EOI_LAFF II

19 Nov The Lao Access to Finance Fund goes forward

On the 5th of April 2019, the Lao Access to Finance Fund (LAFF) Management Unit of the Bank of Lao PDR (BoL) organized a roundtable workshop to exchange about LAFF.

The main objective of the workshop was to discuss the progress, outstanding issues and the proposed ways forward under the framework of LAFF management and implementation. The workshop was chaired by Ms. Fongchinda Sengsourivong, Director General of the BoL Banking Operations Department of and LAFF Director on behalf of the LAFF’s executive agency; and co-chaired by Mr. Florian Sekinger, Regional Manager Sustainable-Economic Development East Asia of KfW.

During the workshop six main topics were discussed:

1. Partner Financial Institutions (PFI) selection: Based on expressions of interest of 10 financial institutions (5 commercial banks and 5 deposit-taking microfinance institutions – DTMFI) and after the assessment and screening conducted by the LAFF’s loan allocation preparation sub-unit, 5 financial institutions (2 commercial banks and 3 DTMFIs) were shortlisted. Further assessment conducted by the Commercial Bank Supervision Department for commercial bank applicants and the Financial Institutions Supervision Department for MFI applicants concluded that one commercial bank and one DTMFI are proposed to be considered by the LAFF steering committee.
2. Market-based Interest rates: According to fundamental LAFF principles, the fund will use only market-based interest rates. KfW and BoL agreed on the calculating method on market-based interest rates for the LAFF debt-finance by using the average interest rate for long-term deposit charged by the commercial banks and DTMFIs in the Lao PDR. In conclusion, the interest rate of the LAFF debt-finance for commercial banks is currently derived to be 7.0 % nominal per annum, while for DTMFIs it is 11.50%.
3. PFI eligibility criteria: As agreed, the eligibility criteria for LAFF I will remain strict for banks and will be detailed over time MFIs based on an internationally oriented benchmark study to be prepared by AFC. On the other hand, the project documents for LAFF II will aim at creating more room for maneuver for the LAFF management unit (LMU) in terms of adapting core criteria depending on movements in market conditions.
4. KYC-criteria for PFIs (background check): The background check on owners, BoD members and core managers of PFIs is recognized as a check of utmost importance. It was agreed that the KYC-check will be done by the Commercial Bank Supervision Department and the Financial Institutions Supervision Department, and be explicitly mentioned in the respective assessment forms.
5. Operational Manual preparation: The development of the Operational Manual had been defined high priority by BoL during the last workshop. AFC presented the progress on the preparation.
6. Capacity building for BoL: The workshop participants discussed, identified and agreed on various training courses for the LAFF management unit, such as fund management, LAFF-related financial indicators and business English.

In conclusion, the workshop successfully achieved the set objectives and came up with some follow-up action points that will be further taken over by the LAFF management unit of BoL and the AFC consultant team.

For further details please contact Jakob Lutz (Jakob.lutz@afci.de ).

19 Nov Capacity Building Measures for the Lao Access to Finance Fund (LAFF)

Minutes of Meeting (MoM) LAFF website management (10.10.2019)

19 Nov Germany provides additional funds for LAFF

VIENTIANE (Vientiane Times/ANN) – The grant of 0.8 million euros was provided through Germany’s KfW Development Bank.

Germany has committed 0.8 million euros for the Lao Access to Finance Fund (LAFF) to strengthen capacity building and training of the Bank of the Lao PDR (BOL) and partner banks.

The grant in the amount of 0.8 million euros was provided through Germany’s KfW Development Bank.

The handover ceremony took place on Tuesday at the BOL in the presence of Director General of Banking Operation Department, BOL Ms Fongchinda Sengsourivong, KfW Country Director Lorenz Gessner and a representative of Ministry of Finance.

“The additional grant for the Lao Access to Finance Fund will further strengthen the banks’ capacity and quality participating in the fund which will have in turn positive effects on the overall services provided by the banks to the private sector in order to develop and expand,” Fongchinda said.

“The consulting services for delivering training and capacity building to the BOL and the partner banks are vital components for reaching the overall and specific objectives of the programme, which is the support of the commercial banking sector in Laos in providing sustainable and needs-based financial services for poor households and micro, small and medium enterprises (MSME) in rural areas,” cited KfW Country Director Lorenz Gessner.

According to KfW, the first bank participating in the LAFF is ACLEDA Bank Lao, which has successfully disbursed more than EUR 3 million over the last two years to MSME in Laos with an average loan size of 2,600 euros.

The programme objective is to facilitate the access of MSME to long-term finance in the domestic financial sector by offering eligible partner banks a target group oriented refinancing facility, which is aligned with the existing business environment of the local banking system.

The rationale of the focus on MSME is the expected above average impact on poverty alleviation through job creation and income generation.

KfW Development Bank is Germany’s leading development bank and an integral part of KfW. It carries out Germany’s Financial Cooperation with developing countries on behalf of the Federal Government.

It goals are to combat poverty, secure peace, protect the environment and the climate and make globalisation fair. KfW is a competent and strategic advisor on current development issues. 

19 Nov ACLEDA Bank Lao Ltd.

ACLEDA Bank Lao Ltd. CEO and Managing Director Narin Phon (left) shakes hands with BOL Banking Operations Department Acting Director General Oth Phonhxiengdy after signing the agreement

19 Nov Summary Introduction “Lao Access to Finance Fund”

1. Project

• Bilateral German-Lao Development Cooperation.

• Grant funding to the Lao PDR, Ministry of Finance.

• Ministry of Finance channeled to Bank of Lao PDR to manage (BoL = Project Executive Agency).

2. Principal

• Initial principal EUR 3.0 million.

• Accrued interest EUR 1.0 million, on separate account.

• Additional (2020) EUR 6.0 million.

• Total (2020) EUR 10 million.

3. Interest income

• Expected annual-interest income (2020): EUR 1.0 million.

• BoL can propose usage for its own benefits (e.g. trainings, exposure trips).

4. Characteristics

• Project-based: no legal personality, contracting in name BoL

• Wholesale debt-finance facility in LAK: loans to banks and DTMFI (PFIs) in LAK

• Market based:
• interest rate charged to banks and DTMFIs is in line with comparable liability funding;
• No interference in PFIs’ credit policies (e.g. selection of MSE-borrowers);
• No interference if PFIs’ marketing strategies (e.g. type of sectors, locations, pricing of loans to MSEs)

• Conditional:
• Strategic interest in lending to MSEs, including informal enterprises;
• Institutionalization of term lending (loans with duration of over 1 ½ year duration);
• Outside urban areas of Vientiane Capital;
• Minimum 30% for agricultural activities.

5. LAFF-Project Management

• LAFF Steering Committee (LSC)

Mandate: Oversees and signs-off loans to PFIs, and annual workplan and budgets for LAFF’s Management. Requests and receives external-audit reports.

Composition: Deputy Governor (Chair), DG of BOD (Vice-Chair), DDG of BOD, DDG of BSD, DDG of FISD.

• LAFF Management Unit (LMU)

Mandate: Management of operations, external and internal communication.

Director: Responsible for effective management in accordance to project’s principles. Reports to LSC. Manages relationship with BSD and FISD (see below).

Secretariat: Internal and external communication, the latter including the logistics of the Call for EoI process; preparation annual workplan and budget. Supports Director.

Loan Allocation Preparation subunit: Does financial analysis and due diligence of EoI-applicant banks and DTMFIs. In many ways the most important part of the overall governance and operational structure that requires high-levels of expertise. Prepares credit memorandum for LSC.

Loan Administration and Reporting subunit: Makes loan contract; issues notifications for installments of interest and principal; requests reports from PFIs; administers the LAFF portfolio and reports on it. Another main part of operations.

6. Involved External Stakeholders

• BSD and FISD: do repayment-capacity assessment and due diligence screening for and on request of the Director of the LMU based on off-site reports and on-site inspections.

• KfW: have to give no-objection to main LAFF-management decisions (e.g. LAFF-lending, annual workplan and budget).

• External Consultant: to be hired by LMU to support LAFF-management processes, funded from LAFF-interest income

• External Auditor: external audit and evaluation reports, to be instigated and received by LSC, funded from LAFF-interest income.

• AFC: technical assistance provider.

7. Technical Assistance

• LMU Director and LAP: financial analysis, due diligence process, Excel-based, with written explanation and in-person teaching.

• BSD and FISD LAFF-Teams: repayment-capacity assessment and due diligence processes

• LMU Director and LAR: Excel-based LAFF-loan portfolio administration and reporting; loan-contract screening, with written explanation and in-person teaching.

• Operational Manual: Codification management and operational processes.