 The topic was discussed under a mega research project in 2004/0571: the paper positions “Development Financial Institution or DFI” for financing Prioritized SMEs and long-term development projects (see Annex D), while Commercial Banks (CBs) are placed for serving the large, medium and small enterprises, and MFIs are considered to provide short-term finance for the small and micro enterprises at micro level. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
To the author, such positioning makes sense in the way that micro-savings mobilized by MFIs are smaller in size (about 3% of what CBs did) compared to demand from the development projects.
In addition, savings products provided by MFIs are mostly short-term (less than 1 year).
Particularly in credit union type-MFIs such as SCUs, VBs and VSGs, deposit is associated with shares and allowed to be withdrawn at the end of the fiscal year when net profits are concluded and the dividend is distributed. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
4.2 Linking domestic savings into whole financial system via MFIs Current total number of depositors in MFIs (DT-MFIs, ND-MFIs, SCUs, VBs and VSGs) in 2019 is approximately 600,000 people which is equivalent to 12% of the working population.
There is a possibility to increase number of depositors by developing saving products and diversifying terms to be more suitable for the needs of clients.
For example, in Ekphatthana DT-MFI there are 3 types of deposit services i.e. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
saving, smart kids saver, and one-year fixed deposit, and a life insurance.
When LWU discuss transforming the VSGs into formal MFIs, the two key difficulties frequently cited are about ownership of the fund (which belong to the community) and technical capacity of the management committee.
If the VB system pilot project yields good results by 2021, scaling up this model will be a channel to link local capital into the banking sector via sustainably operating NSO. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
In fact, the non- bank sector is still very small in terms of total asset size.
As shown in Table 3-3, the average total assets of DT-MFI are less than 3% of private banks.
Individual village banks are much smaller.
Their advantage, on the other hand, seems to be their facility is already set in rural areas.
The BOL supervised village bank expanded to 678 operational bases, and Lao Women Union had 3648 operational bases in rural areas. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Although village banks are segmented with each other, it seems that potential capacity to collect deposits in rural areas can be utilized under an appropriate policy design.
71 The Possibility for Establishing a Development Financial Institution in the Lao PDR, by Dethphouvang MOUNLARAT et al.
MAPSII report, March 2005. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
MAPSII report, March 2005.
－132 － 133 Table 3-3 Size and Share of Total Financial System including Non-Bank Sector Source: Various Materials from LWU, BOL by Author 4.3 Transforming VSGs into VBs It is certain that AFP is able to develop the VB model based on experiences of VGSs.
Therefore, LWU’s VGSs should be seen as a competitor to the VBs.
According to central LWU, one direction on development of VSGs in the five-year plan is to study feasibility of transforming VSGs into the VB system. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
In order to do that, more and close collaboration between BOL and LWU is needed.
4.4 Savings underutilization One of the issues we found across the financial institutions (commercial banks, MFIs and semi-formal MFIs) is underutilization of the fund they mobilized-idle fund.
Government is taking the right track on increasing access to finance for the micro, small and medium enterprises through several intermediaries (CBs and SME fund). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
So far, most of the loans taken from MFIs are for consumption, therefore creation of demand for production loans is also another important way to meaningfully utilize the idle fund.
Therefore, MFIs and stakeholders might need to provide the clients services and supports other than savings and loans but also promotion of income generating activities (training on vocational skills and entrepreneurship). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Billion LAK % Average 1 Commercial Bank Total 36 130,387.3 98.3% 3,621.9 (1) State Bank 4 46,281.4 34.9% 11,570.4 (2) Joint State and Private Bank 10 25,805.1 19.5% 2,580.5 (3) Foreign Bank 22 39,694.6 29.9% 1,804.3 2 Non Bank Financial Intuitions 124 1,631.0 1.2% 13.2 (1) Deposit Taking MFI 20 1,228.0 0.9% 61.4 (2) Non-Deposit Taking MFI 77 260.0 0.2% 3.4 (3) Saving and Credit Union 27 143.0 0.1% 5.3 3 BOL Supervised Village Bank (VB) 678 95.0 0.1% 0.1 4 Lao Women's Union Village Bank (VSG) 3,648 511.0 0.4% 0.1 Ground Total 132,624.3 Number of Institution Total Asset (2017) －133 － 134 Appendix Annex A: Number of establishments Assets (billion kip) Deposit (billion kip) Loan (billion kip) DT-MFIs ND-MFIs SCUs DT-MFIs ND-MFIs SCUs DT-MFIs ND-MFIs SCUs DT-MFIs ND-MFIs SCUs 2010 9 10 15 28.56 22.76 53.25 18.56 4.84 20.22 11.7 17.29 2011 10 15 21 59.69 36.97 40.33 35.14 9.59 36.56 25.46 31.03 2012 14 21 23 84.36 36.77 32.65 57.11 13.91 58.41 23.59 21.12 2013 13 27 24 140.13 58.759 52.436 106.265 31.698 91.031 42.135 40.454 2014 14 31 25 192.136 81.23 43.902 153.488 24.771 148.029 59.089 28.998 2015 15 43 34 315.34 107.383 72.454 263.693 42.317 186.457 49.884 83.657 2016 18 59 30 552.828 125.613 76.597 467.183 44.794 383.323 85.758 48.714 2017 19 74 30 981.693 166.832 109.393 737.148 63.952 597.423 114.271 65.248 2018 20 77 27 1228.475 260.351 143.342 960.977 71.269 809.65 156.785 89.192 －134 － 135 Annex B: Avg. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
size of MFIs by total assets (billion kip) Deposit to asset ratio Loan to deposit ratio Loan to asset ratio DT- MFIs ND- MFIs SCUs DT- MFIs ND- MFIs SCUs DT-MFIs ND- MFIs SCUs DT- MFIs ND- MFIs SCUs 2010 3.17 2.28 3.55 65% 9% 1.09 3.57 0.71 0.51 0.32 2011 5.97 2.46 1.92 59% 24% 1.04 3.24 0.61 0.69 0.77 2012 6.03 1.75 1.42 68% 43% 1.02 1.52 0.69 0.64 0.65 2013 10.78 2.18 2.18 76% 60% 0.86 1.28 0.65 0.72 0.77 2014 13.72 2.62 1.76 80% 56% 0.96 1.17 0.77 0.73 0.66 2015 21.02 2.50 2.13 84% 58% 0.71 1.98 0.59 0.46 1.15 2016 30.71 2.13 2.55 85% 58% 0.82 1.09 0.69 0.68 0.64 2017 51.67 2.25 3.65 75% 58% 0.81 1.02 0.61 0.68 0.60 2018 61.42 3.38 5.31 78% 50% 0.84 1.25 0.66 0.60 0.62 －135 － 136 Annex C: －136 － 137 Annex D Source: “The Possibility for Establishing a Development Financial Institution in the Lao PDR” by Dethphouvang MOUNLARAT et al. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
2005, in Macroeconomic Policy Support for Socio- Economic Development in the Lao PDR.
Phase 2, main report P.249.
－137 － 138 Chapter 4 Corporate Fundraising Survey 1.
Introduction 2.
Major Companies and Their Ownership in Laos 3.
Corporate Fundraising Survey 3.1.
Design 3.2.
65 Samples – Sector and Size 3.3.
Ownership 3.4.
Fundraising 4.
Capital Structure 5.
Concluding Remarks Appendix 1.
Estimation of the Determinants of Capital Structure Appendix 2. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Going Public at LSX and its Effect on Firms’ Performance Appendix Table.
65 Sample Firms 1.
Introduction This chapter reports the survey conducted as a part of the research program focusing on the present situation of firms in the leading large firm class, particularly on State-own Enterprises (SOEs), and their fundraising.
The main part of this chapter is a summary of a hearing survey on 65 large firms. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Two appendixes add a preliminary estimation on determinants of firms’ fundraising and capital structure, and a rough observation on the function of Lao Securities Exchange (LSX) for company performance.
2.
Major Companies and Their Ownership in Laos According to the government record, the number of enterprise registrations in Laos amounted to 156,991 as of April 2018 with 10% yearly increase, 31% of which is located in Vientiane capital72. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Particularly “individual enterprises” and “sole limited companies” are mostly located in the capital.
Among them, “limited companies” occupy only 3.56% in terms of number, but a large percentage in terms of registered capital73.
The wholesale, retail trade, for which repair of motor vehicles and motorcycles is the top business sector of the entire business registration, counted for 52%.
The large foreign investors are from China, Vietnam and Thailand74. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
72 “Vientiane City” usually refers the areas of the central districts in “Vientiane Capital” 73 Enterprise registration data is retrieved from National Enterprise Database of Enterprise Registration and Management Department, Ministry of Industry and Commerce, dated 25th June 2019. http://www.erm.gov.la/index.php/explore-data-la/statistics-la 74 Enterprise Registration and Management Department, June 2019 －138 － 139 The Lao government started the privatization program of SOEs in 1986 as a part of the transition toward a market-oriented economy. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
In this year, 640 state-owned enterprises existed, 200 of which were controlled under the central level (Quang et al.
1999)75.
This number of SOEs has been steadily reduced by closing down, leasing, merging and sell-offs.
Based on the data from Ministry of Finance, as of the end of 2018, the Lao government has capital shares in 187 business entities, 97 of which are under the line ministries in central government, and the rest are supervised by the local authority. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
There are 133 SOEs that government has shares more than 51% (60 under the central government, and 76 under local authority), 54 SOEs with less than 50% share (35 under central government, and 15 under local authority).
Figure 4-1. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 4-1.
Share of Gov’t Majority and Minority SOEs Source: SOE Management, Development and Insurance Department, Ministry of Finance According to the interview at Ministry of Finance76, the joint venture enterprises tend to be better in corporate governance, thus to perform better than the full state-owned.
The interview 75 Quang, T. & Thavisay, C. (1999). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
The interview 75 Quang, T. & Thavisay, C. (1999).
Privatization and Human Resource Development Issue: A Preliminary Study of State-Owned Enterprises in the Lao People’s Democratic Republic, Research and Practice in Human Resource Management, 7(1), 101-123.
76 State-owned Enterprise Development, (personal interview, 05-April-2018), a Deputy Director General of SOE Management, Development and Insurance Department, Ministry of Finance, Vientiane, Laos. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Total Asset Registered Capital Annual Revenue Staffs SOEs (Govt.<50%) SOEs (Govt.>50%) －139 － 140 also revealed that MOF has ceased to guarantee the SOEs’ bank borrowing, and encouraged them to be self-reliant in fundraising.
3.
Corporate Fundraising Survey 3.1.
Design The micro data of enterprises in Lao PDR is hardly visible to the public either in the form of company directory or documents. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
We conducted the enterprise survey targeting mostly large enterprises and a few small and medium enterprises, including the SOEs, private companies and public (or listed) companies in the non-financial sector.
We collected the information on company profile, characteristics of corporate ownership, various financial situations, and the balance sheets. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
At first we constructed a list of 237 major companies from the SOEs list of Ministry of Finance (MoF), the potential listing companies list of Lao Securities Exchange (LSX), 100 outstanding business people list from Japan External Trade Organization (JETRO) office in Laos, and the company list from the Lao National Chamber of Commerce and Industry (LNCCI). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
This list was then prioritized into a shortlist in accordance with their total assets, registered capital, eligible companies matching with LSX’s listing criteria and their reputation.
The corporate finance survey was conducted during a period from July to September 2018.
The research team visited the company headquarters that accepted the appointment letter; the managing directors, and managers’ level were then interviewed and this was accompanied by the questionnaire and survey instrument. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
65 of the 237 companies in the sample accepted the appointment request and accomplished the questionnaire, while 50 out of the 65 respondents completed the questionnaire with available data for balance sheet, and financial statement.
3.2.
65 Samples – Sector and Size As listed in Appendix Table at the bottom of the chapter, we collected the completely-filled questionnaire from 65 firms. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
As shown in Figure 4-2, 26.2% of them are registered as manufacturing and producing sector, the largest proportion of our respondents, followed by information and telecommunication 10.8%, transportation and postal service 9.2%, hotel and restaurant sectors 9.2%.
－140 － 141 Figure 4- 2.
Sample Distribution by Business Sector Figure 4-3 shows the ownership and firm size nexus. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Concerning ownership, the private company is the largest number in this survey, accounting for 55.4%; The sample percentage of SOEs is 36.9% (State majority 29.2%, and minority 7.7%); that of public companies (listed companies) is 7.7%.
Figure 4-3. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 4-3.
Number of Companies and Number of Workers For the size distribution measured by number of employees, 58.4%, the majority of the sample is categorized as large firms, whereas the medium enterprises and small enterprises are counted －141 － 142 as 16.9% and 24.6% respectively.77 Notwithstanding, large firms are the majority in SOEs, and advisedly SMEs occupy a majority in private companies.
3.3. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
3.3.
Ownership The firms in Laos are primarily launched by local investors either as a family business or jointly with friends.
At the same time, the trend of foreign investment is currently increasing in the form of joint venture, and foreign branch. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Based on the survey result, many of the local investors are independently running the business by themselves without shareholders; likewise, creating business partners among the family members, friends and foreign shareholders is the alternative model of business operation.
As shown in Table 4-1, the ownership distribution of sampled firms is diversified into different types of ownership. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
(1) One owner: refers to the company that is operated and administrated by one independent owner, 24 sampled companies; (2) Family and other local shareholders: the company that has family members or other local investors as shareholders in current business operation, 6 companies; (3) foreign shareholders: refers to the company that has at least one foreign investor as shareholder joining with local citizens in daily operation, 1 company; (4) foreign branch and company (100%): defined as the company that is operated by foreign investor 100% either in the form of foreign branch or a company; (5) state-owned- enterprises (SOEs) 100%: this is the enterprise that government has contributed 100% of budget and investment regardless of any business partners, counts at 16 companies; (6) joint-venture (Govt.>50% and foreign<50%): defined as the company that is joint between government investing greater than 50% and foreign investors investing less than 50%, 3 companies; (7) joint- venture (Govt. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
<50% and foreign>50%): refers to the company that is joint between government investing less than 50% and foreign investors investing more than 50%, there are 2 companies; (8) joint-venture (Govt.<50% and local>50%): the company that is joint between government investing less than 50% and local investor contributing greater than 50%, this is 3 companies; and 77 In accordance to the PM’s decree on SMEs categorized, No.25/Gov., 16-Jan-2017, “…SMEs can be categorized based on their average of workers, or total assets, or annual corporate income… For average of workers: workers with equivalent or less than 50 categorized as small enterprises, if it is equivalent or less than 100 workers, then categorized as medium enterprises…” －142 － 143 (9) listed company: this study refers to the public company that has already listed on the Lao securities exchange, there are 5 companies78. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Table 4-1.
Ownership Distribution of Sample Firms Company status Ownership detail No.
Percentage Private company (1) One owner 24 36.9 (2) Family and other local shareholders 6 9.2 (3) Foreign shareholders 1 1.5 (4) Foreign branch and company (100%) 5 7.7 SOEs (5) SOEs (Govt.
100%) 16 24.6 (6) Joint-venture (Govt.>50% and foreign<50%) 3 4.6 (7) Joint-venture (Govt.<50% and foreign>50%) 2 3.1 (8) Joint-venture (Govt.<50% and local>50%) 3 4.6 Public company (9) Listed company 5 7.7 Total 65 100.0 3.4. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Fundraising (1) Initial Capital Table 4-2 clarifies the fund source for business establishment that sampled companies use during the initial stage of business operation.
Their own fund is the core method of initial capital that many companies utilize for establishing their businesses, counting at 61.5% of total, and this self-financing is mainly employed in the manufacturing and producing sector; receiving contribution from shareholders or related parties is the alternative factor. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Under other conditions, there are some companies applying both self- financing and bank loan as their initial capital, amounting at 9.2% especially in the information and telecommunication sector.
78 There are 9 public companies, as end of September 2018, listing in Lao Securities Exchange, but this study includes only 5 public companies that have already listed in securities exchange.
－143 － 144 Table 4-2. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
－143 － 144 Table 4-2.
Fund Source of Capital for Business Establishment By business sector Total Manufacturing & producing Information & Telecom.
Transportation & Postal Ser.
Hotel & restaurant No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Hotel & restaurant No.
of companies 65.0 17 7 6 6 Own fund (%) 61.5 70.6 28.6 100.0 83.3 Bank borrowing (%) 1.5 0.0 14.3 0.0 0.0 Borrowing from family, relatives and friends (%) 3.1 0.0 0.0 0.0 0.0 Shareholders or related parties (%) 23.1 5.9 28.6 0.0 16.7 Bank borrowing, & own fund (%) 9.2 17.6 28.6 0.0 0.0 Bank borrowing, & borrowing from foreign partners (%) 1.5 5.9 0.0 0.0 0 By company type Private company SOEs (Govt.>50%) SOEs (Govt.<50%) Public company No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
of companies 36 19 5 5 Own fund (%) 66.7 78.9 20.0 0.0 Bank borrowing (%) 0.0 5.3 0.0 0.0 Borrowing from family, relatives and friends (%) 2.8 0.0 0.0 20.0 Shareholders or related parties (%) 19.4 15.8 60.0 40.0 Bank borrowing, & own fund (%) 11.1 0.0 20.0 20.0 Bank borrowing, & borrowing from foreign partners (%) 0.0 0.0 0.0 20.0 －144 － 145 Based on the result, the private companies mostly finance their own fund during the beginning period, and raising funds from shareholders and related parties is partly used as well. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
SOEs principally receive contribution from government as initial capital without accessing financial institutions.
For the public companies, obtaining the assistance from shareholders and related parties is commonly practiced in this business type.
(2) Recent Fund Mobilization for Working Capital and Investment Figure 4-4 shows the change of fundraising method between their establishing initial stage and recent stage (at the period of the hearing). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Self-financing is the main method of initial capital for establishing the business in Laos, while receiving equity from the shareholders and related parties is the alternative option.
The figure suggests that many companies changed their fundraising behavior; they firstly invested their own fund in the early stage, then accessed bank borrowing together with their remaining fund after the business had been operating for some period of time.
Figure 4- 4. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 4- 4.
Fundraising Behavior from Initial Capital to Current Mobilization －145 － 146 The firm fundraising changes to be more dependent on bank loans in addition to self-finance.
The sum of bank borrowing and own fund accounts for 40% of total, and remarkably increases.
This change is remarkable in the sectors of transportation and postal service, hotel and restaurant, and manufacturing and producing. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
While the trend of self-finance is declining, there is a little change in using resources from shareholders or related parties.
(2) Bank Borrowing In our survey, 34 out of 65 firms, i.e.
52% in number have an experience of borrowing from banks; the private company covers the largest proportion in receiving the bank credit over the latest five years. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
The remaining 31 firms have not requested bank credit for the reason, according to the answer to our questionnaire, that they have sufficient cash flow within the firm.
They also point out the difficulties of collateral setting as an obstacle of loan access.
The situation is not different between private firms and SOEs generally.
As shown in Figure 4-5, the bank loan transaction is mostly with government banks and joint state commercial banks regardless of firm’s ownership.
Figure 4-5. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 4-5.
Number of Credit Cases based on Bank Type From the five surveyed years (Table 4-3), 28 of 56 sampled firms have used bank credit for their working capital, and mostly received this from State-owned Commercial Banks and joint state commercial banks.
Other bank credit is moderately utilized in equipment investment and for mixed purposes.
－146 － 147 The average loan interest rate is 7.9 % and the highest rate case is 13 %. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Our sample firms mostly demand the medium term credit; three-year, counted at 35 % of total credit cases; five- year and one-year were partly covered at 27 % and 20 % accordingly.
Apart from bank borrowing, many firms recognize that collateral problem is the largest obstruction.
(3) Supplier’s Relation and Trade Credit Another fundraising method is possibly trade credit, that occurs accompanying procurement transactions with suppliers. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Here we observe the relation between company and supplier, and examine if the role of trade credit plays a substantial role or not.
Many of our respondent firms answered that they keep a long relationship with their supplier.
61% of sample firms continue procurement transaction with the same suppliers for more than 10 years.
Half of total companies import input materials from abroad, surprisingly few. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
As shown in Figure 4-6, the large portion (57%) of suppliers are largely located outside the country, the rest are located within the Vientiane capital at 3%, Vientiane city 17%, other areas in Laos 12%.
The large portion of imported materials suggests that the Lao economy largely depends on foreign Table 4-3.
Corporate Purpose of Credit Use Purpose of credit use Equipment investment Working capital Both No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
of companies 18 28 10 State-Owned Commercial Bank (%) 38.9 42.9 80.0 Joint State Commercial Bank (%) 22.2 21.4 10.0 Subsidiary Bank (%) 11.1 17.9 10.0 Foreign Branch (%) 5.6 14.3 0.0 Private Bank (%) 5.6 3.6 0.0 Others (%) 16.7 0.0 0.0 －147 － 148 material due to low quality of local materials.
As many as 57% firms of the total sample make procurement transactions, and their trade credits are made in foreign currencies.
Figure 4-6. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Figure 4-6.
Location of Suppliers Table 4-4 summarizes the payment method of the sample firms.
As for the nature of trade credit in the process of procurement transaction, we found that 17 out of 65 companies settled their procurement by using deferred payment, which occupies 26% of total transactions.
There is little difference between private firms or SOEs, and deferred payment is frequently observed in transportation and postal service sector. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
On the other hand, 21% of total procurement transactions are conveyed only with cash.
These transactions are rather common in the manufacturing and producing sector, and hotel and restaurant sector.
The average duration of procurement settlement is 1.97 months.
In more than half of sample firms, the difference in price doesn’t exist in procurement transaction either by cash or deferred payment, meaning that the effective nominal interest rate is zero for trade credit. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
While the default case is not frequent, the case of default of more than four times is observed in 14 firms.
－148 － 149 Trade credit transaction is widely adopted in many firms probably as an alternative for bank borrowings and self-finance.
But since the price difference is not observed, it can’t be said that trade credit exerts alternative financial intermediation function.
Rather, it seems merely and passively to occur accompanying procurement process.
4. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
4.
Capital Structure Among 65 sample firms, the balance sheet information is available for 50 firms (2015:44, 2016:50, 2017:49).
Table 4-5 shows the average balance sheet information by year focused on the capital structure (i.e.
liabilities & capital account side).
It shows the basic nature of corporate finance of large firms in Lao PDR.
The debt ratio is relatively low, around 45-49%, while equity ratio exceeds 50%.
They rely largely on self-finance. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
They rely largely on self-finance.
The firms are very slightly dependent on bank loans.
The average bank borrowing ratio is only 13-14% and only about one-third of the sample firms borrows from a bank.
It suggests that firms actively utilize non-bank debt for their fundraising.
The percentage of ‘Accounts and Notes Payable’ that proxies trade finance between customer and supplier firms is nearly the same level Table 4-4.
Number of Companies and Procurement Transaction Method No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
of companies Only Cash Only Deferred Total By company type Private Company 10 10 36 SOEs (Govt.>50%) 2 5 19 SOEs (Govt.<50%) 1 0 5 Public Company 1 2 5 By sector Manufacturing & producing 5 4 17 Transportation & postal service 0 3 6 Hotel & restaurant 4 2 6 －149 － 150 as that of bank borrowings (around 12%).
Likewise, ‘Other Liabilities’ and ‘Borrowing from Owners and Managers’ are relatively high (9-10%, 4-5% respectively). | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Table 4-5 Capital Structure of Sample Firms Table 4-6 classifies the capital structure by ownership for the year of 2016, showing that the capital structures are heterogonous.
Firstly, the debt ratio is slightly higher in private companies than SOEs (SOEs govt.>50%, same hereinafter), and very low in public (listed) companies.
Not surprisingly, public companies tend to shift their fundraising from debt finance to equity finance.
No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
No.
of Sample 44 50 49 2015 2016 2017 Assets Accounts and Notes Receivable 44.9% 19.3% 20.3% Investment and Loans to Affiliated Companies 2.7% 3.4% 3.4% Premise & Equipment 37.6% 38.2% 33.5% Other Assets 20.5% 23.4% 27.0% Liabilities & Capital Total Liabilities (LAK) 45.2% 46.0% 48.7% Accounts and Notes Payable 12.1% 12.3% 12.6% Bank Borrowing 13.8% 14.2% 13.5% No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
of Firms who Borrow from Banks 16 18 16 Percentage of Number 36.4% 36.0% 32.7% Bank Borrowing Ratio of Borrowing Firms 37.2% 38.8% 33.6% Borrowing from Affiliated Companies 0.7% 1.5% 3.9% Borrowing from Owners and Managers 4.5% 4.2% 4.3% Borrowing from Other Lenders 1.0% 0.4% 0.3% Other Liabilities 10.8% 9.0% 9.6% Total Capital Account (LAK) 52.6% 52.0% 49.2% Paid Up Capital 34.7% 40.9% 40.0% Retained Earnings 6.0% 1.0% -0.5% Additional Paid in Capital and Others 8.8% 7.5% 7.0% －150 － 151 Table 4-6 Capital Structure Classified by Ownership Secondly, however, the transaction regarding bank credit is rather more active in SOEs than in private companies. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
The bank borrowing ratio is a little higher in SOEs.
Although a smaller portion of SOEs borrows from a bank than that of private companies, the average bank borrowing ratio of ‘borrowing SOEs’ is as high as 55% in total assets.
It suggests that a few particular SOEs are heavily dependent on banks for their fundraising.
It is also noteworthy that while the average bank borrowing ratio of public companies is very low (6.8%), more than half of the firms (3 out of 5) keep loan transactions with banks. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Public (listed) companies seem well constructed in their relationship with banks.
Thirdly, trade finance represented by ‘Account and Note Payable’ is most active in private companies.
Likewise, private companies are highest in owner and managers credit.
Public companies also have a high position on them.
No.
of Sample 16 1 26 5 Total Asset 2016 (Mil.
LAK) 542,696 681,300 330,579 356,125 SOEs (Govt.
>50%) SOEs (Govt. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
>50%) SOEs (Govt.
<50%) Private Companies Public Companies Assets Accounts and Notes Receivable 16.4% 0.0% 20.7% 32.6% Investment and Loans to Affiliated Companies 7.5% 0.0% 2.0% 0.0% Premise & Equipment 41.2% 0.0% 40.1% 42.0% Other Assets 19.6% 0.0% 28.1% 25.4% Liabilities & Capital Total Liabilities (LAK) 48.9% 0.0% 53.0% 25.6% Accounts and Notes Payable 10.0% 0.0% 15.5% 10.5% Bank Borrowing 17.2% 0.0% 15.5% 4.1% No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
of Firms who Borrow from Banks 5 0 10 3 Percentage of Number 31.3% 0.0% 38.5% 60.0% Bank Borrowing Ratio of Borrowing Firms 55.0% - 40.3% 6.8% Borrowing from Affiliated Companies 0.0% 0.0% 2.8% 0.2% Borrowing from Owners and Managers 0.0% 0.0% 7.0% 5.5% Borrowing from Other Lenders 1.2% 0.0% 0.1% 0.0% Other Liabilities 11.8% 0.0% 9.0% 5.2% Total Capital Account (LAK) 51.1% 0.0% 47.0% 74.4% Paid Up Capital 38.5% 2.5% 41.9% 53.2% Retained Earnings -1.8% 0.0% -2.0% 16.0% Additional Paid in Capital and Others 10.3% 0.0% 4.7% 5.3% －151 － 152 5. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Concluding Remarks Observing the situation of presence and distribution of large firms including SOEs as a survey preparation, we examined the fundraising nature of the large firms by analyzing 65 representative samples of companies we originally surveyed.
We found a few strong indications that large firms are generally self-finance oriented while debt finance is very inactive.
Among them, SOEs are relatively segregated from bank credit transaction, partly as a result of government guidance. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
We also found that trade credit was relatively active, not only domestically, but also in import processes, although its financial function was weak.
We should consider policy design based on the recognition that corporate finance in present Laos is still at a very primitive stage.
－152 － 153 Appendix Appendix 1.
Estimation of the Determinants of Capital Structure This appendix shows a simple and primitive estimation on the determinates of capital structure of sample firms. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
As shown in Table 4-7, we adopt the factors of age of firms, ownership, and listed status as possible characteristics influencing the firms’ fundraising and financial strategy.
Table 4-7 Variables The estimation model is as follows: 𝑌𝑌𝑖𝑖= 𝐶𝐶+ 𝛽𝛽1𝑋𝑋1𝑖𝑖+ 𝛽𝛽2𝑋𝑋2𝑖𝑖+ 𝛽𝛽3𝑋𝑋3𝑖𝑖+ 𝜀𝜀 (𝑖𝑖= 1, 2, 3, … 𝑛𝑛), where 𝑐𝑐is a constant, 𝜀𝜀is an error term and 𝑛𝑛is the sample size. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
X1 is a vector of controlled variables consisting with control variables, and X2 is a vector of variables related to the characteristic we focus on.
And X3 presents the vector of variables related to the business operation. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Debt ratio Total liabilities/ total assets Bank borrowing ratio Bank borrowing/ total assets Other liabilities ratio (Debt - bank borrowing)/ total assets Controlled variables (X 1 ) Total assets Total assets Fixed assets ratio Fixed assets/ Total assets Retained earning Retained earning Age The firm's age from established year (logarithm form) SOEs Dummy variable, 0 for none state-owned enterprises and 1 for state-owned enterprises Foreign Dummy variable, 0 for no foreign shareholder, and 1 for at least one foreign shareholder Listed Dummy variable, 0 for none listed firm and 1 for listed firm Dependent Variables (Yi) Independent Variables Characteristics of Firm (X 2 ) Dummies for Business Operation (X 3 ) Manufacturing and Producing,Transportation, Postal service, Information and telecommunication, Hotel and restaurant －153 － 154 Since debt ratio is non-positive in 29 firms out of the 51 estimation sample, we adopt estimation models Tobit and Probit models in addition to Ordinary Least Squares. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
The descriptives of the variables are shown in Table 4-8.
The estimation includes 18 state- owned-enterprises (SOEs), 14 companies that have at least one foreign shareholder, and five listed companies.
The manufacturing and producing sector has the largest proportion of the business sector operated by samples (23%), All the financial indices are average of 2015-17.
Table 4-8 Descriptive Statistics The estimation results are shown in Table 4-9. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
The result of Tobit and OLS model looks fairly reasonable, whereas that of Probit model contains inconsistency, particularity on the estimation of the debt case.
The parameters of control variables are generally consistent; firms with the larger total assets hold debt and bank borrowing in higher ratio, and cash flow (retained earnings) clearly substitutes debt financing. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
As for the observation focus, roughly the estimation results show (1) debt ratio is relatively low in SOEs, (2) bank borrowing ratio is lower in foreign firms, while age of firms, and listing status are uncorrelated to firms’ capital structure.
It can be noted that the Information & Mean Min Max Obs. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
Unit Dependent variables Debt ratio 0.481 0 1.525 51 Proportion Bank borrowing ratio 0.157 0 1.03 51 Proportion Other liabilities ratio 0.324 -4.28E-05 1.147 51 Proportion Independent variables Total assets 379054.4 1141.294 3564038 51 Million LAK Fix assets ratio 0.363 0 0.859 51 Proportion Retained earning 24317.83 -204430.6 680757.5 51 Million LAK Age 21.09 3 69 51 Year Percent No. | https://transfered-docs-lawep.s3.amazonaws.com/thematic1e/pw_1/1725644155970.pdf | https://openjicareport.jica.go.jp/pdf/12355368.pdf | Japan |
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