The objective of this work in writing is to present a proposal for research on the access that Laos SMEs have to finance. This research proposal will present background information along with a review of the literature. In addition, this research proposal will set out the original points of the thesis, research difficulties and anticipated achievement as well as the progress of the research regarding its contents and a timeline for the research plan.

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There is currently lacking in the area of data on Laos small to medium enterprises (SMEs) (Kyophilayong, 2011). This means that the contribution that SMEs make to the activities in the economy of Laos is difficult to locate (Kyophilavong, 2011). There are few in the way of studies on the barriers that SMEs face in Laos (Kyophilavong, 2011). This means that a study of these barriers is of critical importance.

The work of Prabang (2014) reports that the World Bank Group along with Laos’ Government signed an agreement that has the objective of “making more credit available to small businesses in Los through the Small and Medium Enterprise (SME) Access to Finance Project” (p.1). It is reported that included is a grant in the sum of $10USD million and credit in the sum of $10USD million along with $12USD million in the form of “risk sharing funds” (Prabang, 2014, p.1). This project is not only focused on making the provision of credit that is long term for small firms in Laos but is also focused on assisting with job creation expansion as well as activities that are productive (Prabang, 2014). The report states specifically that small firms access to financing is critical for the economy in Laos, and the result is the creation of more jobs as well as bringing about an increase in the incomes of families and the revenues in the country (Prabang, 2014).

Kyophilavong (2011) reports that the SMEs in Laos are in their early developmental stages and that because of these there are problems that are quite varied for them and specifically financial constraints. Furthermore, the financial system of Laos is very weak and because of this “its contribution to economic growth is quite small” (Kyophilayong, 2011, p.4). The banking sector at the ending of the year 2008 was comprised of four commercial banks that are owned by the state along with two banks that are government-private joint ventures and five banks that are private with nine foreign branch banks and three foreign bank representative offices (Kyophilayong, 2011). Kyophilayong (2011), reports that there are also 37 financial institutions that are not banks in Laos.

Alternative funding sources are non-existent in Laos (Kyophilayong 2011). The development of SMEs in Laos is critical for economic development to be sustained (Kyophilayong 2011). While there has been economic growth that is high maintained in Laos, there are reported to be serious issues that are macroeconomic in nature that must be overcome (Kyophilayong 2011). Kyophilayong (2011), reports that there have been studies that are empirical in nature that has demonstrated that countries rich in resources such as Laos “fail in accelerating growth compared with resource-poor countries” (p.9). The reason for this is because of what is known as ‘Dutch disease’ reported to be a syndrome where the inflows of capital and booms in resources result in “an appreciation of the real exchange rate” and this results in an effect that is negative on goods that are tradable including those of industrial and agricultural goods (Kyophilayong, 2011, p.9). Addressing this problem to support economic development for the long-term requires economic activity be diversified and management of microeconomics that is appropriate in nature (Kyophilayong, 2011). Diversification of an economy is specifically dependent on SMEs (Kyophilayong, 2011).

The Asian Development Bank (2014) reports its technical assistance program with the project name of ‘Strengthening Access to Finance for Micro, Small and Medium-Sized Enterprises Lao People’s Democratic Republic.’ This project has a focus on development in the financial sector and providing “access to economic opportunities, including jobs” (Asian Development Bank, 2014, p.4). The drivers for change include partnerships focusing on respective institutions and development in the private sector which is a policy that is conducive and in the institutional environment (Asian Development Bank, 2014). One problem noted is that Laos is landlocked and that there are constraints for the SMEs due to the scarcity of information about those providing credits and credit products (Asian Development Bank, 2014).

The Asian Development Bank (2014) reports that it has been working on several initiatives to bring strength to the policy framework of macroeconomics in Laos and specifically by (1) policy coordination and development for SME across agencies; (2) the climate of investment; and (3) policy on trade and development of capacity. The Asian Development Bank (2014) reports that technical assistance has a focus on supply and demand of the financial services while assisting business growth through the development of skills and enabling SMEs to access finance that is external which is important since so many of the SMEs are depending on family-based financing. The hoped-for achievement is income that is higher among the SMEs (Asian Development Bank, 2014). It is reported that a needs assessment must be conducted in various SMEs subsectors and specifically focusing on how these needs to obtain financial services and the barriers to these for SMEs (Asian Development Bank, 2014). Secondly, it is reported that the SMEs must be assisting in the development of practices required to bring about an improvement regarding accessing financial services that are formal (Asian Development Bank, 2014).

Stated secondly is the improvement of financial services that are in place for the SMEs as well as micro-enterprises in Laos (Asian Development Bank, 2014). Providers of financial services will be advised on products that are suitable as well as suitable services for the SMEs which will involve the designer of financial products for SMEs entering into a collaborative relationship with their local counterpart and working on creation of services and products in a greater range for the SMEs (Asian Development Bank, 2014). Also involved is the conduction of an assessment on the impact and the promotion of financial management that is sound including an assessment of the use of the financial products to the present date (Asian Development Bank, 2014). Overall, Asian Development Bank (2014) report that, “a pilot technology fund” will be established to assist the SMEs on matters finance.

The Global Times (2014) reported that the government of Laos had planned to “strengthened a promotion fund aimed at supporting small and medium enterprises (SMEs) ahead of ASEAN Economic Community (AEC) incorporation in 2015” (p.1). The Deputy Director for the Promotion Department on SMEs stated that the fund had been put in place to bring more ease in financing access for SMEs in Laos (The Global Times, 2014). The Deputy Director stated that the SMEs in Laos is of critical importance in the development of the country as the SMEs are representative of around 90% of Laos business (The Global Times, 2014). The report relates that there is going to be more than $30USD million that will be made available in the fund (The Global Times, 2014).

The World Bank is providing support in addition to other sources of finance (The Global Times, 2014). The Finance Ministry of Laos has made a great contribution to this fund (The Global Times, 2014). In addition, the SMEs which are targeted are going to be on the receiving end of consultancy services that are subsidized by the Business Assistance Facility Fund and the World Bank (The Global Times, 2014). In addition, Laos’ government has set up a credit fund that will provide loans that are guaranteed to businesses that possess profit forecasts that are good even if their assets will not be sufficient for the guarantee (The Global Times, 2014). Additionally, reported is that there are seven centers for SMEs to obtain training and consultations (The Global Times, 2014). Finally, it was stressed that regulations should be identified for improvement (The Global Times, 2014).

The International Finance Corporation in Laos which is a part of the World Bank Group reported that it is working to assist SMEs in Laos in their capacity to access credit and doing so through “promoting loans using moveable assets” (2017, p.1). This is a move that will enable businesses in acquiring financing that is critically needed for growth, expansion and the creation of jobs (International Finance Corporation, 2017). It is reported that under 20% of the SMEs in Laos can access credit that is long-term due to their lack of real estate to obtain traditional type loans (International Finance Corporation, 2017). However, workshops were hosted in May of 2017 to assist banks and SMEs with credit enabling arrangements using such as equipment in factories, tractors, and timber as well as other inventory to acquire financing for their businesses (International Finance Corporation, 2017).

According to the report, there were more than 90 lecturers from universities as well as loan officers that attended the workshop to assist the SME owners in learning about how credit is analyzed and principles on lending (International Finance Corporation, 2017). Specifically stated is that “The program delivered in-depth knowledge and skills to help participants effectively analyze credit for commercial lending, including lending against moveable assets” (International Finance Corporation, 2017, p.1). The training is reported to be such that will serve to “equip lending practitioners with the necessary professional knowledge of commercial lending to enable them to practice their job more effectively, helping increase the efficiency in approving loans in Lao PDR” (International Finance Corporation, 2017, p.1). The workshop provided training that will give strength to the processes of lending along with the performance of banks that will assist in bringing opportunities for finance and growth to SMEs as well as banks in Laos and ultimately realizing benefits for the country at large (International Finance Corporation, 2017).

The work of Tachasermsukkul (ND) entitled “Small & Medium Enterprises Development Policies in Laos” reports that small enterprises in Laos are those who have employees totaling no more than 19 individuals and that do not exceed assets in the sum of 250 million kip. Medium size enterprises in Laos are reported to be those that have 99 employees or less and assets at 1.2 billion kip or less (Tachasermsukkul, ND). The economy of Laos is reported to be growing at a steady rate (Tachasermsukkul, ND). When compared to regional economy performance, Laos’s performance was somewhat higher (Tachasermsukkul, ND). There was a total of 126,717 SMEs in 2006 (Tachasermsukkul, ND). In addition, there were 286,575 individuals employed by SMEs in 2006 (Tachasermsukkul, ND). The SME sectors in Laos in 2006 were 64.5% in trade, 19% in manufacturing, and 16.5% in other categories (Tachasermsukkul, ND).

The distribution by sector for SMEs in 2009 is reported to have been 41.6% for retail and wholesale, 17.6% manufacturing, 16.6% food service and accommodation, 6% construction, 4.5% storage and transportation with 13.7% other categories (Tachasermsukkul, ND). Females owning SMEs in Laos for 2009 totalled 41.1% (Tachasermsukkul, ND). Regarding financing access, it is reported that a total of only 28.6% of SMEs were able to obtain a loan (Tachasermsukkul, ND). The types of SMEs in operation in Laos fall into three primary categories including (1) those producing goods that are commercial; (2) those in the sector of trade; and (3) those in the sector of service (Tachasermsukkul, ND). The work of Siharath (2012) note that it is critical for all stakeholders in Laos to work in collaboration to improve financing options for SMEs. Specifically noted for inclusion in this process are those of the private sector, the government as well as development agencies and that the focus should be on the active adoption and maintenance of an approach that is holistic and that has the goal of developing the SME and banking sectors so that the objectives of the government may be achieved (Siharath, 2012).

Technical assistance is one of the largest barriers for SMEs to obtain financing in Laos. There is a need for technical assistance programs to assist the SMEs in Laos as well as more varied types of financial institutional funding. Presently there is just not any bank alternative financing available in Laos making it very difficult for SMEs to obtain the necessary funding to support their ventures. Notably, banks have strict loan policies that made it very difficult for the SMEs to obtain financial assistance since they perceive SMEs as high risk financial ventures. Moreover, banks tend to have high interest rates on their loans which make SMEs shy away from bank loans and thus stalling their growth. Finally, there is a need to focus on regulations that will assist and support financial funding for SMEs in Laos. Not only do SME owners need education and training on acquiring financing for their businesses but the heads of banks and other financial institutions are also in need of training and education about how to make provision of financing to SMEs in Laos.

Noteworthy, Laos ought to allow alternatives to the banking services for the SMEs such as crowdfunding. Ideally, crowdfunding concept is where an individual or organization asks a large group to contribute a small amount of money instead of a small group of people for large sums of money. Arguably, it becomes easy for small businesses to raise funds collectively than individually and this will lessen dependency on banks.

Overall, Laos needs to provide financial access as the most needed technical assistance by the SMEs. Indeed, the existing bottle necks in access to finance by the SMEs have greatly hampered their growth. Arguably, enhancing access to finance will entail establishing low interest rates by money lending institutions such as banks to attract SMEs. In addition, enhancing financial access as a technical support will entail providing relevant information to individuals particularly concerning banking finance.

Noteworthy, this being a qualitative research, the method used will be focus groups. Ideally, focus groups discussions will be the method that will provide information for analysis and presentation. Moreover, the focus group will deliberate on the factors that hinder access to finances by the SMEs and further provide tentative solutions to the challenges.

Noteworthy, the research will use graphical models to prove the research. Ideally, graphical models will enable readers to understand the distribution of the phenomenon in question. Moreover, graphical models will help individual to compare the figures on various barriers to financial access a technical support factor. Overall, comparing factors that limit financial access will enable the research to identify ideal solution to each one of them.

Research difficulties are only represented by the volume of information available; however, according to the preliminary research in this study, there is sufficient information in publications to support the study. The anticipated achievement of this proposed research is the synthesis of the already published information on the availability of finance to SMEs in Laos.

The current state of progress on the content of the research has been set out in this report. The research has only just begun although it has become very clear that there is a need for financing development education and training in Laos and not only for the SMEs but also for the banks and financial institutions to assist everyone involved in knowing what can be done to strengthen the economy of Laos through strengthening SME financing, job creation, and expansion.