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SMEs must improve to get loans: Economist
Small and medium sized enterprises in Laos are finding it difficult to obtain loans even though the government has a policy to strengthen small businesses, according to a World Bank survey.
The bank unveiled its Lao PDR Investment Climate Assessment at a seminar held on Monday at the National University of Laos' Dongdok Campus in Vientiane, aiming to give university lecturers and students a better understanding of the business climate in Laos.
According to the business climate assessment, about half of all bank loans went to large enterprises while small and medium enterprises received only 15 percent and 35 percent of the loan portion respectively. This is a strong indicator that they are still encountering difficulties obtaining funding for business expansion.
Most of the loans went to the construction and garment sectors while the food manufacturing, hotel, restaurant and trade sectors received only a small portion of the loans.
The government set up the Small and Medium Enterprise Promotion Office in 2006 to develop SMEs. It believed these businesses would provide jobs for a large number of people and create a stronger national economic base.
SMEs were also viewed as being able to provide strong support for larger enterprises, which are the pillars of sustainable economic growth.
Economist Dr Mana Southichack said yesterday the loan data clearly reflect the fact that banks are not confident about issuing loans to SMEs. They prefer to lend to larger businesses, which are more likely to make a profit and repay the loan.
Dr Mana, who is Director of Intergro and an economic and business advisor, said it would not be easy to convince banks to give loans to SMEs until they believed such businesses carried no risks.
He also said it was not easy for the Bank of the Lao PDR to supervise the banks' issuing of loans to SMEs, as encouraged by the government to establish a stronger economic base, because this went against market mechanisms.
One of the best approaches the government could take would be to ensure that SME owners have a stronger business sense and that smaller firms can expand, Dr Mana said. This would give banks greater confidence in issuing loans to small businesses.
Dr Mana said it was no surprise to see that construction companies were receiving the lions' share of loans because banks knew they could take ownership of real estate if project owners refused to repay the loan and interest.
He also said the soaring value of land and real estate gave banks even more confidence about issuing loans to real estate developers.
The Lao economy currently relies heavily on mining and hydropower, but these resources will one day be exhausted. This means it is necessary to build a knowledge-based economy around SMEs, to ensure the equitable distribution of national wealth.
vientiane times
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