Lao PDR: Emergency Financing for Small Businesses Expected to Protect Livelihoods, Boost Recovery
The World Bank’s Board of Executive Directors today approved $40 million in emergency finance support for small and medium-sized businesses in Lao PDR to help them recover from the impacts of the COVID-19 pandemic.
The funding will be channeled through the World Bank’s Micro, Small, and Medium Enterprise Access to Finance Emergency Support and Recovery Project, which will work with the Ministry of Industry and Commerce and local financial institutions to provide credit to small businesses struggling to cope with the economic slowdown brought on by COVID-19. Small companies will have the chance to secure working capital loans that can sustain their businesses during the pandemic and initial recovery period, or investment loans for new equipment or expansion of facilities.
Micro, Small, and Medium Enterprises (MSMEs) are the foundation of the Lao economy, accounting for 82 percent of total employment. Such companies have been greatly disrupted by the ongoing COVID-19 crisis, with many facing sharp reductions in demand and income, as well as interrupted supply chains. Tourism came to a near standstill in the second quarter of 2020, while a lockdown in April and May limited demand for various services and halted production at many firms. As a result, many firms expect to lay off a large percentage of their workforce while half of all businesses report that they will have to close permanently.
“This new project will help MSMEs to stay in business, protect the livelihoods of employees, and soften the socio-economic disruptions caused by COVID-19,” said Mariam Sherman, Country Director for Myanmar, Cambodia and Laos. “These activities build on and continue the work undertaken by the Small and Medium Enterprise Access to Finance Project, which has been successfully supporting loans to Lao firms since 2014.”
The project will provide finance to participating financial institutions, which will then disburse loans to companies that apply for funds. The World Bank will also provide technical assistance to strengthen the Bank of Lao PDR’s capacity to supervise a credit guarantee facility. This will reduce the credit risk associated with loans under the project, allowing the participating banks to continue providing access to finance. In addition, the project will provide technical assistance to strengthen the capacity of commercial banks, small firms, the Ministry of Industry and Commerce, and other participating institutions. Five banks have so far expressed interest in taking part.
To be eligible for loans under the project, businesses must be registered companies that are micro (1-5 employees), small (6-50 employees), or medium-sized private enterprises (51-99 employees). The credit decisions and pricing of the loans are left to the participating financial institutions to determine based on their own credit assessment.