Operation and Management of the Village Development Fund in Champasak Province, Lao PDR

Abstract

     As a least developed country, the economy of Lao PDR has an agricultural base with a high percentage of poor people living in rural areas. Poverty eradication and rural development are at the center of the government’s economic and social development policies. The Village Development Fund (VDF) has been used as an important strategy to increase access by the rural poor to financial capital. This paper reviews the development of the VDF in Champasak province, Lao PDR and assesses its operation and management, especially the structure, management rules, operation, and performance aspects, and is supported by interviews with the VDF management committees of two districts in the province. The results show that the VDF has expanded gradually over the past few years. The management was generally satisfactory. However, main problems encountered related to ethical issues and the good governance of management personnel. Through its policies, the VDF contributes to social development in the villages. This requires not only management skills and experience to optimize business and social goals, but also knowledge and understanding of the members to accept a flexible or relatively moderate rate of return on deposits. The non-performance of loans, as observed, was mostly caused by failures in crops or livestock raising. Hence, to sustain the VDF in Champasak province, it is important to widen the capacity development by increased campaigning on the basic knowledge of the principles and concepts among the members and on ethical development and good governance among the members of the management and advisory committees. To avoid non-performance of loans, it is essential to reduce the risks from investment in agricultural or non-agricultural activities. This requires more support from the public sector to ensure the efficiency and sustainability of the village development fund.