Access to finance is reported as a problem by some actors in the supply chain. Slightly more than 28% of material suppliers, 38% of concrete producers, and 19% of masons stated that access to finance was a constraint. Although these are not a majority of the sample, more actors report access to finance as a constraint than other factors. (Another finance problem is customers not paying. Constraints are discussed further in Section 10 below.)
It is quite common for small businesses, regardless of industry and country, to cite access to finance as a constraint. In 2011, 20% of all Lao companies reported access to finance as a primary constraint (World Bank 2011), and 57% of micro businesses and 45% of small businesses said that lack of capital is a “big” or “very big” constraint (GIZ 2012).49Similarly, in Bangladesh in 2011 and in India in 2010, 28% and 35% of businesses, respectively, reported access to finance as a constraint (World Bank 2013a). Even in developed economies, such as the EU and the United States, small businesses report access to finance as a constraint (see, for example, O’Toole et. al. 2014).
“SMEs complain more about access to finance – a finding that is consistent with many other studies. However ... finance is different from the other constraints; bigger complaints by SMEs could reflect a financial system that is poorly equipped for evaluating the projects of small firms, or the existence of a well-functioning financial system that requires collateral and a track record before lending.” (Carlin et. al. 2006).
The higher percentage for concrete producers is interesting. It may reflect the necessary capital expenditure required by this type of work (moulds and tools, etc), or it could be that either their informality, lack of collateral, or insufficient regular income prevents them from accessing credit, compared with material suppliers. Indeed, fewer concrete producers interviewed have or have had a bank loan than material suppliers.
Around 50% of material suppliers interviewed have or have had a bank or MFI loan. The interest rate is usually around 13% (ranging from 6% to 15%) and the term is 1 or 3 years. About 22% of concrete producers interviewed have or have had a bank loan. The Interest rate is usually 14% and the term is 1 year. More material suppliers and concrete producers have a loan than the national average of 19% (World Bank 2011).
Masons do not access formal credit, perhaps because they have less need of it less but also because they are almost always unregistered, and also cannot provide collateral. If masons borrow, it is most likely to be from informal money lenders.
Interviews with financial institutions in the districts showed that they do provide some funds to businesses involved in the sanitation supply chain. However the percentage of branches lending to these businesses (retailers, concrete producers) is low (Table 36). The organizations that had lent to these supply chain actors were Nayobay Bank, Lao Development Bank, Agriculture Promotion Bank as well as Xayniyom MFI (which had lent to a mason).
In addition, three branches stated that they had lent to households in order to build a latrine (this may have been as part of a home loan or home improvement loan). These were all Nayobay Bank branches and were in Phaoudom, Vienthong and Xansay.
Table 36: Branches interviewed that have lent to households for toilet construction and to supply chain)
Note: Excluding lending as part of any Government or NGO program.
Branches from all the organisations interviewed except BCEL intend to increase their lending in the research districts — 83% of the branches surveyed plan to expand their operations in the area.
Table 37: Plans to expand operation in the district (% of total)
Region – Province
Is your organization trying/planning to increase its overall lending in this district?
The only institution present in the whole research area is the government-owned Nayobay Bank. It aims to provide loans to the 68 poorest districts in the country and has service units in each of these, with a larger branch in ten provincial capitals. In this study’s research area, Nayobay Bank has branches in Luangnamtha, Savannakhet, and Attapeu. At district level it has service units in Phaoudom, Meung, Long, Adsaphone, Nong, Sonbouly, Samoi, Ta-Oy, Sanxay, Phouvong, Kaleum, Dakcheung and Sanamxay.
Given the not-for-profit nature of Nayobay bank and its other goals, interest rates are relatively low for poor households and small businesses, ranging from 5% per year for short term (less than 12 months), 6% per year for medium term (1–3 years), up to 7% per year for long term (more than 3 years).
The conditions are that the borrower must have:
collateral for business and individual: usually land or house warranty; and
the loan should benefit the poor.
For group loans, there is no need for land/house collateral but the group members are responsible for all members’ repayments. Each group consists of around 7–15 households, with a maximum of 30 million LAK (US$3,750) borrowed per household.
ACLEDA Bank also has a presence in the research area (though not as prevalent as Nayobay). It has branches in the capitals of fourteen provinces, including Bokeo, Luangnamtha, Borikhamxay, Savannakhet, Salavan, Sekong, and Attapeu. The bank is working to increase awareness of it in rural areas. Being a private bank, ACLEDA’s rates are not as low as Nayobay’s — but they are still lower than the 5% per month typically charged by informal money lenders. The Bank claims to have more than 30,000 clients in rural areas. It lends to both SMEs and to households. The bank began as an MFI in Cambodia and has experience with small loans and rural lending.