A comparative study of small and medium enterprises promotion measures on access to finance in the banking system of the Bank of the Lao PDR and the Bank of Thailand

Abstract

The government has given importance to the promotion of small and medium enterprises (SMEs) in various aspects, including access to finance in the banking system. This is because SMEs are important to the socio-economic system of Lao PDR. However, SMEs still confront with difficulties in financial access in the banking system. The study found that there are many problems such as the informational asymmetries, enterprise’s risk profile, bank’s transaction costs, enterprise’s lack of collateral, institutional and legal factors and the demand side considerations relating to the behavior and view of the enterprise, which cause difficulties to SMEs. It can be concluded that the main problems affect SMEs in having access to finance in the banking system are the result of the enterprise, bank, legal and other related problems. In addition, the Bank of Lao PDR (BOL) has no specific legal promotion measures and there is a few measures and still not concrete when compared to the promotion measures of the Bank of Thailand (BOT). Therefore, the writer recommended that the SMEs promotion in access to finance in the banking system requires cooperation from all parties, which are government, banks and SMEs. In addition, it is important to solve the enterprise potential problems in order to make the promotion more efficient and SMEs can have more ability to access finance in the banking system.