Johannesburg, 3 July 2015. FinMark Trust released the results of its first FinScope Consumer Laos 2014 survey results today. The FinScope Survey, developed by FinMark Trust, is a research tool to assess financial access in a country and to identify the constraints that preventfinancial service providers from reaching the financially under- and un-served people. The FinScope Survey is a nationally representative survey ofhow individuals source their incomes and how they manage their financial lives. It also provides insight into attitudes and perceptions regardingfinancial products and services. To date, FinScope Consumer Surveys have been conducted in 21 countries including Laos.
In order to develop policies that will generate sustainable and inclusive growth and development, the Government of Laos through the Bank of Lao PDR nationally implemented a UNCDF programme called the ‘Making access to finance more inclusive for poor people’ (MAFIPP). This programme will contribute to improved and equitable access to land, markets, social and economic services, as well as progression to an enabled environment for growth with equity. It will specifically increase access to financial services by low-income households and micro-entrepreneurs on a sustainable basis. Making Access Possible (MAP) is a diagnostic and programmatic framework to support expanding access to financial services for individuals and micro- and small-businesses. The MAP methodology and process has been developed jointly by UNCDF, FinMark Trust and Cenfri to foster inclusive financial sector growth. At country level, the core MAP partners collaborate with Government, other key stakeholders and donors to ensure an inclusive, holistic process. MAP Lao PDR represents a partnership between UNCDF, FinMark Trust, Cenfri, MAFFIP, UNDP, Bank of Laos and the Lao Statistics Bureau (LSB) for the Development of a Strategic Framework for Financial Inclusion in Laos.
Below are some of the highlights from the 2014 survey, conducted between November 2014 and January 2015, with a national sample of 2040 adults aged 18 years and older.
Financial inclusion overview
The survey revealed that 36% of adults are banked and 25% are financially excluded while 60% use informal mechanisms to manage their finances. Adults mainly use banking for transactions and or savings purposes. Some of the main reasons for banking are that money is kept safe from theft; obtaining interest on savings and it is an easy and safe way to receive money. Of those 64% of adults who are not banked, some of the reasons cited are no need for it (40%), they do not understand how banks work (13%) and service providers are located too far away (13%).
Insurance and remittances are the main drivers for the use of other formal products. On the other hand, informal products are mainly used for savings purposes through the use of Village Development Funds, village banks and Lin Huaey i.e. savings groups. The survey also showed that 78% of the population have difficulty with maintaining financial commitment due to low and irregular income levels. Furthermore, lack of financial literacy hinder adults from accessing finances.
According to the survey, more than half of the population live on an income of less than LAK 2 million a month.
Banking driven by transactional products
In Laos, transaction products (74%) are the major drivers in banking with approximately 1.1 million people using the service/product. This is followed by savings accounts at 67% and debit card usage at 27%.
High level of savings
According to the survey, 77% of adults save while 23% of adults were not saving at the time of the survey. The survey indicated that 14% of the population keep their savings at home while 37% rely on the use of informal mechanisms such as savings groups in order to save. On the other hand 25% of the population use savings products from a commercial bank. Some of the reasons why people save are for medical expenses (74%), developmental reasons (50%) and for living expenses in case one has no money (44%). Of the 23% of the population who do not save, some of the main barriers to savings cited were not having money after paying for living expenses (55%), no income at all (27%) and saving in other ways as and when one can (11%).
The main savings mechanisms for those who do save are through savings groups with Village Development Funds or Village Bank (33%) while 29% prefer to save in the form of cattle or livestock and 15% save with Village Development Funds or Village Bank.
Borrowing and credit
The survey indicated that 80% of the adult population on Laos do not borrow. Of those who do not borrow 56% indicated that they are capable of sustaining a life without debt, while 53% claimed that they fear debt and 24% are concerned about defaulting. On the other hand, of the 20% of the adult population who do in fact borrow, 55% borrow for developmental reasons, 25% borrow to meet living expenses while 21% borrow for medical expenses. The main borrowing mechanisms are banks (40%), friends and family (19%) and borrowing from Village Development Fund or Village bank (17%).
High uptake of informal insurance in the form of funeral fund
Despite the vast risks faced, only 23% of the population have insurance in Lao due to a lack of awareness. Motor vehicle insurance (50%) and medical/health fund (42%) are the major drivers of formal insurance. On the other hand, informal insurance in the form of village funeral funds and solidarity systems are high (91%).
Of the 77% of the population who do not have insurance, 24% claim to have not heard of it while 20% have never thought about it. 16% claim that they do not need insurance while 18% indicated that they do not know how insurance works.
The survey indicated that the population of Lao use savings (28%) to cope with risk.
According to the survey, 65% of the population do not remit. Of those who remit, 1.1 million remit within Laos while 580 000 remit outside of Laos. Adults residing in rural areas remit more than those in urban areas.
Farming is the main source of activity and income for the predominantly rural population of Laos. Cultural issues and lack of information about financial services are major contributors to people not using any formal of financial services. The preferred mechanism for obtaining credit and savings is through family and friends and informal mechanisms through village funds. The uptake of insurance to cover risks is low as people use solidarity networks, village funds and savings for this purpose. The main drivers of financial inclusion are savings and transactions which includes remittances.
*Developmental reasons includes reasons such as education or school fees; buying a bicycle, motorcycle, car, pick-up truck or other transport; buying or building a dwelling to live in; improving or renovating a dwelling; buying a dwelling or land to rent out; buying land; buying farming equipment; buying farming expenses such as seeds or fertiliser; starting or expanding my business or business activities of my household; and putting money or goods into someone else’s business.