Constraints on Lao SMEs obstruct business operations

VIENTIANE (Vientiane Times/ANN) - A World Bank survey has suggested that Small and Medium-sized Enterprises (SMEs) in Laos face a range of constraints, most notably difficulty accessing finance, the practices of informal competitors, and electricity outages.  

Access to finance has become even more difficult over the past two years, according to the latest World Bank Enterprise Survey.

This problem can be attributed to a combination of persistent factors, such as greater caution in risky lending by the banking sector, a lack of proper business and financial planning and management among SMEs, low financial literacy, lack of variety of financial services offered to SMEs, especially in rural areas, and high interest rates.

The practices of competitors in the informal sector, such as poor compliance with regulations, combined with inconsistent enforcement by authorities, result in an unfair disadvantage for officially recognised businesses.

Additionally, despite steady progress in the expansion of the electricity supply in recent decades, access to and availability of power remains an issue that affects the operations of SMEs.

Farms report facing issues such as substantial delays in setting up a connection and inconsistent electricity supply, with these challenges being most prevalent among small businesses in rural areas.

Addressing these constraints is essential to unlock SMEs’ potential. Improving access to finance for SMEs could be achieved by improving the capacity of SMEs in business planning, financial management and adoption of proper accounting practices. 

Second, the financial products and services offered by banks and non-bank financial institutions should be diversified and, three, credit information coverage for financial institutions and supervision authorities should be improved to help better assess risks and promote access to finance.

In addition, improving efficiency and reducing the costs of formal bureaucratic processes could be an incentive for the formalisation of informal firms.

In effect, creating a level playing field for SMEs through the consistent enforcement of rules and regulations could reduce the challenges associated with informal competitors.

Finally, investing in improving the efficiency of the energy distribution network and electricity connections can markedly reduce the impacts on the business operations of SMEs.

SMEs constitute an important segment of the private sector in Laos. They account for about 99 percent of all registered businesses in the country and about 82 percent of employment.

Therefore, they are critically important for the livelihood of the Lao people.

Highlighting their as-yet-unrealised potential in Laos, these businesses are estimated to account for under 20 percent of GDP as compared with about 40 percent in Thailand and 31 percent in Malaysia and the Philippines.

Improving the performance and prospects of SMEs is one important way to raise incomes and the quality of jobs while helping the government to move closer to its goal of raising Laos out of Least Developed Country status. 

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