IFC to Develop Credit System in Laos

Credit System in Laos

The International Finance Corporation, the financial arm of the World Bank Group, is in talks with the Bank of the Lao PDR (BOL) to reform the credit system in Laos.

The reform is part of broader efforts to improve the country’s financial infrastructure and facilitate lending for smaller businesses, which will enhance economic growth.  

A financial symposium on credit reporting was held in Vientiane last Thursday, and was attended by government officials and representatives from local financial institutions. The symposium was funded by Canada, Japan, Switzerland, and the British Embassy.

The event saw collaboration between the National Bank of Cambodia, the Monetary Authority of Singapore, the Bank of Thailand, and credit-bureau companies from around the region with the aim of raising awareness of credit reporting.

The Bank of the Lao PDR heard from various agencies on their credit-reporting models, and will assist in the bank’s efforts to upgrade the national credit-information bureau, a central platform that collates credit information of borrowers.

“A credit-information bureau can perform the crucial function of gathering and distributing reliable credit information, improving creditor protection, enhancing competition in the credit market, and ultimately increasing access to credit,” said Vattana Dalaloy, Deputy Governor, Bank of the Lao PDR.

“Our partnership with IFC will help us bring Lao PDR’s credit-reporting infrastructure in line with international standards, enabling businesses obtain the financing they need to grow and contribute to the economy.”  

Access to finance is a massive obstacle for doing business in the Lao PDR. Only 12 percent of micro- small, and medium-sized enterprises have access to formal credit, and almost half of those that require credit remain unserved.

Through use of credit-reporting systems, companies will be able to build positive credit histories, and a well-functioning system will assist banks and microfinance institutions to better manage credit risk. This would have the potential to significantly reduce lending costs and collateral requirements.

Credit-reporting systems are a critical part of any country’s financial infrastructure and are key to the creation of a healthy financial sector, according to Phongsavanh Phomkong, head of the IFC office in Vientiane Capital.

The symposium is part of an ongoing IFC project funded by Canada, Japan, and Switzerland to support the development of a standardized credit-reporting system for Laos.

Source: The Financial