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The Impact of Microfinance on Household Welfare:

Case Study of a Savings Group in Lao PDR

by

Kongpasa Sengsourivong

Master Thesis
Department of Regional Cooperation Policy Studies
Graduate School of International Cooperation Studies
Kobe University

Filed July 2006


The Impact of Microfinance on Household Welfare:
Case Study of a Savings Group in Lao PDR∗

Kongpasa Sengsourivong

July 2006


Copyright © 2006, Master Thesis submitted to the Department of Regional Cooperation Policy Studies,
Graduate School of International Cooperation Studies, Kobe University, Japan .The views and
interpretations in this paper are those of the author and do not necessarily reflect the position of Kobe
University. E-mail: s_kongpasa@yahoo.com.
ACKNOWEDGEMENTS

I am indeed indebted to my academic adviser, Associate Professor Koji KAWABATA

for his insightful comments and support. I also would like to sincerely thank my two

former academic advisers, Associate Professor Fumiharu MIENO who provided me with

valued guidance, feedback and financial support for the follow-up survey in Laos, and

Professor Hiroshi UENO who provided me of tremendous support during my first

semester at the Graduate School of International Cooperation Studies. I am very grateful

to the critical questions and invaluable comments from both Professor Seiichi FUKUI

and Professor CHEN Kuang-hui during the time of being examination committee.

Contribution from Professor TAKAHASHI Motoki is gratefully acknowledged. I also

wish to thank Dr. Shalini MATHUR for her assistance in editing and structuring my

thesis.

In addition, I would like to express my gratitude to the Lao Women’s Union,

especially Ms. Sysay LEUDEDMOUNSONE (The President of Lao Women’s Union),

Ms. Boualone VONGDALASENE (the President of Lao Women’s Union at the

Vientiane Capital), Ms. Saikham SENGKA (the President of Lao Women’s Union at

Naxaithong city), and Ms. Khampane NAOVALARD (the Vice President of Lao

Women’s Union at Naxaithong city) for their advice and support throughout the surveys.

Thanks also to the Women and Community’s Empowering Project, particularly Mr.

Khanthone PHAMUANG (the Manager of the Women and Community’s Empowering

Project), and the other staff of the project for their support and cooperation during the

survey and for providing me with data on savings groups.

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Furthermore, I am obliged to my former boss, Mr. Huw LESTER, Senior

Manager of PricewaterhouseCoopers (Laos) Ltd, and Mrs. Rae DUNSTAN who edited

and proof read my paper. Special thanks to my beloved sister and brother, Ms.

Fongchinda SENGSOURIVONG and Mr. Apisid SENGSOURIVONG, for their

invaluable support and comments; and to my friends, Ms. Chanmany VONGLOKHAM,

Mr. Paliphonepheth BOUARAVONG, Ms. Phoummaly SIRIPHOLDEJ, Ms. Visany

PHOMSOMBATH, and the students of the faculty of economics and business

management (FEBM) from the National University of Laos, for kindly helping me to

conduct surveys. I would also like to thank my friend, Mr. Bounthone SOUKAVONG,

Economic Lecturer at FEBM, for kindly providing the students to help me conduct my

survey. My gratitude to my friends, Mr. Santisouk PHOUNESAVATH and Mr. Buavanh

VILAVONG for their invaluable comments; to Ms. Chansathith CHALEUNSHINH,

Research Officer of National Economic Research Institute, for providing me relevant data

and arranging of the surveys and to Ms. Daravanh VONGVIGIT, for kindly helping me

on data processing. Many thanks to my Vietnamese friend, Ms. Nguyen Thi Thuy Vinh,

for her helpful support on data processing and technical aspects of the econometric

software. In working through this research, I also have leant to appreciate positive

externalities through discussions with my colleagues. I am thankful to them.

Moreover, I would like to thank Japan International Cooperation Agency (JICA)

and Japan International Cooperation Center (JICE) for the financial support during study

in Japan. Finally, I would like to truly thank my beloved parents, my dear wife and my

cute daughter for always supporting me.

SENGSOURIVONG, Kongpasa. Kobe, Japan, July 2006.

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EXECUTIVE SUMMARY

Many countries recognize that microfinance can play an important role in

economic development as one of the tools for poverty reduction. Access to financial

services is a major issue for both rural and urban areas of Laos. Consequently, the

government of Laos recognizes that access to rural finance and microfinance could be

one of the major tools for poverty alleviation and places microfinance activities as one of

the priority programs for the agriculture and forestry sector in order to promote

sustainable growth and poverty eradication under the National Growth and Poverty

Eradication Strategy. Many studies have examined the relationship between microfinance

and economic development, but until now, only two key studies were undertaken in Laos.

While these two studies made an important contribution to this subject, they had some

shortcomings as they did not correct for problems of the self-selection and endogenous

program placement.

This paper surmounts these issues by adopting the methods used by Coleman

(1999) to estimate the effects on household welfare or outcomes by the participation in

the savings group. The survey was conducted in six villages in 2005 - 2006, in a semi-

urban area of Laos. All these villages had savings groups which were in operation for

various lengths of time. Of these, three villages had savings groups operating for more

than a year, and are called “old” savings groups. The remaining three villages also started

operating savings groups but these were in operation for less than a year. These are called

“new” savings groups. In the six villages, villagers were allowed to self-select to be

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savings group members or nonmembers. The survey sample included members and

nonmembers in the six villages. Members who experienced benefits from joining the

savings group by either obtaining a credit or receiving a dividend are called the

“treatment” group, and those who have not benefited from the groups are called the

“control” group. All members of the “control” group were relatively new members with

an average membership of 2.2 months. Hence, the effects on savings group members in

the treatment group can be compared with the savings group members in the control

group. In addition, differences in the length of time that savings group program has been

available to members in both treatment and control groups is taken into account to obtain

more precise impact estimates. Inclusion of nonmembers in all six villages allowed for

the use of village fixed effect estimation to control the possibility that the order in which

these six villages had savings group program placement is endogenous.

With this kind of survey design, the impact of savings group program on

household outcomes can be straightforwardly estimated. These positive outcomes include

increase in household house value, household livestock production income, household

agriculture production income, household rental expenses, and household education

expenses. The results illustrate that the savings group participation has large positive and

significant effects on all of these outcomes, except household yearly income from

agriculture. However, this can largely be explained by issues relating to the robustness of

the data for this indicator. In short, the participation of savings group can increase

household asset, household income from self-employment activities and support the

education of children.

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Consequently, this paper’s findings have several important implications. Firstly,

the large positive impact savings group has on household asset suggest that microfinance

programs may improve household status in terms of wealth. Secondly, the positive

significant effects of the savings group on productivity, particularly livestock and

agriculture in terms of rental on rice fields, suggest that the savings group program may

be a viable strategy for the poverty eradication. This is consistent with the National

Growth and Poverty Eradication Strategy (NGPES) (2004: 65) of the Government of Lao

PDR which recognizes the importance of microfinance and has placed it as the one of the

high priority projects for the agriculture and forestry development plan. Thirdly, the great

positive influence of the savings group program on household education expenses

suggests that microfinance program may be one viable strategy to reach the millennium

development goals in terms of education.

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TABLE OF CONTENTS

CHAPTER TITLE PAGE

Title Page i
Acknowledgements ii
Executive Summary iv
Table of Contents vii
List of Tables ix

1 INTRODUCTION 1
1.1 Issues 1
1.2 Research Topic and Objective 5
1.3 Hypothesis 5
1.4 Methodology 6
1.5 Structure of the Paper 7

2 MICROFINANCE IN LAOS 8
2.1 Country Brief 8
2.2 Microfinance in Laos 9

3 LITERATURE REVIEW 19
3.1 Impact Studies of Microfinance on Different Economic and Social 19
Indicators
3.2 Methodology 26

4 ANALYTICAL FRAMEWORK 31
4.1 Theoretical Framework 31
4.2 Model Specification and Methodology 36

5 SURVEY DESIGN 46

vii
5.1 Survey Design 47
5.2 Data Description 51

6 EMPIRICAL RESULTS 52
6.1 Impact on Household House Asset 55
6.2 Impact on Self-Employment Activities 59
6.3 Impact on Education 64

7 CONCLUSION 67

REFERENCES 71

APPENDIX A 80
Table 1: Descriptive Statistics for Variables of Whole Sample Size 80
Table 2: Descriptive Statistics for Variables by Treatment Group 84
Table 3: Descriptive Statistics for Variables by Control Group 88
Table 4: Descriptive Statistics for Variables by Nonmember 92
Table 5: Impact of Savings Group on Household House Value - GLS 96
Table 6: Impact of Savings Group on Yearly Self-Employment Income 100
from Livestock – GLS
Table 7: Impact of Savings Group on Household Yearly Self- 103
Employment Income from Agriculture – GLS
Table 8: Impact of Savings Group on Household Monthly Rental 106
Expenditure – GLS
Table 9: Impact of Savings Group on Household Monthly Educational 109
Expenditure – GLS

APPENDIX B 112
Case study: Savings Groups in Naxaithong City 112

viii
LIST OF TABLES

TABLE TITLE PAGE

2.1 Current Practices in Laos 16


5.1 Sample Size 49

ix
CHAPTER 1

INTRODUCTION

1.1 Issues

Microfinance is significant source of finance for poor, lower income people in

developing countries. It provides the funding for these people to run their micro-business

and to smooth their household’s consumption. Poor, lower income people have

difficulties in obtaining finance from formal financial institutions such as commercial

banks, due to barriers such as high collateral requirements and complicated application

procedures (Yunus, 2001; and Hulme &Mosley, 1996). However, there is strong demand

for small-scale commercial financial services (for both credit and savings) among the

economically active poor in developing countries. These and other financial services help

low-income people improve household and enterprise management, increase productivity,

smooth income flows, enlarge and diversify their microenterprises, and increase their

incomes (Robinson, 2001). These effects were evident from a number of impact studies

of microfinance. Based on the recent studies on this subject, microfinance has significant

impact on income, expenditure, assets, educational status, health as well as gender

empowerment.

This positive impact of microfinance on income was confirmed in studies

undertaken by Hulme and Mosley (1996); Mckernan (2002); Khandker et al. (1998);

Copestake et al. (2001); Sichanthongthip (2004); Shaw (2000); Mosley (2001); and

Copestake (2002).

1
Research by Pitt and Khander (1996 and 1998); and Khandker (2003) found that

microfinance could increase household expenditure. Morduch (1998), however, argued

that the eligible households that participated in the microfinance programs have strikingly

less consumption levels than the eligible households living in villages without the

programs.

The positive impact of microfinance on household assets was confirmed in studies

by Montgomery et al. (1996); Pitt and Khandker (19996 and 1998); Mosley (2001); and

Coleman (1999 and 2002). However, Mckernan (2002) found an inverse relationship

between participation in program and household assets. Mckernan also found that

households with fewest assets benefit most from participating in a program.

Research by Chowdhury and Bhuiya (2004); Holvoet (2004); and Pitt and

Khandker (1996 and d1998) found that microfinance has a positive effect on education.

Similarly, Chowdhury and Bhuiya (2004); Pitt and Khandker (1996); and Pitt et al.

(1999) revealed that microfinance has a positive impact on health. Furthermore, Hashemi

et al. (1996); and Pitt and Khandker (1998) noted that microfinance has positive effect on

women empowerment. However, there exists a counter argument that microcredit

programs inflicted extreme pressure on women by forcing them down to meet difficult

loan repayment schedules (Goetz and Gupta, 1996).

Beside the microfinance impact on the indicators mentioned above, Kyophilavong

and Chaleunsinh, (2005), found that the behavior of the village savings group members

was changed as a result of participating in a program. While previously savings were kept

in the form of gold, livestock, jewelry, deposits in the bank and savings at home,

members now saved in the savings group.

2
The Lao People’s Democratic Republic (Lao PDR) is one of the poorest countries

in East Asia in terms of an estimated per capita income of US$ 390 in 2004 (World Bank

Vientiane Office, 2006). Laos is classified by the United Nation as a Least Developed

Country (LDC). According to the World Bank Vientiane Office (2006), 71 per cent of

Lao population lived on less than US$2 a day, and 23 per cent on less than US$1 a day in

2004. In the same year, 34 per cent of the population lived under the national poverty

line; infant mortality was 82 per 1,000 live births; and life expectancy was approximately

55 years.

Consequently, the government of Laos recognizes that access to rural finance and

microfinance could be one of the major tools for poverty alleviation and places

microfinance activities as one of the priority programs for the agriculture and forestry

sector in order to promote sustainable growth and poverty eradication under the National

Growth and Poverty Eradication Strategy (NGPES) (2004). Since 1987, the broad

approach of microfinance, including in kind and in cash revolving role fund, has been

implemented by numerous development projects which includes those of government.

However, the microfinance sector is still relatively new in Laos. Although donors have

made a significant investment in the last few years in microfinance programs, the sector

is developing very slowly. About one million economically active people potentially

require access to formal or semi-formal microfinance services. However, almost three

quarters can not reach them. Approximately 300,000 people recently accessed loan and

savings services. Only 21 per cent have access to microcredit from the formal sector. 33

per cent are dependant on the semi-formal sector and project initiatives and the rest 46

3
per cent are obtaining financial service from the informal sector (Microfinance Capacity

Building and Research Programme, 2005).

Very few empirical studies have conducted to examine the effect of microfinance

on individual, household, community, or institutional levels in Laos and to test whether

or not microfinance is one of tools for poverty reduction. One empirical study of Lao

microfinance on Saithani case1 by Sichanthongthip (2004) showed a positive impact of

microcredit on income level of individual borrower. The study involved evaluating the

impact of a microfinance program (village savings group) in a semi-urban area of Laos

using a questionnaire to collect primary household data from members of the


2
microfinance program at two points of time (before and after borrowing) .

Sichanthongthip reported the results of the impact on income by applying econometric

analysis. However, he did not control for selection bias in the sample. Another study

which was not aware with such bias is the study by Kyophilavong and Chaleunsinh

(2005) who estimated the impact of a village savings group in a semi-urban area of Laos

by conducting a survey for both members and nonmembers of the village savings group.

They presented only the means comparison of many impact indicators for both members

and nonmembers. Without the correction of the selection bias problem, the results may

overestimate the impact of the program.

This study will attempt to evaluate the impact of microfinance programs in Laos

by correcting for the bias described above. This study also selected savings groups in

Naxaithong city as a case study. The city is located in a semi-urban area of Vientiane, the

1
Saithani case is derived from that the Saithani Small and Rural Development Project (Saithani Project)
which was established in 1996. The Project is a cooperative management between Lao Women’s Union
and the Foundation for Integrated Agricultural Management (FIAM) (Sichanthongthip, 2004:21).
2
Data before the borrowing was collected by respondent recall.

4
Capital of Laos, and the program established as part of the Women and Community’s

Empowering Project. The location of the study was selected because most of the savings

groups are located in and around the capital. Results of a recent survey found that most of

the 357 savings groups operating in Laos were located in and around Vientiane

(Microfinance Capacity Building and Research Project (2003) cited in Chaleunsinh,

2004:7).

1.2 Research topic and objective

Many studies examining the impact of microfinance at the household level,

enterprise level and macroeconomic level have shown a positive impact of microfinance

on two sets of indicators – economic and social indicators – in both developing and

developed countries. However, such studies have not been widely conducted in Lao PDR.

Therefore, this paper will address this gap by examining the impact of microfinance to

household welfare or outcomes in Lao PDR. More specifically, it will investigate the

impact of savings groups at the household level in a semi-urban area of Laos.

The primary objective of a savings group in Laos is to improve the living status of

borrowers and their families to bring them out of poverty. The main purpose of this paper

will be to evaluate the success of savings group against their primary objective.

1.3 Hypothesis

Most of poor people and lower income people join microfinance program in Laos

because they can access credit with specified interest rate which is lower than that

obtained from the informal money lender. They can, thus, save money. Therefore, it is

5
hypothesized that members with a long-term participation on the savings group may have

better quality of life in terms of wealth, income and expenses.

1.4 Methodology

To achieve the research objective, the author adopted the survey design and

research methodology of Coleman (1999) taking into account bias for self-selection and

endogenous program placement which was not corrected in the previous studies relating

to Laos. The author conducted a survey of 251 households in six villages in a semi-urban

area of Laos – Naxaithong district which is located 16 kilometers from Vientiane, the

Capital of Laos. Of these, three villages had savings groups operating for more than a

year, and are called “old” savings groups. The remaining three villages also started

operating savings groups but these were in operation for less than a year. These are called

“new” savings groups. In the six villages, villagers were allowed to self-select to be

savings group members or nonmembers. The survey sample included members and

nonmembers in the six villages. Members who experienced benefits from joining the

savings group by either obtaining a credit or receiving a dividend are called the

“treatment” group, and those who have not benefited from the groups are called the

“control” group. All members of the “control” group were relatively new members with

an average membership of 2.2 months. Hence, the effects on savings group members in

the treatment group can be compared with the savings group members in the control

group. In addition, differences in the length of time that savings group program has been

available to members in both treatment and control groups is taken into account to obtain

more precise impact estimates. Inclusion of nonmembers in all six villages allowed for

6
the use of village fixed effect estimation to control the possibility that the order in which

these six villages had savings group program placement is endogenous.

1.5 Structure of the paper

This paper is organized as follows:

• Chapter 2 presents an overview of microfinance in Lao PDR.

• Chapter 3 presents a literature review of previous studies on the impact of

microfinance on economic and social indicators.

• Chapter 4 discusses the theoretical framework and identifies the empirical

modeling and estimation methods to be used for this study.

• Chapter 5 describes the survey design and data.

• Chapter 6 outlines the results of empirical analysis.

• Chapter 7 summarizes the results and draws policy implications.

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CHAPTER 2

MICROFINANCE IN LAOS

Many countries realize that microfinance can play an important role in economic

development as one of the tools for poverty reduction. The government of Laos also

recognizes that role and has placed microfinance activities as one of the priority programs

for the agriculture and forestry sector in order to promote sustainable growth and poverty

eradication under the National Growth and Poverty Eradication Strategy (NGPES). This

chapter will outline the general background on the development of microfinance in Laos,

provide an overview of the current state of play in Laos in this area.

2.1 Country Brief

The Lao People’s Democratic Republic (Lao PDR) is one of the poorest countries

in East Asia with an estimated per capita income of US$ 390 in 2004 (World Bank

Vientiane Office, 2006). Laos is classified by the United Nation as a Least Developed

Country (LDC). According to the World Bank Vientiane Office (2006), in 2004, 71 per

cent of the Lao population lived on less than US$2 a day, and 23 per cent on less than

US$1 a day. In the same year, 34 per cent of the population lived under the national

poverty line; infant mortality was 82 per 1,000 live births; and life expectancy was

approximately 55 years.

In 2004, Laos had a population of around 5.8 million and a land area of 236,800

square kilometers. The country is characterized by a high degree of geographic, cultural

8
and linguistic diversity with very poor infrastructure. Moreover, villages, particularly

those populated by ethnic minority groups, tend to be extremely isolated and practice

subsistence agriculture. Laos is also a landlocked country which is located in the center

of the Mekong region, bordered by Thailand, Vietnam, Southern China, Cambodia and

Myanmar, of which, the first three are experiencing rapid economic growth. Nevertheless,

Laos has significant economic potential because of its rich natural resources (such as

forestry, minerals and hydro-electric power) and its proximity to major Asian economies.

Agriculture is the major economic sector contributing 51 per cent of GDP and employing

80 percent of the labor force. The industry sector accounts for 23 per cent and services

for 26 per cent (World Bank Vientiane Office, 2006).

2.2 Microfinance in Laos

Since 1987, the broad approach of microfinance in Laos (including in kind and in

cash revolving role fund) has been implemented by numerous development projects

which include those initiated by the government. However, the microfinance sector is still

relatively new in Laos. Although donors have made a significant investment in the last

few years in microfinance programs, the sector is developing very slowly. About one

million economically active people potentially require access to formal or semi-formal

microfinance services. However, almost three quarters cannot reach them. Approximately

300,000 people recently accessed loan and savings services. Only 21 per cent have access

to microcredit from the formal sector, 33 per cent are dependant on the semi-formal

sector and project initiatives and the rest 46 per cent are obtaining financial services from

the informal sector (Microfinance Capacity Building and Research Programme, 2005).

9
This section will briefly describe the development of microfinance in terms of

microfinance providers3 which consist of the formal, semiformal and informal sectors.

The information is sourced from Enterplan (2003).

2.2.1 Formal sector

The formal banking system in Laos consists of:

• The Bank of Laos (the central bank);

• Three state-owned banks (the Banque pour le Commerce Exterieur Lao

(BCEL), Lao Development Bank (LDB)4, and the Agricultural Promotion

Bank (APB));

• Three joint venture banks (Joint Development Bank, Lao-Viet Bank and

Vientiane Commercial Bank);

• Six foreign commercial banks with branch offices and one foreign

commercial bank with a representative office (FCBs)5.

The headquarters of each bank are located in Vientiane. APB is the largest bank

in term of branch network in Lao PDR. It has one head office in Vientiane, 18 branches

in the 17 provincial capitals and Vientiane Capital City, and 55 sub-service units at the

district level. The head office of LDB is also located in Vientiane and it has 17 branches

(one in each province). BCEL has three branches. Lao-Viet Bank has one branch in

3
This section borrows extensively from Enterplan (2003).
4
It was merged from two state-owned banks: Lao May Bank and Lane Xang Bank.
5
Public Bank (Malaysia), Bangkok Bank, Bank of Ayudhya, Krung Thai Bank, Siam Commercial Bank,
Thai Military Bank (all Thai Bank) all of which have branch offices in Vientiane. Standard Chartered Bank
has a representative office and only provides offshore guarantee facilities for overseas clients doing
business in Laos.

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Champasack province. The rest (JVBs and FCBs) have no branches and no provincial

outreach, and only operate in the area around Vientiane municipality.

Practically, only one formal financial institution, APB6, has a large outreach and a

true track record in rural finance. APB was established by Decree in 1992 (Decree 92/PM

1992) to assist the development of the agricultural sector in Laos. Since March 2000,

APB has been largely under the provision of the Decree on Commercial Banks

(Decree02/PR 2000) after operating under that separate mandate. In April 2002, APB had

about 130,000 borrowers. Of these, about 123,000 were in groups (group lending). The

activities of APB have focused on the provision of subsidized loans which use funds from

the government and donors.

2.2.2 Semiformal sector

The semiformal financial sector in Laos is poorly developed. In this sector,

activities may be classified in two categories: microfinance initiatives and illustrative

International Non Government Organization (INGO) initiatives.

A. Microfinance Initiatives

Many microfinance initiatives provide microfinance in urban and rural areas of

Laos through program such as the Microfinance Project, Cooperative de Credit de

Soutien aux Producteurs (CCSP), Project de Developpement Rural du District de

Phongsaly (PDDP), the Rural Development Cooperative (RDC), and Credit Union Pilot

Project.

6
Lane Xang Bank before merging with Lao May Bank also provided micro lending with a focus on micro-
traders (Bank of the Lao PDR, 2002: 31).

11
(1) The Microfinance project

The United Nations Capital Development Fund (UNCDF) and the United Nations

Development Programme (UNDP) with cooperation of the Government of Laos launched

the microfinance project in late 1997. This project ran microfinance activities in

Oudomxay and Sayaboury Provinces using the group lending methodology. It also

includes the Sihom Project Savings and Credit Scheme (SIPSACRES) – an urban credit

and savings cooperative founded under UNDP project in 1995. However, the UNDP and

UNCDF did not provide funding for this project after 2002. Now, the Lao government

manages the project7. While data for 2002 is unavailable, estimated data for 2000 showed

that the microfinance project serves about 3,525 clients in total in October 2000 (United

Nations Capital Development Fund, 2001).

(2) Cooperative de Credit de Soutien aux Producteurs (CCSP)

CCSP was established in 1996 on the initiative of a group of Lao entrepreneurs. It

consists of nine member-owned cooperatives. Microcredit provided to their clients in the

vicinity of Vientiane is for the purposed of agriculture, handicraft, small industry and

services. CCSP also accepts savings from member and issues loan to members secured by

group guarantee and compulsory savings. In September 2002, there were about 1,000

active savers and about 650 active borrowers in this initiative.

(3) Project de Developpement Rural du District de Phongsaly (PDDP)

PDDP was formed in 1997. It runs village banks for farmers in 57 villages in

Phongsaly city with the support from Agence Francais Developpement (AFD). PDDP

also requires compulsory savings from their members and leverages these with AFD

7
For the ones operating in Sayaboury and Oudomxay provinces are recently under the provincial
government authorities. SIPSACRES is currently under the supervision of Finance Department, Vientiane
Capital.

12
funds. In March 2003, about 2,350 borrowers received a loan from PDDP. In this

initiative, loans are provided for cash crops, livestock, handicraft and petty trade and it

applies a joint liability system for loan guarantee.

(4) Rural Development Cooperative(RDC)

RDC began running its activities in August 2001 when it received the funds from

the Vientiane Municipal Development Fund. Its operation is implemented in thirty

villages in Vientiane Capital City. Its services include both credit and savings. Loans are

issued for different kinds of economic activities such as agriculture, handicraft and trade.

These loans require physical collateral and a 20 per cent savings deposit for guarantee.

RDC had between 400 and 500 borrowers in 2003.

(5) Credit Union Pilot Project

The Credit Union Pilot Project is one of the subprojects of Asian Development

Bank TA cluster 3413 – LAO: Rural Finance Development. In March 2003, the savings

and credit unions (SCUs) were established in Vientiane, Savanakhet and Luang Prabang

Provinces. The three pilot credit unions have licensing as a condition of the ADB

Banking Sector Reform Programme Loan (BSRPL).

B. Illustrative INGO initiatives

In addition to the microfinance initiatives, there are about 1,600 village revolving

funds (VRFs) that have been supported by donors and NGOs (Bank of the Lao PDR,

2002: 31).

International Non Government Organizations (INGOs) use village revolving

funds (VRFs) to widely provide financial services in the rural areas. These organizations

13
tend to focus on the operation in the areas which are not covered by banks including the

APB. In these areas, villagers can only access to credit from friends, family members,

and moneylenders. Around 35 INGOs and a few bilateral and multilateral agencies are

supporting rural development projects in Laos. These projects have set up cash or in-kind

funds for villagers as part of their integrated programmes. Assistance is provided for

agricultural equipment, gravity water and irrigation supplies, seeds, rice banks for food

security, animal banks, and medicinal drug fund. The projects depend on subsidized

credit and when this credit finishes when the project ends. There is rarely any local

resource mobilization. As a result of the above, a substantial number of projects are not

sustainable.

The Lao Women’s Union (LWU) is a key intermediary for INGOs rural financial

projects. LWU was established in 1955 and is a mass organization which has been

implemented at three levels – district, provincial and national. LWU operates in every

village through the country. It is active in a significant share of INGOs projects as an

intermediary, an organizer, and as the Lao Government partner. Due to its reach into the

villages, LWU has frequently been the implementing agent or partner for INGO-

supported projects.

In addition to LWU, there are three more mass organizations 8 and five

government offices 9 at district and provincial level to run microfinance programs

throughout the country (Microfinance Capacity Building and Research Programme,

2005).

8
Lao Youth Union, Lao Front for National Construction Office and Federation of Trade Union.
9
Agriculture Office, Planning and Investment Office, Health Office, Labour and Social Welfare Office,
and Finance Office.

14
In addition, there are many NGOs running microfinance initiatives in Laos

including CARE, CONSORTIUM, CUSO, Mennonite Central Committee (MCC), Save

the Children Australia (SCA).

2.2.3 Informal sector

This sector comprises moneylenders, rotating savings and credit schemes which

locally known as Houai (daily, weekly, and monthly), traders and rich farmers.

According to Bagchi et al. (2002), inter-household loans are important among rural

households and most of these loans are made in-kind. Nevertheless, rotating savings and

credit (Houai) is a significant source of loan money for investment or emergency needs in

the urban or semi-urban areas.

Moneylender

According to the Bank of the Lao PDR (2002), the role of moneylenders in both

urban and rural areas is estimated to be quite important – approximately 50 per cent of

rural villages appear to have access to money lender services. Most professional

moneylenders operate close to the markets and lend for quick turnover activities.

According to professional observation, rates have been stable for the last few years

ranging from 10 and 30 per cent per month with lower interest rates in urban areas due to

competition. Supplier credit for agricultural inputs is rare. Some foreign suppliers across

the Mekong River accept precious metals as collateral for merchandise purchases.

As described above, there are many different approaches to microfinance in Laos.

Bagchi et al. (2002) analyzed each microfinance practice in Laos and provide

commentary on each type of initiative. These comments are summarized in Table 2.1.

15
Table 2.1: Current practices in Laos10

No. Approach/ Implementing agencies Limitations/ Challenges


Models GoL/Ministry/ Bank INGOs Bi and or
Provincial Multilateral
Authority/ agency
Mass
organization
1 Institutional √ √ • Not targeting poor people
methodology • Not flexible enough
(solidarity • Limited outreach
methodology • Rural households do not have
focused on access to financial services
institutional
sustainability)
2 Credit union √ √ • Lack of confidence of people
as a depositor
• Limited outreach
• Rural households do not have
access to financial services
• Lack of skilled human
resources
3 Direct bank √ • Accessibility is difficult
operation because of lots of paper work
and formality
• Lack of confidence of people
as a depositor
• Limited outreach
• Rural households do not have
access to financial services
• Lack of skilled human
resources
• Does not disclose its
financial information or audit
results to the public
4 Co-operative √ • Limited outreach
• Rural households do not have
access to financial services
5 Self help group √ √ √ • Not properly designed
• Ownership is big challenge
• Most of the time village elite
people have easy access to
funds
• Often poorer people
excluded from the benefits
• Highly subsidized

10
Table 2.1 is sourced from the market research study done by Bagchi et al. (2002).

16
No. Approach/ Implementing agencies Limitations/ Challenges
Models GoL/Ministry/ Bank INGOs Bi and or
Provincial Multilateral
Authority/ agency
Mass
organization
6 Village or √ √ √ √ • Not properly designed
community • Ownership is big challenge
bank • Most of the time village elite
people have easy access to the
fund
• Often poorer people excluded
from the benefits
• Emphasis on credit rather than
savings
• Sustainability is questioned
7 Informal kinds √ √ √ • Mainly introduced for food
(cereal and security
animal bank) • No cash transactions made
initiatives • Not financial services
• Pushing back towards the non
cash economy
• Highly subsidized
• Very informally organized
• Very limited option for local
resources mobilization
8 Village √ √ √ • Ownership is a question
Revolving Fund • Often poorly designed
• Most of the time village elite
people have easy access to funds
• Often poorer people excluded
from benefits
• Emphasis on credit rather than
savings
• Highly subsidized
• Leadership is a crucial factor
• Sustainability is questioned

Source: Annex 5 of Bagchi et al. (2002).

Although the practice of microfinance in Laos is still new and at an early stage of

development, this study aims to examine the influence of microfinance on household’s

outcomes. Therefore, the rest of the paper will conduct an in-depth investigation of the

17
effects of savings groups on household welfare or outcomes to determine whether or not

the household’s status improves with access to microfinance.

18
CHAPTER 3

LITERATURE REVIEW

Most existing studies on the impact of microfinance examine two sets of

indicators11 – economic and social indicators – at different levels12. Despite the variation

in the methods used and the results of studies conducted in various countries, the main

impact of microfinance impact is on change in income, expenditure, assets, educational

status, health as well as gender empowerment. The studies that have examined the impact

of microfinance on these indicators are discussed below.

3.1 Impact studies of microfinance on different economic and social indicators

3.1.1 Impact studies of microfinance on income

The effect on income has been analyzed at the individual, household and

enterprise levels. Hulme and Mosley (1996), conducted various studies on different

microfinance programs in numerous countries, and found strong evidence of the positive

relationship between access to a credit and the borrower’s level of income. The authors

indicated that the middle and upper poor received more benefits from income-generating

credit initiatives than the poorest. McKernan (2002), moreover, evaluated three

significant microcredit programs in Bangladesh and discovered that the profit for self-

employed activities of households can be increased by program participation. These


11
Economic indicators are normally measurements for microfinance impact as income, level and patterns
of expenditure, consumption and assets. Social indicators to measure the impact of microfinance became
popular in the early 1980s as educational status, access to health services, nutritional levels, anthropometric
measures and contraceptive use, for example (Hulme, 2000).
12
Hulme (2000) identified levels of assessment in different units as individual, enterprise, household,
community, institutional impacts and household economic portfolio such as households, enterprise,
individual and community.

19
programs were also examined at the village-level impacts in the study of Khandker et

al.(1998) which showed that they have positive impact on average households’ annual

income, especially in the rural non-farm sector. Copestake et al. (2001), estimated the

effect of an urban credit programme – a group-based microcredit programme – in Zambia,

and found that microcredit has a significant impact on the growth in enterprise profit and

household income in case of the borrowers who have received a second loan.

Sichanthongthip’s study (2004) also pointed to a positive impact of microcredit on the

income level of individual borrowers. This can be seen from the higher monthly income

earned after the member accessed credit, in the empirical study of Lao microfinance on

Saithani case. Shaw (2000) studied two microfinance institutions (MFIs) in Southeastern

Sri Lanka and showed that the less poor clients’ microbusiness that accessed loans from

microfinance programs could earn more income than those of the poor do. Mosley (2001)

evaluated the impact of loans provided by two urban and two rural MFIs on poverty in

Bolivia. He found that the net impact of microfinance from all institutions, at the average

level, was positive in relation to borrowers’ income, even though that net impact for

poorer borrowers might be less than the net impact on richer borrowers. Copestake

(2002) conducted the case study of the Zambian Copperbelt, applying the village bank

model to investigate the effect on income distribution at the household and enterprise

levels. The study showed that the impact on income distribution depends on who obtains

the loan, who move on to larger loans and who exits the program: group dynamics was

also an important factor. As he discovered, “Some initial levelling up of business

incomes was found, but the more marked overall effect among borrowers was of income

polarization.”(Copestake, 2002: 743).

20
3.1.2 Impact studies of microfinance on expenditure

Expenditure is another indicator to measure the impact of microfinance. Pitt and

Khandker (1996 and 1998) estimated the effect of microcredit obtained by both males

and females for the Grameen Bank and two other group-based microcredit programs in

Bangladesh on various indicators. They showed that the clients of the programs could

gain from participating microfinance programs in many ways. It can be seen that income

per capita consumption could be increased by accessing a loan from a microcredit

program such as the Grameen Bank. Khandker (2003) also conducted research on the

long-run impacts of microfinance on household consumption and poverty in Bangladesh

by identifying types of impact in six household’s outcomes as outlined bellow:

• Per capita total expenditure;

• Per capita food expenditure;

• Per capita non-food expenditure;

• The incidence of moderate and extreme poverty;

• Household non-land assets

The author found that the microfinance effects of male borrowing were much weaker

than the impact of female borrowing and there was decrease in return to borrowing all the

time. Moreover, he noted that the impact on food expenditure was less pronounced than

the one on non-food expenditure. Besides, he showed that the poorest gained benefits

from microfinance and microfinance had a sustainable impact in terms of poverty

reduction among program participants. In addition, the author discovered that there was

spillover effect of microfinance to reduce poverty at the village level. In contrast, the

impact was less noticeable in reducing moderate rather than extreme poverty. Morduch

21
(1998), however, argued that the eligible households that participated in these three

microfinance programs have strikingly less consumption levels than the eligible

households living in villages without the programs.

3.1.3 Impact studies of microfinance on wealth

A further indicator of the impact microfinance is wealth. Montgomery et al.

(1996) examined the performance and impact of two microfinance programs in

Bangladesh. They found that there were positive impacts of a microcredit program, such

as the Bangladesh Rural Advancement Committee’s (BRAC’s) Rural Development

Program (RDP), on both enterprise and household assets. Clearly, even though total value

of household assets had a slight increase after the borrowers obtained last loans, there had

significant increase in the value of productive assets. Pitt and Khandker (1996 and 1998)

also noted that the microcredit had a positive impact on women’s non-land assets. Mosley

(2001) also pointed out that there was positive impact of microfinance on asset levels. He

further stated that accumulation of asset and income status was generally highly

correlated, which led to extreme correlation between income poverty and asset poverty.

Coleman (1999) investigated the impact of a village bank on borrower welfare in

Northeast Thailand. He found that there was a slight impact of program loans on clients’

welfare. However, he discovered that the village bank had a positive and significant

impact on the accumulation of women’s wealth, particularly landed wealth but this result

included bias from measured impact (discussed in methodology below). In contrary to the

positive results, Mckernan (2002) found an inverse relationship between participation in

22
program and household assets. Mckernan also found that households with fewest assets

benefit most from participating in a program.

3.1.4 Impact studies of microfinance on educational status

Many impact studies of microfinance have focused on educational status.

Chowdhury and Bhuiya (2004), studied the impact of a microfinance program, BRAC

poverty alleviation program, in Bangladesh, and found that both member and non-

member groups of BRAC had improved in educational performance. However, the

BRAC member households benefited much more than poor non-member households.

Furthermore, girls gained more than boys. Holvoet (2004) investigated the effects of

microfinance on childhood education by examining two microfinance programs in South

India – one with direct bank-borrower credit and another one with group mediated credit.

The author showed that loans to women, through women’s groups, had a significant

positive impact on schooling and literacy for girls, whereas it remained mainly

unchangeable in the case of boys. However, in case of direct individual bank-borrower

lending, there was no improvement in educational inputs and outputs for children. Pitt

and Khandker (1996) found that a credit to the participants provided by a microfinance

institution like the Grameen Bank, could grow school enrolment for children. They found,

for example, that in case of the Grameen Bank and Bangladesh Rural Development

Board’s (BRDB) Rural Development RD-12 program, credit lending to women had a

significantly positive impact on schooling for boys (Pitt and Khandker, 1998).

23
3.1.5 Impact studies of microfinance on health

Indicators related health issues are also applied as proxies to examine the impact

of microfinance. Chowdhury and Bhuiya (2004) found that microfinance program, led to

a good improvement in child survival and nutritional status. Pitt and Khandker (1996)

also noted that there was a rise in contraceptive use and decrease in fertility in case of the

participants obtaining a credit provided by the Grameen Bank. However, there was no

evidence to prove that an increase in contraceptive use or a decrease in fertility resulted

from the participation of women in group-based credit programs. But fertility reduction

was observed and contraceptive use slightly increased in case of men’s participation (Pitt

et al., 1999).

3.1.6 Impact studies of microfinance on empowerment

Microfinance also leads to the empowerment of women. Hashemi et al. (1996)

studied two main microfinance programs in Bangladesh, the Grameen Bank and the

Bangladesh Rural Advancement Committee (BRAC). They noted that the participation of

the programs had important positive impacts on eight different dimensions of women’s

empowerment:

• Mobility,

• Economic security,

• Ability to make small purchases,

• Ability to make larger purchases,

• Involvement in major household decisions,

24
• Relative freedom from domination by the family (especially, women’s

ownership of productive assets),

• Political and legal awareness,

• Participation in public protest and political campaigning.

In another study, Pitt and Khandker (1998) found that the behavior of poor households

was significantly changed in case of women’s participation in the program credit, in

Bangladesh. It, for example, could be seen that every 100 additional taka credit provided

to women by the microcredit programs, namely the Grameen Bank, BRAC and BRDB,

increased yearly expenditure for household consumption by 18 taka, whereas that

provided to men from the same programs grew yearly household consumption

expenditure by 11 taka. However, there exists a counter argument that microcredit

programs inflicted extreme pressure on women by forcing them down to meet difficult

loan repayment schedules (Goetz and Gupta, 1996).

Besides the microfinance impact on the indicators mentioned above, one study

tried to examine how the savings group in Laos affects the behavior of member of a

village savings group. It showed that the behavior of the village savings group members

was changed as a result of participating in a program. While previously savings were kept

in the form of gold, livestock, jewelry, deposits in the bank, and savings at home,

members now saved in the savings group (Kyophilavong and Chaleunsinh, 2005).

Different methodologies have been adopted to analyze the impact of microfinance

programs. These are discussed in the next section.

25
3.2 Methodology

Empirical studies on the impact of microfinance can be distinguished into two

main groups: those that were not concerned about selection bias problem13 and those that

were. A large number of impact studies of microfinance programs did not take into

account selection bias. According to Chen’ s review of 11 impact studies of the Grameen

Bank in Bangladesh, no study corrected the selection bias (Chen (1992) cited in Coleman

1999, p.109). Shaw (2004) also studied two microfinance programs in Sri Lanka, and

used a questionnaire and conducted interviews in one semi-urban and two rural groups.

The author presented only median comparisons of client incomes among four household

income groups (extreme poor, poor, near-poor and nonpoor), at time of their first loan

(June 1994) and at the time the research was conducted (June1999). However, he did not

take into account selection bias. Sichanthongthip (2004) evaluated the impact of a

microfinance program of the village savings group in a semi-urban area of Laos and used

a questionnaire to collect primary household data from members of the microfinance

program at two points of time (before and after borrowing). He reported the results of the

impact on income by applying econometric analysis. On the other hand, he also did not

control for selection bias. Another study which also did not take into account such bias is

the study by Kyophilavong and Chaleunsinh (2005) who estimated the impact of a village

savings group in a semi-urban area of Laos by conducting a survey for both member and

nonmember of village savings group. They presented only a comparison of the mean

values of many impact indicators for both members and nonmembers.

13
As Holvoet (2004: 32) noted, “Selection bias may occur because of nonrandom program placement,
through selection by program staff, or because of self-selection by program participants”. For further
details, please read more in Baker (2000), and Greene (2000). For numerous discussions for methods to
correct that bias, please refer to Heckman and Robb (1985), Moffitt (1991), and Ravallion (2005).

26
A number of researchers, however, have attempted to correct the selection bias.

Hashemi et al. (1996) evaluated the effect of rural credit programs in Bangladesh by

undertaking ethnographic research in six villages during the period 1991-94 and

conducting a survey in late 1992. The authors classified their sample into four groups

consisting of:

• Grameen Bank members,

• BRAC members,

• Nonmembers living in the Grameen Bank villages (who would have been

eligible to join either BRAC or Grameen Bank),

• A comparison group living in villages without the Grameen Bank or

BRAC programs but who would have qualified to join the credit programs.

They also tried to address the possibility of selection bias by including nonparticipants

and participants in Grameen Bank villages and comparing them with women living in

villages without microcredit programs.

In contrast, Hashemi et al. (1996) did not control for possibility of endogenous

program placement, even though, the authors presented the effects of credit program on

eight dimensions of empowerment by applying logistic regression models as mentioned

in section 3.1.6 above.

Hulme and Mosley (1996) also tried to solve for selection bias by studying

different credit programs in a number of countries. In their study, they included eight

microfinance institutions which provide group lending. Of these eight institutions, two

were used a control group in the case a loan had been approved for participants but they

had not yet received any amount of the loan. However, only the means of different

27
outcome variables for both treatment and control groups were introduced. There were no

statistical analyses of the differences between the two groups. In addition, the possibility

of endogenous program placement could not be controlled with their available data

(Coleman, 1999: 109).

Recently, many papers on the evaluation of microfinance programs have adopted

an econometric approach and taken account of both selection bias and nonrandom

program placement (Pitt and Khandker 1996&1998; Pitt et al. 1999; Coleman 1999 &

2002; Khandker 2003; Khandker et al.1998; McKernan 2002; Morduch 1998). The

methodology was applied by Pitt and Khandker (1996&1998) to attempt to correct both

selection bias and nonrandom program placement in group lending, is described as the

below.

The authors used survey data of the Grameen Bank and two other group lending

programs in Bangladesh (the Bangladesh Institute of Development Studies (BIDS) and

the World Bank). They conducted a quasi-experimental household survey of 87 villages

in 29 thanas14. They sampled randomly for both members and nonmembers from villages

that had a microfinance program. They also randomly chose households from villages

without a program. In this case, credit program availability was applied as an identifying

variable. The authors, however, identified that systematic variation will occur between

the two kinds of villages because of the possibility of endogenous program placement.

Thus, village fixed effects estimation was applied to control for unobserved variation

between villages. Nevertheless, households living in program villages, which are

exogenously excluded from the program by program rules which restrict participation for

household with more than 0.5 acres of land were principally excluded from membership
14
A thana is the administrative center for numerous villages.

28
consideration by any of the three programs, that were sampled for this survey. This might

have resulted from the possibility of collinearity between the village-specific dummy

variables, identifying fixed effect, and the availability of the program. Many impact

studies then applied a similar methodology. As can be seen from the studies by Pitt et al.

(1999); Khandker (2003); Khandker et al.(1998); McKernan (2002); and Morduch (1998).

But, Khandker (2003) did some further interesting work on the data set. He used the same

data set as Pitt and Khandker (1996) and, then did a follow up survey of the same

households in 1998/99 to come with panel data. However, according to Coleman claimed

to the eligibility criteria for membership consideration:

Most group lending programs…do not impose such eligibility criteria. Rather,
they attempt to attract the relatively poor and dissuade the relatively rich from
participating by the small size of loans, the high frequency of meetings, and the
stigma of belonging to a poor person’s credit program. Hence, the method of Pitt
and Khandker could not be implemented in most group lending programs.
Moreover, even in the context of the three Bangladesh programs they studied,
their survey found that some 18-34% of program participants in fact had wealth
that should have excluded them from participating. Hence, the use of this
eligibility criterion as a key exclusion restriction may not be appropriate
(Coleman, 1999:110).15

The methodology applied by Coleman (1999) did not require the existence and

enforcement of exogenously imposed membership criteria to identify program impact. As

part of his study, a unique survey which allows for the use of relatively straightforward

estimation techniques was applied for data collection. Then, the survey was done four

15
Morduch’s study in 1998 (cited in Coleman 1999: 110) found that in program village, Pitt and Khandker
marked “eligible” for households’ participation of the microcredit program as any households in program
village, consisting households that should have been excluded principally. On the other hand, they follow
exactly the rule on the eligibility criteria for marking household as eligible or not eligible in non-program
village. Thus, both “treatment” group and “control” group was not conformed each other, and it led to
overestimated results on program impact.

29
times over the course of a year, during 1995-1996, for both members and nonmembers of

the village bank in 14 villages in Northeast Thailand. Six of those villages were identified

as “control” villages that were recognized to receive NGO support for village bank within

one year after the identification. It means that there was self-selection for villagers in six

control villages as participants had already decided whether or not they want to be

membership of the village bank. The rest of eight villages were “treatment” villages of

which seven villages had a village bank for two to four years and one village started its

village bank suddenly after the first survey. The comparison between the “old” village

bank members in the eight treatment villages and the “new” village bank members in the

six “control” villages could be undertaken. In addition, the author identified precise

impact estimator as a variation of the length of time for the program availability in the

treatment villages. When nonmembers in all villages were included in the sample, this

allows for the use of village fixed effect estimation to control the possibility that the order

in which these 14 villages received program support is endogenous.

Based on empirical evidence, most studies showed positive impact of

microfinance on different dimensions of outcomes at different levels, even though they

applied various methodologies. Until now, no study on impact of microfinance in Laos

has corrected the selection bias and endogenous program placement. Therefore, this study

will try to take into account that bias and the author will apply method used by Coleman

(1999) to evaluate the impact of a village savings group in a semi-urban area of Laos.

30
CHAPTER 4

ANALYTICAL FRAMEWORK

This paper will to examine the impact of microfinance program by applying two

sets of indicators – economic and social indicators. To test the hypothesis that members

with a long-term participation on the savings group may have better quality of life in

terms of wealth, income and expenses, the theoretical framework, model specification

and methodology will be discussed in this chapter.

4.1 Theoretical Framework

In economic perspectives, consumer theory is used to identify the consequences

of consumer behavior by maximizing consumer utility. Therefore, on the basis of the

framework of consumer theory, the impacts of microfinance program can be illustrated

by using the concept of utility maximization. To evaluate the effects of group-based

credit program participation on household behavior and intra-household resource

allocation, it will consider a simple model that generates an efficiency argument for

targeted credit for the rural poor. This paper will follow the framework that was

developed and used by Pitt and Khandker (1996).

Assume that households of size n comprise two working age adults (the male

head and his wife) plus n-2 dependents. The households maximize a lifetime utility

function which contains time-specific utility functions of the form:

31
U t = U (n, Qi , H i , li ) (1)

Where:

Qi: a set of market goods consumed by household member i,

Hi: a set of non-market household-produced goods allocated to member i,

li : leisure time consumed by household member i.

To generalize (1), each of the two adult household members, denoted by f and m, needs to

maximizes his (if m) or her (if f) own utility uit,

u it = u i (n, Qi , H i , l i ) , i = f,m (2)

Where household social welfare is some function of the individual utility

functions U it = U (u ft , u mt ) , it can be represented as

U it = λu ft + (1 − λ )u mt ,0 ≤ λ ≤ 1 (3)

In this, λ is the weight given to women’s preferences in the social welfare function of

household. The parameter λ can be thought to represent the bargaining power of female

household members relative to males in determining the intra-household allocation of

resources. When λ =0, female preferences are given no weight and the household’s social

welfare function is identical to that of the males. The household-produced goods H

include “household care” activities such as preparation of food, childcare, and the

gathering of fuel.

32
H = H ( Lmh , L fh , G, F ) (4)

where,

Lmh : time devoted to the production of H by males,

L fh : time devoted to the production of H by females,

G : a vector of market goods used as inputs in the production of H

F : a vector of technology parameters that affect efficiency in H good production.

Due to socio-cultural factors, relatively few poor women work in the wage labor

market. The reservation wage for market work is, therefore, relatively high. In addition to

this preference effect on female wage employment, workers typically must commit to a

full day’s employment even in the spot labor market. If men’s time (or that of other

household members) is a poor substitute for women’s time, and if important H-good

outputs, such as child care and food preparation, must be “produced” daily (cannot be

stored), then working a full day may entail foregoing the production and consumption of

highly valued H goods. Thus, the non-storability and time-intensity of production of

household goods H, the indivisibility of time allocation in the wage labor market, and

high reservation wages due to cultural impediments to wage employment outside the

home all result in most women being engaged in the production of household goods H in

every period to the exclusion of employment in market activities. These effects are

magnified if λ is small and male preferences tend to favor certain kinds of H-goods

produced on women's time.

However, there are also economic activities that produce goods to sell in the

market that is not culturally frowned upon. These activities produce what we refer to as

Z-goods. These activities permit part-day labor and do not require that production occur

33
away from the home. For many Z-goods a minimum level of capital is necessary, even

though many of these production activities can be operated at low levels of capital

intensity. This minimum is often the result of the indivisibility of capital items. For

example, dairy farming requires no less than one cow, and hand-powered looms have a

minimum size. For other activities, such as paddy husking, where the indivisibility of

physical capital is not an issue, transaction costs (or the high costs of information) take

the place of the minimal level of operations. In many societies these indivisibilities may

be inconsequential, but among the rural poor of many developing countries, including

Laos, household income and wealth is so low that the costs of initiating production at

minimal economic levels are quite high. Poverty alleviation programs, such as the Rural

Works Programs, which target households by drawing them into (in-kind) wage labor,

have a comparatively small direct effect on the time allocation and productivity of

women. In addition, transportation and other transaction costs in labor markets may be so

high as to make part-day labor un-remunerative. Formally, we represent the production

function for the Z-goods as:

Z = Z ( K , Lmz , L fz , A, J ) (5)

Where

Lmz : labor time of head devoted to the production of Z,

L fz : labor time of wife devoted to the production of Z,

K : capital in Z production,

A : a vector of variable inputs

34
J: a vector of technology parameters that affect efficiency in Z-good production

(information).

Positive production requires a minimal level of capital K, Kmin. The production

function (5) can be operated at a non-zero level when Lmz or L fz are zero, but not when

both are zero. For example, although at least one cow is required in the production of

milk, any person’s labor can be used to obtain the milk. In other examples, Kmin may

stand for the minimum information which is required to produce and market home

production.

Households maximize lifetime utility subject to a budget constraint that requires

that the present discounted value of expenditure on goods and leisure equal the present

value of all wealth, defined as assets plus the discounted present value of the time

endowments, and the two production function equations (4) and (5). Household ability to

borrow has significant influence on the time path of household consumption. Households

having very low levels of initial assets as collateral may not be able to borrow to achieve

the minimum capital requirements necessary to operate the Z-good activity. At very low

levels of income and consumption, reducing current consumption to accumulate assets

for this purpose may not be optimal because it may seriously threaten health, production

efficiency, and life expectancy, as shown in Gersovitz (1983). Therefore, for many

households, the Z-good activity is never carried out (and Lfz = 0) and women who do not

work in the wage labor market devote all their time to production of the non-market good

H and to leisure.

35
4.2 Model Specification and Methodology

4.2.1 Model Specification

From the model mentioned above, the reduced-form determinants of credit

program participation include:

• The prices of market time,

• The price of the purchased market good Q,

• The prices of the market inputs into H-good production including the cost

of averting a birth and other determinants of fertility,

• The prices of variable inputs into Z-good production,

• The price of the capital good,

• Age and education levels of the borrower and spouse,

• Access to transfers from non-resident relatives and,

• Village-level characteristics (V).

Whether or not poor households, especially the women, are credit-constrained is a

complex issue. Rashid and Townsend (1994) concluded a detailed study of this issue in

the context of targeted group-based lending. They recommend that inefficient

consumption and production outcomes may be a result of risk, private information,

communications and enforcement difficulties. Significant evidence shows that collateral

and education, the health risks and intermittency of employment associated with

childbirth, and cultural barriers result in the limitation of women participation in the

formal credit market. Rashid and Townsend note that the evidence does not in itself

imply that outcomes are inefficient if, for example, women have access to other sources

36
of finance such as transfers, or if male household members obtain funds for female

household members.

A primary focus of this paper is to estimate the impact of credit programs on

various household outcomes such as household consumption, household income, and

household asset. The author proposes to estimate the conditional demand equation for

each outcome to be investigated, conditioned on the household’s program participation as

measured by the quantity of credit borrowed. As noted earlier, the methodology adopted

is that developed by Pitt and Khandker (1996). Consider the reduced form equation (6)

for the level of participation in one of the credit programs by household i in village j ( C ij ),

where level of participation will be taken to be the value of program credit

C ij = X ij β c + V j γ c + Z ij π + ε ijc (6)

where

Xij : a vector of household characteristics (e.g., age and education of household head),

Vj: a vector of village characteristics (e.g. prices and community infrastructure),

Zij : a set of household or village characteristics distinct from the X’s and V’s in that they

affect Cij but not other household behaviors conditional on Cij (see below),

β c , γ c , and π are unknown parameters,

ε ijc : a random error having three components

ε ijc = μ j + η ij + eijc (7)

37
where

μ j : an unobserved village-specific effect,

η ij : an unobserved household-specific effect,

eijc : a non-systematic error uncorrelated with the other error components or the regressors.

The conditional demand for household outcome Yij conditional on the level of program

participation Cij is

Yij = X ij β y + V j γ y + C ij δ + ε ijy (8)

where β y , γ y and δ are unknown parameters and ε ijy is comprised of

ε ijy = (αμ j + μ jy ) + (θη ij + η ijy ) + eijy (9)

where α and θ are parameters (corresponding to correlation coefficients), μ jy and η ijy

are additional village and household-specific errors uncorrelated with μ j and η ij ,

respectively, and eijy is a non-systematic error uncorrelated with other error components

or with the regressors. If α ≠0 or θ ≠0 the errors ε ijy and ε ijc are correlated. Econometric

estimation that does not take this correlation into account will yield biased estimates of

the parameters of equation (8) due to the endogeneity of credit program participation Cij.

4.2.2 Methodology

Econometric estimation of this equation (8) will yield biased parameter estimates

if ε ijy and ε ijc are correlated and this correlation is not taken into account. According to

38
Coleman (1999), two different sources which lead to such correlation are (1) self-

selection into the savings group and (2) nonrandom program placement. He illustrated

sources of such correlation that for the first source of correlation, by considering a sample

of households drawn only from with villages with a savings group16, some households

will have selected to be savings group members, and others will have not selected to be

members. ε ijy and ε ijc will almost definitely be correlated in this sample. For example, if

there are many entrepreneurial households joining savings group, then unmeasured

“entrepreneurship” would affect both the decision to become a member and impact

measures such as income and assets. In contrast, if ε ijy and ε ijc were negatively correlated,

estimation of savings group impact would be biased downward. For example, the

relatively poor may join the savings group more than the rich who might feel stigmatized

in a group for poor people.

Coleman also demonstrated the second source of correlation as follows:

Consider another commonly used sample, which includes households of village


bank members from some villages and randomly selected households from
villages without a village bank…Now it is possible for ε ij and μ ij to be
correlated across villages if village bank placement is not random. For example, if
some village are viewed as more entrepreneurial or better organized, have more
dynamic leaders and such leadership spills over to effect others’ behavior in the
village, or are simply poorer (e.g., living in flood-prone or drought-prone areas),

16
In original paper of Coleman (1999) used word of “village bank” but hence use word “savings group” to
conform to this study. Actually, village bank in Coleman’s case and savings group in this study are quite
similar concept because of they both are applied from village bank model of the Foundation for
International Community Assistance (FINCA) but the village bank is much more dependent on external
fund than internal fund which contrast to the savings group. Please see Appendix B section 1.2.1 for point
of view of savings group and section 2.2.1 for its source of fund.

39
and if NGOs use such criteria to determine village bank placement, then ε ij and
μ ij will be correlated (Coleman, 1999: 113)17.

To deal with the case of correlation between ε ijy and ε ijc 18, therefore, the author

will follow the method of Coleman (1999)19 to measure the impact of savings group on

the household outcomes. As mentioned in section 3.2 of chapter 3, Coleman (1999)

conducted a unique survey which permits the estimation of an alternative, simpler

specification allowing for the use of relatively straightforward econometric techniques to

measures program impact.

By applying Coleman’s method, the author conducted a survey on 251 households

in six villages in semi-urban area of Laos (Naxaithong district). Of these, three villages

had savings groups operating for more than a year, and are called “old” savings groups.

The remaining three villages had also started operating savings groups that were in

existence for less than a year. These are called “new” savings groups (see table 5.1 of the

next chapter). Both old and new savings groups cannot be identified as “treatment”

villages and “control” villages as the case of the village banks in Northeast Thailand done

by Coleman (1999). This is a result of slight difference in the way funds are managed.

Unlike the village banks in Coleman’s case, savings groups in this case study are much

more dependent on internal funds than external funds (NGOs’support) (see more

17
The words of “village bank” and the symbols of “ ε ij ” and “ μ ij ” used in the paper of Coleman (1999)

are equivalent to the words of “savings group” and symbols of “ ε ij ” and “ ε ij ” used in this study
c y

respectively.
18
To cope with such correlation, Moffitt (1991) suggests three standard procedures: using instrumental
variables, using panel data, and assuming an error distribution of the outcome variable without treatment.
For more explanation was mentioned in the paper of Moffitt (1991: 295-305).
19
Aghion and Morduch (2005) also suggested that the method of Coleman (1999) is one of the approaches
for impact evaluation to address selection bias.

40
explanation in Appendix B under section 2.2.1). It means that some savings group

members can obtain a credit in short time (two or three days) after the establishment of

savings group by depending on internal fund (savings from members). Or some new

savings group members can access a loan quickly after self-selecting to become a

member20. However, there were many villagers who had already self-selected to become

members of savings groups, but had not obtained any credit from savings groups yet.

This was the case in both old and new savings groups, particularly among old members21

in the old savings groups who were with the savings group for more than a year. This

may be result of their lack of demand for credit because they may have enough funds to

run their activities or to smooth their consumption. Their motivation for participating in

the savings group may have been to benefit from the yearly dividends they could expect

from their monthly deposit with the savings groups.

The classification above allows the author to set a “treatment” group in which

savings group members have gained benefit from joining the savings group by either

obtaining a credit or receiving a dividend. Similarly, a “control” group in which savings

group members have not benefited from the savings groups can be identified. The control

group of savings group households would presumably, on average, share the same

unobservable characteristics (such as entrepreneurship, gender attitude, etc.) as the

treatment group of savings group members (Coleman, 1999 and Mosley, 1997). In both

20
It is normally one or two day(s) to get a loan after becoming a member of savings group if the savings
group has enough funds and the member meet the requirements for borrowing.
21
13.98 percent of member sample (n=93) in old savings groups has never borrowed from the savings
groups since they have been a savings group member. Their membership ages varied from 11.5 months to
35.5 months.

41
old and new villages, both members and nonmembers were surveyed. With this survey

design, equation (8) can be replaced by a single impact equation22 as follows:

Yij = X ij α + V j β + M ij γ + Tij δ + υ ij (10)

Where

Yij ,Vj , and Xij are defined as before

Mij : a membership dummy variable equal to 1 if household ij self-selects into the

savings group, and 0 otherwise.

Tij : a dummy variable equal to 1 if a self-selected member has already had gained

benefit from savings groups23, and 0 otherwise.

δ : measures the average impact of the savings group on Yij.

The membership dummy variable Mij can be thought of as a proxy for the

unobservable characteristics that lead households to self-select into the savings group.

For example, it captures the unobserved variables that led to the correlation across

households between ε ijy and ε ijc . The variable Tij which measures availability of the

savings group to members who have self-selected is exogenous to the household. This is

unlike the amount borrowed (which may not be exogenous with respect to the village, as

discussed below).

According to Coleman’s (1999) specification, the variable Mij which captures

unobservable household characteristics, can eliminate the correlation between Tij and ε ijy

22
This equation was adopted from the study of Coleman (1999).
23
This is slightly different from Coleman’s case (1999) which he used access to program credit as
distinguish between control and treatment village but this study, the use of a gain from participation of
savings group by either obtaining a credit or receiving a dividend is to be the proxy for distinguishing
between control and treatment group.

42
due to self-selection at the household level. In addition, if the order in which villages

have savings group program placement is random with respect to unobserved village

characteristics, then efficient and unbiased estimates can be obtained with Vj as a vector

of specific village characteristic affecting Yij. However, if the order is not random with

respect to unobservable village characteristics, then using specific village characteristics

as regressors will lead to a biased estimate of impact. This is a difference on the second

source of bias discussed above. While in this study does not control villages and

treatment villages, the problem of non-random program placement is resolved by the

author dividing the six villages which have own savings groups in terms of different

times of establishment (that is, three old and three new savings groups). However, the

order in which villages had program support to establish a savings group may not be

random. For example, if the most dynamic villages established a savings group with the

program support before less dynamic villages, then Tij and ε ijy will be positively

correlated and δ will be biased. One method to eliminate this bias is through village

fixed effects estimation (Coleman, 1999). If the order of savings group placement is

random 24 , however, then village fixed effects estimation is still unbiased, but less

efficient than using specific village characteristics as regressors.

The empirical model in (10) can be improved upon by recognizing that some

treatment members have received benefit from joining savings groups longer than others.

In the six villages, the age of the savings group differed from one month to three years.

24
Unofficial information obtained from the Project’s staff and the District Lao Women’s Union at
Naxaithong city noted that the villages which have three old savings groups were target villages. Before the
establishment of savings groups in those villages, the project proponents came to the villages to discuss the
possibility of savings group establishment with local authorities of those villages. By contrast, the local
authorities in the villages with the “new” savings groups, themselves had approached the project
proponents and requested them to establish a microfinance program in their villages.

43
Of these six villages, there were members who classified to the treatment group and have

their membership ages varied as the age of the savings group. Giving that the cumulative

amount that a member can borrow grows over the life of the savings group, and that a

member can receive a dividend every twelve months, one would expect to see greater

impact in villages with older savings group. Hence the empirical model estimated, which

is based on the one used by the Coleman (1999), is as follows:

Yij = X ij α + V j β + M ij γ + MAMTij δ + μ ij (11)

Where μij is error representing unmeasured household and village characteristics

that determine outcomes; the treatment dummy variable Tij is replaced by MAMTij, the

numbers of months the savings group has been operating in the village. In other word,

MAMTij can be thought of as the number of months participants have gained benefits

from participation of savings groups. MAMTij is zero for members in control group and

for nonmembers in the six villages. Therefore, MAMTij is a more precise measure of

program availability than Tij. Now, δ measures the impact per month of program

availability. Like the equation (10), if the order of program placement is random with

respect to unobservable village characteristics, then efficient and unbiased estimates can

be obtained with Vj as a vector of specific village characteristics. If program placement,

however, is not random with respect to unobservable village characteristics, then MAMTij

and ε ijy can be eliminated with village fixed effects. This specification (11) is

considerably easier to estimate (if Yij is uncensored, then OLS is appropriate), according

to Coleman (1999).

44
The regression results of the equation (11) by employing Coleman’s (1999)

methodology, to evaluate the impact of savings group on household outcomes will be

presented in chapter 6. Before moving to that, survey method and data will be described

in the next chapter.

45
CHAPTER 5

SURVEY DESIGN

Many microfinance programs provide financial services to the poor and lower

income people in urban and semi-urban areas of Laos. The Women and Community’s

Empowering Project (WCEP) is one of the many programs which launched microfinance

programs in semi-urban areas of Laos. The project provides microfinance through a

“savings group” in three districts in Vientiane, the capital of Laos. One of these three

cities was selected for this case study (see Appendix B for the overview of the project and

this case study). The reason this case study was conducted in the Vientiane area is due to

the fact that most of savings groups operate in and around the capital. It can be seen that

of the 357 savings groups throughout the country that are being monitored by seven

agencies25, a significant number of savings groups are running in Vientiane Capital City.

Most of the groups in Vientiane are operating with the technical support of two main

bilateral projects – “Small and Rural Development Project for Women” and “Capacity

Building Project for Women and Community,” – between the Central Lao Women’s

Union, the Foundation for Integrated Agricultural Management (FIAM) and Community

Organizations Development Institute: Thailand (CODI) (the postal survey conducted by

the Microfinance Capacity Building and Research Project (2003), cited in Chaleunsinh,

25
Seven agencies consist of District Lao Women’s Union, District Lao Youth’s Union, District Planning
Office, District Social Welfare Office, District Finance Office, District Agriculture and Forestry Office and
branches of Agriculture Promotion Bank (Chaleunsinh, 2004).

46
2004:7). This section discusses how the survey conducted and provides a description of

the data used for this study.

5.1 Survey design26

In September 2005, a survey was conducted of 251 households in six villages in

the Naxaithong district which have their own savings group. At the time of survey, three

villages had just established “new” savings groups. Two of these were three months old,

one was existent for just one month (see table 5.1). Other three villages had “old” savings

groups ranging in existence from just over one year to almost three years. These were

selected from the list of savings groups provided by the project administers of projects.

Chose to the three “new” savings groups selected for this study under distance condition.

It means that the three old savings groups were not far from the three new savings groups

– under 15 Kilometer. Both members and nonmembers of the village savings group were

encouraged to interview. Households which had a least one person as a member of a

savings group were selected for interview and households which has no one joining the

savings group were also chosen for interview as shown in table 5.1. A random sampling

method was not employed because a quasi-census survey of member and nonmember

households was conducted. Both old and new savings groups included two kinds of

members:

26
The method for survey design was the one used by Coleman (1999) for conducting survey in 14 village
banks in Northeast Thailand as mentioned in section 3.2 of Chapter 3. However, the case of savings groups
Laos are mostly depended on internal fund which mobilized money from member deposit to lend out to
their members (see more explanation in Appendix B under section 2.2.1). Therefore, hence could not
identified the new village savings groups to be as “Control Villages” and the old village savings groups as
“Treatment Villages”; however, there are “Control” group and “Treatment” group for both old and new
village savings groups as identified in this section, which are quite different from the Coleman’s case.

47
• Members who had gained some benefit from the savings groups by either

obtaining a credit or receiving a dividend from the savings group since

they had been members. These members are classified as the Treatment

group.

• Members who were identified as Control group, are an inversion of the

treatment group.

Questionnaires were done in three sets. One was for households in the six villages, which

were interviewed for both members and nonmembers. The questionnaire conducted for

this study is a replication of Hulme and Mosley (1996). A similar study was conducted

for Saithani case of Lao microfinance by Sichathongthip (2004) and it was also

reproduced by Mosley (2001) in the study of microfinance and poverty in Bolivia.

However, the questionnaire was slightly modified in some parts to be more suitable and

relevant for the purposes of this study. The household questionnaire contained data on

household characteristics, assets, income, expenditure, deposits and borrowing. Some

data on household assets, income, expenditure were asked for the current period (at

survey date of September 2005) as well as recall period (5 years before conducting the

survey). In each household which have a member of savings group, an adult or head of

household, who knows almost everything about the household finances, was invited for

interview27. The same method was done for households which had no members of the

savings group.

27
Most interviewees were women (wives) because, in Lao custom, most wives know most about income
and expenses of their household. As Sheck-Sandbergen and Choulamany-Khampoui (1995: 91) noted about
women in Laos, “Women are generally good at financial management and accounting because of their
social and economic experience in managing the household finances and the local economy: they are the
sellers, buyers, traders, middle-women and entrepreneurs” (quoted by Kunkel and Seibel 1997:116).

48
Table 5.1: Sample size

Established Number Number of


date of Number of nonmember
savings of household household
group household in savings of savings
No. Savings groups in village group group Sample size by:
Member Member in Total
in control of
treatment group sample
group Nonmember size
I. Old savings group in:
1 Nakountay village 01-Oct-02 215 186 29 39 3 19 61
2 Huannamyene village 12-Jun-03 353 217 136 34 1 13 48
3 Dongluang village 01-Apr-04 184 75a 109 16 0 8 24
Sub-total 752 478 274 89 4 40 133
II. New savings group in:
4 Phonekeo village 15-Jun-05 95 80 15 8 19 6 33
5 Phonesavanh village 01-Jun-05 123 56 67 19 9 17 45
6 Sisavard village 10-Aug-05 59 53 6 15 20 5 40
Sub-total 277 189 88 42 48 28 118
Grand total 1,029 667 362 131 52 68 251

Note: a) this figure is assumed equal to the number of families in the savings group.

Source: Author’s survey data, September 2005 and March 2006.

49
The second questionnaire was for collecting village information including

characteristics of the villages such as the presence of schools and prices of goods in each

village. This interview was conducted with the head of the village and members of the

group committee at the village level.

The last questionnaire was for general information on savings group. It included

questions regarding the number of the group members, sources of funds, group deposit

balances, deposits and credit methods, and methodology for solving bad debts (in case).

This interview was conducted in depth for the group committee at the village level.

In September 2005, the household surveys were administered by third year

students of the faculty of economics and business management from the National

University of Laos, together with the author. These students were trained on how to

conduct a survey before interviewing the villagers. During survey period, the author was

the leader of the team and supervised all the students to ensure that correct information

was obtained. In addition, the author conducted the village surveys as well as in-depth

interviews with the group committees. Finally, the author conducted a follow up survey

in March 2006. This survey was targeted at collecting more data on village characteristics

and additional data on deposits, credits and other areas which the previous surveys had

not covered. Information for the last survey was mostly obtained from the group

committee and gathered by in-depth interviews with the chief of Lao Women Union at

Naxaithong district. In addition, secondary data from project documents (summary report,

progress report, savings group manual and other) were obtained from the project, Lao

Women Union at Municipality level and group committee.

50
5.2 Data description

The data used in this analysis is taken from the author’s survey in September 2005

and March 2006 as described above. All variables used for this study were drawn from

the studies of Coleman (1999 and 2002); Hulme and Mosley (1996); Pitt and Khandker

(1996 and 1998); and from Annex 1 of Gaile and Foster (1996). The main dependent

variables which represent proxies for the household’s outcomes are classified in three

main parts: household monthly expenditure, household yearly income and household

assets. Household monthly expenditure consists of two main categories: household

monthly food expenditure and household monthly non-food expenditure. Household

yearly income is classified to two main parts: household yearly self-employment income

and household yearly non self-employment income. Household assets comprise

household owned land and house assets, and household owned non-land and house assets.

Independent variables are mainly characteristics of households and villages but

the variable of most interest for this study is the number of months a person has been a

member of a savings group. Household characteristic variables are age, gender, education

level, household size, for example. Village characteristic variables consist of distance to

market, price of goods, having a school and being near a river, for example. More details

of data description are shown in the Appendix A: table 1-4.

51
CHAPTER 6

EMPIRICAL RESULTS

This chapter presents and interprets the results of estimating a single impact

equation (11) for a wide variety of household outcomes. These outcomes include

household house asset value28, household annual self employment income from livestock,

household annual self employment income from agriculture, household monthly rental

expenditure, and household monthly educational expenditure29. Before moving to those

results, some particular innovations and specifications for estimation of the equation (11)

will be briefly described below.

As mentioned in chapter 4, this study applies the analytical method used by

Coleman (1999). Four innovations borrowed from his study have been incorporated in

the equation (11) for measuring the impact of the savings group:

1) It allows for use of village fixed effects30;

2) It identifies a control group of members who have not benefited from the

savings groups and then surveys “treatment” members, “control” members

and nonmembers, thus allowing for the use of a member dummy variable

28
This value stands for value of house with land (not empty land or land for rice field and crop plant).
Barnes (1996:4) noted that house asset is one of the physical assets representing for the wealth of
household.
29
For other proxies representing for household outcomes as shown in Appendix A-table 1-4 are not
reported in this paper. According to the econometric exercise, those outcomes do not show significant
correlation with the regressor of interest (months of savings group membership).
30
This was used by Pitt and Khandker (1996&1998); Pitt et al. (1999); Khandker et al. (1998); Mckernan
(2002); Coleman (1999&2002).

52
to be a proxy for unobservable differences between members and

nonmembers;

3) It uses the value of land owned by household five years before this survey

was conducted to be a proxy for initial household wealth31;

4) It uses the length of time that the savings group has been in a village to

obtain more precise impact measures.

In addition, this study uses four specifications from Coleman (1999) to illustrate

the importance of the four innovations to correct the bias resulting from self-selection and

endogenous program placement. The four specifications are described below:

1) First is the “correct” specification which use village fixed effects and

include a member dummy variable and variable for land value owned by

the household five year before this survey. As mentioned in chapter 4,

fixed effects estimates will be consistent (and unbiased if the dependent

variable is uncensored) but possibly inefficient.

2) Second is the specification which is identical to the first but this includes a

vector of specific village characteristics 32 that one might expect to

influence the dependent variables. If the order of program placement is

random, and the author was fortunate enough to choose all the relevant

31
Proportion of land value is 91.38 per cent of household wealth in this sample and land value is an
excellent proxy for wealth which is similar to Coleman’s (1999) case. This land value comes from the
value of empty land or land for agriculture or any land which is not for house building. According to
Coleman (1999), collecting data on land owned five years before the surveys is relatively easy. Because
land transactions tend to be large and important for a household, yet relatively infrequent, households can
easily recall land transactions made in the previous five years, and land owned five year earlier (and its
value) can be deduced. Of course, collecting similar data on other assets is not feasible without surveying
over several years.
32
These village characteristics include dummy variable for that village has either a pig pond which has
water throughout the year or be near river; dummy variable for that village has paved road or near main
road (Km 13 road); dummy variable for that village has primary school grade5; a distance from village to
main market; a price of traditional chicken (Gailard) per Kg; and daily wage for construction.

53
observable village characteristics, then the estimation of nonfixed effects

(“village characteristics” or VC) model will be efficient and consistent

(and unbiased if the dependent variable is uncensored). If the order of

program placement is not random, or the author chose the wrong village

characteristics, then the estimation of this model will be biased and

inconsistent.

3) Third is “naive” estimates which ignore the first two innovations. For

example, the naïve estimates use specific village characteristics rather than

fixed effects, and they leave out the member dummy variable.

4) Fourth is “super-naive” estimates which are identical to the third but also

ignore the third innovation by leaving out the variables for land value

owned five years before the survey33.

In this study, assuming that dependent variables (household outcomes) are

uncensored, the method of ordinary least squares (OLS) is applied for estimating the

equation (11). In addition, the White test is applied to test for heteroskedasticity which

lead to unbiased estimators of OLS. Then, the generalized least squares estimation (GLS)

is used to correct heteroskedasticity, called weighted least squares (WLS) estimations

(Wooldridge, 2003: 268-276).

The regression result of the equation (11) which covered all above methods will

be discussed bellow under categories of the impact on household house assets, self-

employment activities and education.

33
According to Coleman (1999), the naïve models correspond to the models most commonly used to
measure impact, which ignore selection bias, endogenous program placement, and prior wealth.

54
6.1 Impact on household house asset

To measure the impact of savings group participation on household house assets,

all four specifications, mentioned above, were applied to the equation (11). Four sets of

regression results for impact of savings group on household house asset value,

corresponding to four specifications, are presented in Table 5 (Appendix A). Jointly

significant test of explanatory variables shows strongly significant evidence at the 1 per

cent level for all four methods regressions. All four specification regressions show that

the savings group has positive and significant impact on household asset value. It can be

seen that both fixed effect estimation and nonfixed effect estimation demonstrate reliable

explanatory of the monthly savings group membership with large and significance at the

5 per cent level (292,097; p = 0.0493) and at the 10 per cent level (292,097; p = 0.0522)

respectively. In contrast, the regression results of both naïve and super-naïve models

which ignore the first two and the first three innovations respectively, also show

significant impact with large proportion of coefficients of the month of savings group

member at the 1 per cent level as (335,021; p = 0.0066) and (358,260; p = 0.0041)

respectively. These results are in contrast with those of the study of Coleman (1999 &

2002) that showed insignificant effects of village bank on house value.

Table 5 (Appendix A) shows that the coefficient of the member dummy variable

in the household house asset value is insignificant (1,481,225; p = 0.6816), indicating that

unobservable differences between members and nonmembers (such as entrepreneurship,

preferences, etc.) are of little consequence. This is consistent with the result of the

coefficient on member dummy variable and the house value in the fixed effect model

found by the Coleman (1999 & 2002). Therefore, in the fixed effect model, there is no

55
correlation between the member dummy variable and the household house asset value.

Hence, there is no correlation of selection bias from unobservables.

In addition, the coefficient on the value of household owned land 5 years ago is

positive but it is statistically insignificant at least at the 10 per cent level against a two-

side alternative by employing the first three specifications. However, if we look at P-

value level, the fixed effects and nonfixed effects estimations show those coefficients as

(0.068769; p = 0.1683) and (0.068769; p = 0.1710) respectively, implying that those

coefficients are acceptable at the 16.83 per cent and 17.1 per cent level. It means that the

initial wealth of household could slightly increase the value of household house asset.

Nevertheless, the coefficient of female-owned land value 5 years ago is positive and

statistically significant at the 1 per cent level to women’s wealth in the study of Coleman

(1999).

One might expect the women who are the head of a household to participate more

actively in the savings group than women who are not the head of household. However,

the coefficient on this variable and the household house asset value in all four

specifications regressions is insignificant at least 10 per cent level. This may be explained

by the fact that 52 per cent of women who are the household head are either single,

widowed, divorced. This implies that there was no male adult in the households to help

with any household activities, particularly economic activities. According to Kunkel and

Seibel (1997:106), in Lao Loum group 34 , there is a division of labor, but not fixed,

34
As Kunkel and Seibel (1997:6) note, “The ethnography of Laos comprises the lowland Lao Loum who
grow paddy in the river valleys along the Mekong and its tributaries but also include the upland Tai Dam,
who are non-Buddhist; the upland Lao Theung many of which practice slash-and-burn agriculture in the
hills above the valleys and on the mountain slopes; and the mountain-top Lao Soung who have long
resisted government efforts at resettlement and the substitution of new for old cash crops.” In this case
study, all sample come from Lao Loum group.

56
between the two sexes in households for doing household work, agriculture work,

livestock, collection of forest products and handicrafts. Many of roles of women and men

are overlap.

However, women who do or run family activities, especially economic activities,

(or are entrepreneur) have positive significant increase of household house asset value. It

can be seen that the coefficient of gender variable is positive and significant in relation to

household house asset value in all four estimation models. For example, there is positive

correlation between gender variable and household house asset value (14,021,407; p =

0.093), corresponding to the fixed effect estimation model (see Appendix A: Table 5).

Education level is highly significant in all four estimation models at the 5 per cent

level. For example, in case of fixed effect estimation model, the coefficient on maximum

education by individuals is large and significant (854,694; p = 0.0442). If education’s

years can be considered as a proxy for human capital, then this result likely stands for the

complementarities of human capital and physical capital in production (Coleman,

1999:120). Coleman (1999) also discovered the positively significant correlation between

education level for both females and males and women’s wealth but they were shown in

case of the “super-naive” estimation model only.

Age of the individuals is totally positive significance at the 5 per cent level,

corresponding to the four specification models. In case of the fixed effect estimation

model, for example, the coefficient on the age of individuals is largely significant

(312,418; p = 0.023). It could be interpreted that the older of the individuals in the

households who participate in the savings group, the more significant is the increase in

their household house asset value. This result was also found by Coleman (1999). He

57
revealed that the coefficient on age-sex categories with women age 40 to 59 and women

age 60 and over were positive and significant at the 5 per cent and 1 per cent levels

respectively to women’s wealth. However, his result was shown by the super-naïve

estimation model only.

People, who have run their business or family activities for a long time, have been

increasing their household wealth. More experience in running the business or family

activities, may lead to effectiveness and efficiency in production by the accumulation of

knowledge and experience in that field. It can be seen that the coefficient on number of

months doing business are significant at the 1 per cent level to household house asset

value, corresponding to the four estimation models (see Appendix A: Table 5).

It is not surprising that the influence of the number of relatives in the village on

household house asset value is positive and significant at the 1 per cent level for the four

estimation models. For example, the coefficient on the number of relatives in the village

to the household house asset value is large and significant (1,552,376; p = 0.0001), in

case of the fixed effects estimation model. The number of relatives represents village

relationships that would help each other when facing serious situations including self-

employment activities, or to share happiness among them.

Having a chief of a savings group committee or member of the group committee

in household has a large and statistically significant impact on household house asset

value at the 1 per cent level for the four estimation models. It is statistically significant

(12,703,787; p = 0.0026) in case of the fixed effect estimation model, for example.

Similarly, Coleman (1999) found large positive correlation between the independent

58
variable of having a village chief or assistant chief in the household and women’s wealth

for the first three specifications.

One might expect that living in the village that has paved roads or been a near

main road may improve household status more than living in the village does not have

these advantages. The nonfixed effects, naïve and super-naïve models were negative

effect of a variable for village characteristic – village has paved road or been near main

road – on household house asset value with statistically significant level at 5 per cent as

shown in Table 5 (Appendix A). This result is somewhat anomalous and difficult to

explain. However, overall, the empirical results show that participation of savings group

has been increasing household asset value by employing all four estimation models.

6.2 Impact on self-employment activities

The effects of savings group on self-employment activities are explained by three

impact categories: household annual self employment income from livestock, household

annual self employment income from agriculture, and household monthly rental

expenditure35.

6.2.1 Impacts on household annual self employment income from livestock

By regressing the equation (11) with the four estimation models, the results of

regressions for the effects of savings group on household yearly self employment income

from livestock are shown in Table 6 (Appendix A). The fixed effect, nonfixed effects,

naïve and super-naive estimates are all positive for the coefficient on the month of

35
Most of rental expenditure comes from rental of self-employment activities such as rental of rice field for
planting rice, rental on shop for trading and rental on garage for vehicles fixing service.

59
savings group membership, implying that savings group participation by a member of the

household increases the yearly income of household livestock production. Only two

estimation models, fixed effects and nonfixed effects, produce statistically significant for

that coefficient at the 10 per cent level, (19,962.47; p = 0.0606) and (19,962.47; p =

0.0640) respectively. In contrast, those results were not significant in the study by

Coleman (1999) of the village bank in Northeast Thailand.

The size of household also has a positive and significant effect on household

annual self employment income from livestock. Table 6 (Appendix A) showed all

positive relationship of the coefficient of household size to the yearly income of

household from livestock production by employing all four estimation models, and these

coefficients are statistically significant at the 1 per cent level. It implies that more

member in the household could increase the annual income of household from livestock

production. For example, in case of the fixed effects estimation model, increase in

household size by one person could push up the household yearly income from livestock

production by 318,013 Kip.

Household which had a chief or member of the savings group committee had a

large increase in the household yearly income from livestock production. It can be seen

that all four estimation models result in the positive coefficients of the variable for

household which has chief or member of savings group committee, which are statistically

significant at the 1 per cent level as shown in Table 6 (Appendix A).

In addition, Table 6 (Appendix A) shows that the fixed effects estimates produce

positive coefficients on the number of civil servants in the household which is significant

at the 10 per cent level (413,843.2; p = 0.0979).

60
6.2.2 Impacts on household annual self employment income from

agriculture

The estimation of savings group impact on household yearly income from

agriculture production is also done employing equation (11) with the four specifications.

Table 7 (Appendix A) shows that all four estimation models result in significant negative

correlation between the month of savings group membership and the yearly income of

household from agriculture production. The coefficients of the month of savings group

membership in the four models are significant at the 1 per cent level. However, the study

of Coleman (1999) did not find any significant relationship between the month of village

bank membership and household agriculture production, corresponding to the four

models.

Although there is negative relation between the month of savings group

membership and the household income from agricultural self-employment activities, this

result is still ambiguous. It is difficult to conclude that the participation of savings group

decreases the household income from the agricultural self-employment activities, because

such a negative relationship of the coefficient may have other reasons behind it. One

possibility accounting for this negative relationship is prices of agricultural products

which fluctuate throughout the year. Another possibility is related to underestimated real

household income from agricultural self-employment activities. This can be explained as

data of the yearly household collecting only from a part of agricultural products sold in

the markets that are excludes the value of agriculture products for the owner’s household

consumption and those reserved for reproducing (cultivating). The annual household

income from the agricultural self-employment activities shown in the regressions,

61
therefore, is lower than the real value of the agriculture products. Some sample

households had a zero value of household income from the agriculture products because

of the non-sale of agricultural products (only used for household consumption), even

though they produced those products. This was particularly the case for households who

rented the rice fields for plantation36.

Member dummy variable is positive and significant in relation to the yearly

income from household agricultural production. Its coefficient is large and significant

(286,830.8; p = 0.0808) for the fixed effects estimation model and (286,830.8; p =

0.0847) for the nonfixed effects estimation model. This implies that unobservable

differences between member and nonmembers have large consequences. In other word,

being member of savings group can increase the yearly income of household agricultural

production. In contrast, in the study by Coleman (1999), there is an insignificant relation

between member dummy variable and household agricultural production.

Having a female household head has a negative and significant relationship to the

yearly income of household agricultural production, corresponding to the four estimation

models. Its coefficient is statistically significant at the 1 per cent level for all cases of the

estimations as shown in Table 7 (Appendix A). This result shows that household head

who is not female crucially increase the annual income of household agricultural

production. This may be true because, in rice plantation, heavy tasks like ploughing or

harrowing are mainly men’s work, while it is the women who select the seed, uproot

seedlings, transplant and weed (Kunkel and Seibel, 1997:106).

36
Most of them did not sell their rice, only for own consumption, after payment of the rental fee to landlord
by some amount of rice, regarding to the agreement between landowner and leasee.

62
The size of the household and the number of months doing business has a positive

and significant relationship to the yearly income of household agricultural production as

can be seen from the results of all four estimation models. Their coefficients are

statistically significant at the 1 per cent level as shown in Table 7 (Appendix A).

The number of generations that the family has been in the village has a positive

impact on the yearly income of household agricultural production. Its coefficient is

significant at the 5 per cent level. It means that more number of generations’ family in

village can help agriculture work to push more products, and then household income may

increase.

It is not surprising that the value of household owned land 5 years ago or initial

wealth has positive effect on the yearly income of household agricultural production

because land is essential capital for agricultural plantation.

Focus on the variable of village characteristic, the distance from the village to

main market has a negative effect on the annual income of household agricultural

production. This is true in reality because if goods, especially agricultural products, are

located far away from the market (city market), their price are lower than the ones sold in

the main market.

6.2.3 Impacts on household monthly rental expenditure

Table 8 (Appendix A) show the regression results of the equation (11) on

household monthly rental expenditure corresponding to the fixed effects, nonfixed effects,

naïve and super-naïve models. All four models indicate the positive correlation between

the month of savings group membership and the household monthly rental expenditure.

63
Its coefficient is significant at the 5 per cent level for the first three specifications and at

the 1 per cent level for the super-naïve model. This result could be interpreted as showing

that the participation in a savings group leads to increase in household monthly rental

expenditure. In other words, the savings group participation supports the persons who

have no physical assets to run household self-employment activities such as rice

plantation and opening a shop for trading.

Education level of individuals in the household also has a positive and significant

impact on household monthly rental expenditure. Its coefficient is statistically significant

at the 5 per cent level for all four estimation models. The result could be explained by the

fact that people who achieve high education level could be more confident to do their

business in new ways walkout investing their own capital (especially physical asset).They

conduct their business by renting or leasing assets.

6.3 Impact on education

The impact of savings group on education can be seen from household monthly

educational expenditure. Table 9 (Appendix A) shows the impact of savings group on

household monthly educational expenditure by regressing the equation (11) with respect

to the four specifications. The month of savings group membership has positive relation

to the household monthly educational expenditure. Its coefficient is significant at the 5

per cent level for the four estimation models. This relationship indicates that the

participation in a savings group can increase the monthly educational expenditure of

household. It can be seen that being member of savings group for one more month could

raise the household monthly education expenditure by 5,670 Kip, in case of the fixed

64
effects model, for example. One can say that the people joining savings group can

support for their children’s schooling. However, this result could not be found in the

study by Coleman (1999).

Turning to village characteristic variables, the village which has a primary school

until grade 5 has a positively significant effect on the household monthly education

expenses. Table 9 (Appendix A) shows that the coefficient of this variable with

statistically significant level at the 10 per cent, corresponding to the nonfixed effects,

naïve and super naïve models. This result implies that a village which has a primary

school until grade 5 can support more children to continue their schooling until higher

education level.

To conclude, there are many positive impacts of savings group participation at

household level. This is seen by applying the fixed effects, nonfixed effects, naïve and

super-naïve estimation models. These household impacts are shown in three categories,

namely household assets, household self-employment activities and education. However,

some theoretically fundamental relationship results might present the adverse effects

from such as the negative relationship between the months of savings group membership

and the household income from agricultural self-employment activities. This is more

likely related to data collection issues.

However, this paper has some limitations. First, even though this applied the

generalized least squares estimation (GLS) to correct heteroskedasticity, called weighted

least squares (WLS) estimations, there may be correlation among independent variables.

This may lead to biased estimations of the impact on household outcomes. Second, there

may be endogenous issue in variables because this study did not cover a test for the

65
endogeneity. Third, this study did not take into account the spillover effects to

nonmembers in the six villages. Fourth, the values of data on household assets, incomes

and expenditures are nominal. Fifth, the use of cross-section data to evaluate the impact

of the savings group, may show only the short term effect and may not predict the long

term impact of savings group which may be possible to ascertain by using panel data.

This is a suggested area for further research.

66
CHAPTER 7

CONCLUSION

Microfinance affects household welfare or outcome through a number of channels.

Research studies have showed that microfinance has significant impact on assets, income,

expenditure, educational status, health as well as gender empowerment. In this paper, the

effects on household outcomes by the participation in the savings group in a semi-urban

area of Laos were estimated by application of the survey design and research

methodology of Coleman (1999) taking into account bias for self-selection and

endogenous program placement which was not corrected in the previous studies relating

to Laos. The survey sample included members and nonmembers in six villages that have

own savings groups. These savings group were in operation for various lengths of time.

Members who experienced benefits from joining the savings group by either obtaining a

credit or receiving a dividend are called the “treatment” group, and those who have not

benefited from the groups are called the “control” group. All members of the “control”

group were relatively new members with an average membership of 2.2 months. In order

to demonstrate the importance of selection bias correction, the paper compared the results

of the “correct” empirical specification to those of the three other specifications which do

not take account for some or all of the bias.

This paper provides estimates of the influence of participation in the savings

group on household house value, household livestock production income, household

agriculture production income, household rental expenses, and household education

67
expenses by applying four empirical specifications. The empirical results illustrate that

the participation in the savings groups has large positive and significant effects on all of

these outcomes, except household agriculture production income. This may be explained

by the fluctuation of seasonal agricultural prices, and under reporting of the real value of

household agricultural income. This is because data collected pertain only to income

from agriculture products which were sold in the markets, not those used for self-

consumption.

The results of this study differ from those of Coleman (1999). He did not find

significant impact of village bank loan on household outcomes once corrections were

made for self-selection and endogenous program placement. Only the more “naive”

specifications (i.e. without these corrections) significantly overestimate program impact.

This difference in the results between this study and Coleman’s (1999) study may come

from the different contexts of these two cases, even though these two cases follow the

same village bank model (see Appendix B: section 2.2.1). Regarding to Coleman’s

results, he provided some explanations as:

Thailand…is a relatively wealthy developing country, with annual GDP growth at


close to 10% for the past two decades, and many villagers already have access to
low-interest credit from financial institutions such as the BAAC37. In fact, the
average wealth of survey households was 529,586 baht, and average household
low-interest debt, excluding village bank debt, was 31,330 baht, of which 9,342
baht was held by women. In such an environment, it should not be surprising that
loans of 1,500 to 7,500 baht would have a negligible impact. Indeed, a common
complaint of women surveyed was that the size of village bank loans was far too
small for them to be productive. The village bank model of group lending, as
practiced throughout the world, sometimes takes a “one size fits all” approach,
based on a first loan of US$50 and a maximum of US$300. These limits are in
fact commonly used in much poorer countries in Africa, where they represent a

37
BAAC stands for the semi-statal Bank for Agriculture and Agricultural Cooperatives (Coleman, 1999:
111).

68
lot of money to a village household. They are also the limits used in Northeast
Thai villages, and they are arguably too low. On the other hand, the significant
number of members who had worked themselves into debt by borrowing without
having identified a productive activity to invest in points to the need for project
field staff to redouble efforts to stress the need to invest the loans productively
(Coleman, 1999:133).

In contrast to Thailand, Laos is one of the poorest countries in East Asia with an

estimated per capita income of US$ 390 in 2004. Real GDP grew by an annual average

rate of 6.3 per cent in the 1990s and was 7 per cent in 2005 (World Bank Vientiane

Office, 2006). In terms of access to financial services, about one million economically

active people potentially require access to formal or semi-formal microfinance services.

However, almost three quarters cannot reach them. Approximately 300,000 people

recently accessed loan and savings services. Only 21 per cent have access to microcredit

from the formal sector, 33 per cent are dependant on the semi-formal sector and project

initiatives and the rest 46 per cent are obtaining financial service from the informal sector.

In this survey sample, only 6 per cent and 4 per cent of those sample surveyed access

could credit at low interest rates and make deposits with APB respectively (Appendix B:

Table 5-6). These may be factors that lead to the villagers’ need for a credit for

productive purpose from the savings group. This may, therefore, lead to have a

significant impact on their household outcomes.

This paper also has some limitations. First, even though this applied the

generalized least squares estimation (GLS) to correct heteroskedasticity, called weighted

least squares (WLS) estimations, there may be correlation among independent variables.

This may lead to biased estimations of the impact on household outcomes. Second, there

may be endogenous issue in variables because this study did not cover a test for the

69
endogeneity. Third, this study did not take into account the spillover effects to

nonmembers in the six villages. Fourth, the values of data on household assets, incomes

and expenditures are nominal. Fifth, the use of cross-section data to evaluate the impact

of savings group, may show only the short term effect and may not predict the long term

impact of savings group which may be possible to ascertain by using panel data.

The use of panel data for conducting a follow up survey for an impact analysis is

recommended area for further study. This will help in dealing with problems such

spillover effects and endogeneity of explanatory variables.

However, this paper’s findings have several important implications. Firstly, the

large positive impact savings group has on household asset suggest that microfinance

programs may improve household status in term of wealth. Secondly, the positive

significant effects of the savings group on productivity, particularly livestock and

agriculture in terms of rental on rice fields, suggest that the savings group program may

be a viable strategy for the poverty eradication. This is consistent with the National

Growth and Poverty Eradication Strategy (NGPES) (2004: 65) of the Government of Lao

PDR which recognizes the importance of microfinance and has placed it as the one of the

high priority projects for the agriculture and forestry development plan. Thirdly, the great

positive influence of the savings group program on household education expenses

suggests that microfinance program may be one viable strategy to reach the millennium

development goals in term of education.

70
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Materials in Lao

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01, −½£º−͸¤¸¼¤¥ñ−, ®Ò´ó¸ñ−êó), £¤¡¾−»È¸´´õì½¹¸È¾¤¦ø−¡¾−¦½¹½²ñ−Á´È¨ò¤

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Development Institute (Thailand)]

£¤¡¾−¦‰¤À¦ó´£¸¾´À¢˜´Á¢¤¦¿ìñ®Á´È¨ò¤Á콧÷´§ö−, 쾨¤¾−¡¾−¥ñ©ª˜¤¯½ªò®ñ©Â£¤

¡¾−¦‰¤À¦ó´£¸¾´À¢˜´Á¢¤¦¿ìñ®Á´È¨ò¤Á콧÷´§ö−: ª÷ì¾ 2002 À«ò¤¡ñ−¨¾ 2005,

(−½£º−͸¤¸¼¤¥ñ−, 2005), £¤¡¾−»È¸´´õì½¹¸È¾¤¦ø−¡¾−¦½¹½²ñ−Á´È¨ò¤ Áì½

¦½«¾®ñ−²ñ©ê½−¾§÷´§ö− (¯½Àê©Äê). [Women and Community’s Empowering

Project, Report on the Implementation of Women and Community’s Empowering

Project: October 2002 - September 2005, Vientiane, 2005, Cooperative Project

between Lao Women’s Union and Community Organizations Development

Institute (Thailand)]

¦ø−¡¾¤¦½¹½²ñ−Á´È¨ò¤ì¾¸ ¦.¯.¯ 쾸 Áì½ ¦½«¾®ñ−²ñ©ê½−¾§÷´§ö− (¯½Àê©Äê),

¡÷È´êɺ−À¤ò− ¡ñ®¡¾−Á¡ÉÄ¢¯ñ−¹¾£¸¾´ê÷¡¨¾¡: 쾨¤¾−¡¾−¦‰¤À¦ó´ Áì½¢½¹¨¾¨

¡÷ú´êɺ−À¤ò− Ã− ¦.¯.¯ 쾸, (−½£º−͸¤¸¼¤¥ñ−, ®Ò´ó¸ñ−êó), ¦ø−¡¾−¦½¹½²ñ−

78
Á´È¨ò¤ ¦.¯.¯ 쾸 Áì½ ¦½«¾®ñ−²ñ©ê½−¾§÷´§ö− (¯½Àê©Äê). [Lao Women’s

Union: Lao PDR and Community Organizations Development Institute: Thailand,

Savings Group and Poverty Reduction: Study on Promotion and Expansion of

Savings Group in Lao PDR, Vientiane, n.d, Lao Women’s Union: Lao PDR and

Community Organizations Development Institute: Thailand, (unpublished)]

79
Appendix A

Table 1: Descriptive statistics for variables of whole sample size

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household monthly food expenditure 417,481 300,000 2,100,000 20,000 329,570 251
Households monthly rental expenditure 10,267 0.00 1,200,000 0 84,549 251
Household monthly transportation fee 210,553 45,000 3,600,000 0 432,975 251
expenditure
Household monthly educational expenditure 167,807 55,000 3,000,000 0 333,357 251
Household monthly clothing expenditure 136,084 58,333 1,200,000 0 184,019 251
Household monthly medical expenditure 105,106 30,000 2,000,000 0 234,065 251
Household monthly expenditure on 95,754 25,000 2,400,000 0 222,659 251
household utensils
Household monthly other major expenditure 91,748 25,000 3,500,000 0 316,805 251
Household monthly total non-food 817,319 480,000 6,080,000 12,000 998,698 251
expenditure
Household monthly total expenditure 1,234,800 885,000 7,000,000 67,000 1,152,860 251
Value of household owned house 33,964,779 20,000,000 287,000,000 0 45,449,824 251
Value of household owned land 498,000,000 20,000,000 111,000,000,000 0 7,010,000,000 251
Value of household owned land and house 532,000,000 46,000,000 111,000,000,000 0 7,010,000,000 251
Value of household owned agriculture asset 2,524,714 0 70,000,000 0 7,606,691 251
Value of household owned livestock asset 5,549,922 400,000 220,000,000 0 19,242,134 251
Value of household owned other enterprise 459,721 0 20,000,000 0 2,228,895 251
asset
Value of household owned savings at house 1,242,315 200,000 107,000,000 0 7,490,676 251
Value of household owned other asset 3,458,696 0 190,000,000 0 14,566,528 251
Value of household owned non-land and 13,235,368 4,100,000 338,000,000 0 33,072,800 251
house asset
Value of household owned total asset 545,000,000 55,270,000 111,000,000,000 300,000 7,020,000,000 251

80
Appendix A

Table 1: Descriptive statistics for variables of whole sample size (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household yearly self employment income 2,419,044 1,000,000 81,500,000 0 5,979,001 251
from agriculture
Household yearly self employment income 1,578,175 300,000 30,000,000 0 3,486,485 251
from livestock
Household yearly self employment income 1,888,122 100,000 25,400,000 0 3,243,976 251
from handicraft & textile
Household yearly self employment income 3,376,932 0 194,000,000 0 18,386,628 251
from trading
Household yearly self employment income 379,482 0 21,900,000 0 2,459,819 251
from repairing& fixing service
Household yearly self employment income 1,648,562 0 190,000,000 0 15,460,301 251
from rice mill & construction
Household yearly self employment income 301,793 0 40,000,000 0 2,944,454 251
from vehicle service

Household total yearly self employment 11,592,111 5,475,000 196,000,000 0 25,294,651 251
income
Household yearly wage & salary income 2,205,797 0 24,000,000 0 3,799,600 251
Household yearly income from remittance 407,822 0 19,068,600 0 1,704,379 251
Household yearly rental income 79,084 0 10,800,000 0 738,221 251
Household yearly monetary items income 887,139 0 213,000,000 0 13,461,641 251
Household yearly other income 21,514 0 3,600,000 0 253,644 251
Household total yearly non-self employment 3,601,356 500,000 213,000,000 0 13,979,828 251
income
Household yearly total income 15,193,467 8,200,000 213,000,000 380,000 28,634,965 251

81
Appendix A

Table 1: Descriptive statistics for variables of whole sample size (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Independent variables:
Months as VSG member 8.08 1 36 0 12 251

Does household has a VSG member?(0/1) 0.73 1 1 0 0.45 251


Value of household owned land 5 years ago 29,042,629 10,000,000 911,000,000 0 82,223,525 251
Sex of household head (female=1) 0.0996 0.00 1 0 0.30 251
Gender of respondents (entrepreneur) 0.888 1 1 0 0.32 251
(female=1)
Maximum education of respondents 4.90 5 19 0 3 251
(entrepreneur) (years)
Household size 5.51 5 12 1 2 251
Age of respondents (entrepreneur) (years) 41 41 75 18 12 251
Number of months doing business 161 120 813 1 146 251
Number of Generations of family in village 0.502 0 6 0 1 251
Number of relatives in village 2.42 1 40 0 4 251
Are you member or head of the group 0.064 0 1 0 0.24 251
committee? (0/1)
Number of civil servant in household 0.267 0 4 0 0.56 251
Number of wage employment in HH 1.08 1 5 0 1.19 251
Number of school age in HH 1.57 2 6 0 1.26 251
Number of dependent on your income in HH 2.64 2 10 0 1.67 251
Village is near river (0/1) 0.434 0 1 0 0.50 251
Village has pig pond which has water 0.375 0 1 0 0.48 251
throughout the year (0/1)
Village has either pig pond which has water 0.566 1 1 0 0.50 251
throughout the year or be near river (0/1)
Village is located in district capital (0/1) 0.096 0 1 0 0.29 251

82
Appendix A

Table 1: Descriptive statistics for variables of whole sample size (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Does village have paved road or near main 0.287 0 1 0 0.45 251
road (Km 13 road)? (0/1)
Village has irrigation (0/1) 0.191 0 1 0 0.39 251
Does village have school until secondary 0.096 0 1 0 0.29 251
level?(0/1)
Does village have primary school up to 0.661 1 1 0 0.47 251
grade5? (0/1)
Distance from village to main markets 22 20 33 15 6.84 251
Price of one cattle 1,610,359 1,500,000 2,000,000 1,300,000 233,007 251
Price of one buffalo 3,260,956 3,250,000 4,000,000 2,500,000 524,051 251
Price of pig per Kg 14,596 11,667 25,000 10,000 5,097 251
Price of duck per Kg 14,572 15,000 15,000 13,500 617 251
Price of traditional chicken (Gailard) per Kg 18,857 19,000 20,000 18,000 896 251
Daily wage for harvesting rice 18,307 20,000 30,000 0 9,339 251
Daily wage for planting rice 27,875 35,000 50,000 0 18,081 251
Daily wage for construction 24,243 25,000 27,500 20,000 2,043 251

Source: Author’s survey data, September 2005 and March 2006.

83
Appendix A

Table 2: Descriptive statistics for variables by treatment group

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household monthly food expenditure 429,160 300,000 2,100,000 20,000 356,530 131
Households monthly rental expenditure 2,061 0 210,000 0 18,594 131
Household monthly transportation fee 209,551 66,000 2,790,000 0 376,340 131
expenditure
Household monthly educational expenditure 201,508 70,000 2,700,000 0 348,466 131
Household monthly clothing expenditure 161,304 100,000 1,000,000 0 194,430 131
Household monthly medical expenditure 119,523 30,000 2,000,000 0 246,709 131
Household monthly expenditure on 98,393 25,000 2,400,000 0 241,647 131
household utensils
Household monthly other major expenditure 119,380 25,000 3,500,000 0 421,754 131
Household monthly total non-food 911,720 615,000 5,900,000 44,500 1,036,465 131
expenditure
Household monthly total expenditure 1,340,880 1,000,000 7,000,000 67,000 1,197,825 131
Value of household owned house 36,757,225 25,000,000 267,000,000 500,000 43,616,512 131
Value of household owned land 43,986,808 25,000,000 500,000,000 0 66,102,737 131
Value of household owned land and house 80,744,034 56,303,000 700,000,000 500,000 94,659,232 131
Value of household owned agriculture asset 2,702,595 0 60,000,000 0 7,597,104 131
Value of household owned livestock asset 4,906,851 400,000 150,000,000 0 16,750,015 131
Value of household owned other enterprise 412,977 0 18,000,000 0 2,081,643 131
asset
Value of household owned savings at house 1,078,321 200,000 50,000,000 0 4,602,353 131
Value of household owned other asset 4,311,510 0 190,000,000 0 19,478,105 131
Value of household owned non-land and 13,412,254 3,820,000 338,000,000 0 36,561,896 131
house asset
Value of household owned total asset 94,156,287 62,100,000 720,000,000 1,080,000 111,000,000 131

84
Appendix A

Table 2: Descriptive statistics for variables by treatment group (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household yearly self employment income 2,537,023 700,000 81,500,000 0 7,571,050 131
from agriculture
Household yearly self employment income 1,466,794 500,000 15,000,000 0 2,435,613 131
from livestock
Household yearly self employment income 2,134,983 500,000 25,400,000 0 3,686,305 131
from handicraft & textile
Household yearly self employment income 2,664,695 0 194,000,000 0 17,334,078 131
from trading
Household yearly self employment income 552,672 0 21,900,000 0 2,944,155 131
from repairing& fixing service
Household yearly self employment income 1,703,733 0 150,000,000 0 13,617,852 131
from rice mill & construction
Household yearly self employment income 427,481 0 40,000,000 0 3,754,035 131
from vehicle service

Household total yearly self employment 11,487,380 6,160,000 194,000,000 0 23,500,748 131
income
Household yearly wage & salary income 2,327,977 0 19,720,000 0 3,842,135 131
Household yearly income on remittance 448,352 0 19,068,600 0 1,945,576 131
Household yearly rental income 102,290 0 10,800,000 0 954,863 131
Household yearly monetary items income 45,802 0 6,000,000 0 524,222 131
Household yearly other income 27,481 0 3,600,000 0 314,534 131
Household total yearly non-self employment 2,951,902 400,000 26,068,600 0 4,678,700 131
income
Household yearly total income 14,439,282 8,520,000 194,000,000 1,000,000 23,505,613 131

85
Appendix A

Table 2: Descriptive statistics for variables by treatment group (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Independent variables:
Months as VSG member 15 15 36 1 12.51 131
Does household has a VSG member?(0/1) 1 1 1 1 0.00 131
Value of household owned land 5 years ago 25,345,857 12,000,000 300,000,000 0 38,953,728 131
Sex of household head (female=1) 0.09 0.00 1.00 0.00 0.29 131
Gender of respondents (entrepreneur) 0.92 1.00 1.00 0.00 0.27 131
(female=1)
Maximum education of respondents 4.69 5.00 14.00 0.00 3.41 131
(entrepreneur) (years)
Household size 5.65 5.00 11.00 2.00 1.98 131
Age of respondents (entrepreneur) (years) 42.29 43.00 68.00 21.00 10.74 131
Number of months doing business 155.19 120.00 531.00 1.00 137.00 131
Number of Generations of family in village 0.50 0.00 6.00 0.00 1.01 131
Number of relatives in village 2.27 2.00 12.00 0.00 2.49 131
Are you member or head of the group 0.08 0.00 1.00 0.00 0.28 131
committee? (0/1)
Number of civil servant in household 0.28 0.00 2.00 0.00 0.54 131
Number of wage employment in HH 1.18 1.00 5.00 0.00 1.29 131
Number of school age in HH 1.67 2.00 5.00 0.00 1.17 131
Number of dependent on your income in HH 2.66 3.00 8.00 0.00 1.60 131
Village is near river (0/1) 0.56 1.00 1.00 0.00 0.50 131
Village has pig pond which has water 0.36 0.00 1.00 0.00 0.48 131
throughout the year(0/1)
Village has either pig pond which has water 0.62 1.00 1.00 0.00 0.49 131
throughout the year or be near river (0/1)
Village is located in district capital (0/1) 0.12 0.00 1.00 0.00 0.33 131

86
Appendix A

Table 2: Descriptive statistics for variables by treatment group (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Does village have paved road or near main 0.38 0.00 1.00 0.00 0.49 131
road (Km 13 road)? (0/1)
Village has irrigation (0/1) 0.26 0.00 1.00 0.00 0.44 131
Does village have school until secondary 0.12 0.00 1.00 0.00 0.33 131
level? (0/1)
Does village have primary school up to 0.74 1.00 1.00 0.00 0.44 131
grade5? (0/1)
Distance from village to main markets 22.75 20.00 33.00 15.00 6.63 131
Price of one cattle 1,573,664 1,500,000 2,000,000 1,300,000 231,660 131
Price of one buffalo 3,270,992 3,250,000 4,000,000 2,500,000 579,322 131
Price of pig per Kg 15,485 11,667 25,000 10,000 5,334 131
Price of duck per Kg 14,668 15,000 15,000 13,500 577 131
Price of traditional chicken (Gailard) per Kg 18,985 19,000 20,000 18,000 928 131
Daily wage for harvesting rice 18,168 20,000 30,000 0 8,091 131
Daily wage for planting rice 32,664 40,000 50,000 0 17,081 131
Daily wage for construction 23,798 25,000 27,500 20,000 1,970 131

Source: Author’s survey data, September 2005 and March 2006.

87
Appendix A

Table 3: Descriptive statistics for variables by control group

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household monthly food expenditure 435,058 300,000 1,640,000 20,000 354,763 52
Households monthly rental expenditure 39,396 0 1,200,000 0 180,419 52
Household monthly transportation fee 311,404 50,000 3,600,000 0 671,649 52
expenditure
Household monthly educational expenditure 129,619 73,334 870,000 0 182,782 52
Household monthly clothing expenditure 95,556 45,834 510,000 0 110,758 52
Household monthly medical expenditure 88,875 30,000 800,000 0 166,766 52
Household monthly expenditure on 104,131 25,000 1,000,000 0 205,913 52
household utensils
Household monthly other major expenditure 79,058 30,000 700,000 0 143,501 52
Household monthly total non-food 848,039 477,223 5,050,000 44,167 1,004,497 52
expenditure
Household monthly total expenditure 1,283,097 890,000 6,010,000 225,000 1,238,047 52
Value of household owned house 33,009,317 15,000,000 287,000,000 100,000 52,921,605 52
Value of household owned land 2,210,000,000 15,000,000 111,000,000,000 0 15,400,000,000 52
Value of household owned land and house 2,240,000,000 40,750,000 111,000,000,000 100,000 15,400,000,000 52
Value of household owned agriculture asset 3,156,410 0 70,000,000 0 10,603,436 52
Value of household owned livestock asset 8,011,365 500,000 220,000,000 0 30,604,352 52
Value of household owned other enterprise 726,731 0 15,000,000 0 2,342,297 52
asset
Value of household owned savings at house 574,519 195,000 5,000,000 0 967,112 52
Value of household owned other asset 1,887,392 0 23,944,385 0 5,072,488 52
Value of household owned non-land and 14,356,418 4,950,000 244,000,000 0 35,608,003 52
house asset
Value of household owned total asset 2,260,000,000 52,800,000 111,000,000,000 348,000 15,400,000,000 52

88
Appendix A

Table 3: Descriptive statistics for variables by control group (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household yearly self employment income 2,370,000 570,000 15,000,000 0 3,645,969 52
from agriculture
Household yearly self employment income 1,580,385 250,000 24,000,000 0 3,852,912 52
from livestock
Household yearly self employment income 1,703,500 0 10,000,000 0 2,879,942 52
from handicraft & textile
Household yearly self employment income 3,952,885 0 94,100,000 0 14,868,408 52
from trading
Household yearly self employment income 0 0 0 0 0 52
from repairing& fixing service
Household yearly self employment income 19,231 0 1,000,000 0 138,675 52
from rice mill & construction
Household yearly self employment income 0 0 0 0 0 52
from vehicle service

Household total yearly self employment 9,626,000 5,050,000 113,000,000 0 17,829,858 52


income
Household yearly wage & salary income 1,870,000 0 14,400,000 0 3,213,138 52
Household yearly income from remittance 249,816 0 7,995,450 0 1,182,835 52
Household yearly rental income 113,462 0 4,000,000 0 578,378 52
Household yearly monetary items income 38,462 0 2,000,000 0 277,350 52
Household yearly other income 34,615 0 1,800,000 0 249,615 52
Household total yearly non-self employment 2,306,355 900,000 14,400,000 0 3,238,564 52
income
Household yearly total income 11,932,355 6,600,000 121,000,000 1,000,000 19,371,116 52

89
Appendix A

Table 3: Descriptive statistics for variables by control group (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Independent variables:
Months as VSG member 0 0 0 0 0 52
Does household has a VSG member?(0/1) 1 1 1 1 0 52
Value of household owned land 5 years ago 36,661,946 9,000,000 770,000,000 0 112,000,000 52
Sex of household head (female=1) 0.13 0.00 1.00 0.00 0.34 52
Gender of respondents (entrepreneur) 0.88 1.00 1.00 0.00 0.32 52
(female=1)
Maximum education of respondents 5.27 5.00 13.00 0.00 3.06 52
(entrepreneur) (years)
Household size 5.54 5.00 11.00 2.00 2.16 52
Age of respondents (entrepreneur) (years) 38.63 35.50 68.00 18.00 13.53 52
Number of months doing business 161.06 110.50 813.00 2.00 162.29 52
Number of Generations of family in village 0.50 0.00 4.00 0.00 0.98 52
Number of relatives in village 2.21 1.00 12.00 0.00 2.82 52
Are you member or head of the group 0.10 0.00 1.00 0.00 0.30 52
committee? (0/1)
Number of civil servant in household 0.37 0.00 4.00 0.00 0.71 52
Number of wage employment in HH 1.10 1.00 4.00 0.00 1.16 52
Number of school age in HH 1.83 2.00 6.00 0.00 1.37 52
Number of dependent on your income in HH 2.65 2.00 8.00 0.00 1.63 52
Village is near river (0/1) 0.08 0.00 1.00 0.00 0.27 52
Village has pig pond which has water 0.42 0.00 1.00 0.00 0.50 52
throughout the year (0/1)
Village has either pig pond which has water 0.44 0.00 1.00 0.00 0.50 52
throughout the year or be near river (0/1)
Village is located in district capital (0/1) 0.00 0.00 0.00 0.00 0.00 52

90
Appendix A

Table 3: Descriptive statistics for variables by control group (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Independent variables:
Does village have paved road or near main 0.02 0.00 1.00 0.00 0.14 52
road (Km 13 road)?
Village has irrigation (0/1) 0.02 0.00 1.00 0.00 0.14 52
Does village have school until secondary 0.00 0.00 0.00 0.00 0.00 52
level? (0/1)
Does village have primary school up to 0.44 0.00 1.00 0.00 0.50 52
grade5? (0/1)
Distance from village to main markets 24 18 33 15 7.81 52
Price of one cattle 1,678,846 1,750,000 2,000,000 1,300,000 191,830 52
Price of one buffalo 3,134,615 3,000,000 4,000,000 2,500,000 298,942 52
Price of pig per Kg 11,484 10,833 20,000 10,000 2,303 52
Price of duck per Kg 14,356 14,000 15,000 13,500 605 52
Price of traditional chicken (Gailard) per Kg 18,288 18,000 20,000 18,000 572 52
Daily wage for harvesting rice 15,769 25,000 30,000 0 12,887 52
Daily wage for planting rice 11,913 15,000 50,000 0 12,764 52
Daily wage for construction 25,769 25,000 27,500 22,500 1,447 52

Source: Author’s survey data, September 2005 and March 2006.

91
Appendix A

Table 4: Descriptive statistics for variables by nonmember

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household monthly food expenditure 381,539 300,000 1,140,000 30,000 247,036 68
Households monthly rental expenditure 3,799 0 150,000 0 19,816 68
Household monthly transportation fee 135,363 7,500 1,500,000 0 260,151 68
expenditure
Household monthly educational expenditure 132,086 32,500 3,000,000 0 385,963 68
Household monthly clothing expenditure 118,490 50,000 1,200,000 0 202,077 68
Household monthly medical expenditure 89,745 24,584 2,000,000 0 253,594 68
Household monthly expenditure on household 84,265 25,000 1,200,000 0 198,019 68
utensils
Household monthly other major expenditure 48,221 20,000 600,000 0 100,743 68
Household monthly total non-food expenditure 611,968 358,833 6,080,000 12,000 899,020 68
Household monthly total expenditure 993,507 702,500 6,230,000 129,000 962,150 68
Value of household owned house 29,315,860 19,000,000 267,000,000 0 42,974,388 68
Value of household owned land 66,232,290 10,000,000 2,420,000,000 0 294,000,000 68
Value of household owned land and house 95,548,151 30,000,000 2,450,000,000 0 299,000,000 68
Value of household owned agriculture asset 1,698,971 100,000 30,000,000 0 4,155,598 68
Value of household owned livestock asset 4,906,500 200,000 65,500,000 0 10,876,800 68
Value of household owned other enterprise asset 345,588 0 20,000,000 0 2,424,959 68
Value of household owned savings at house 2,068,912 150,000 107,000,000 0 12,902,080 68
Value of household owned other asset 3,017,360 0 23,656,050 0 5,697,910 68
Value of household owned non-land and house 12,037,331 4,825,000 131,000,000 0 22,803,727 68
asset
Value of household owned total asset 108,000,000 41,215,000 2,460,000,000 300,000 303,000,000 68
Household yearly self employment income from 2,229,265 1,500,000 19,000,000 0 3,462,084 68
agriculture

92
Appendix A

Table 4: Descriptive statistics for variables by nonmember (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Dependent variables (in Kip unless stated
otherwise):
Household yearly self employment income from 1,791,059 175,000 30,000,000 0 4,740,913 68
livestock
Household yearly self employment income from 1,553,735 0 11,000,000 0 2,515,442 68
handicraft & textile
Household yearly self employment income from 4,308,603 0 182,000,000 0 22,539,720 68
trading
Household yearly self employment income from 336,029 0 19,200,000 0 2,363,542 68
repairing& fixing service
Household yearly self employment income from 2,788,235 0 190,000,000 0 22,992,377 68
rice mill & construction
Household yearly self employment income from 290,441 0 18,250,000 0 2,214,526 68
vehicle service

Household total yearly self employment income 13,297,368 5,000,000 196,000,000 0 32,677,643 68
Household yearly wage & salary income 2,227,206 0 24,000,000 0 4,153,388 68
Household yearly income from remittance 450,569 0 10,000,000 0 1,550,881 68
Household yearly rental income 8,088 0 400,000 0 51,551 68
Household yearly monetary items income 3,156,941 0 213,000,000 0 25,853,716 68
Household yearly other income 0 0 0 0 0.00 68
Household total yearly non-self employment 5,842,804 450,000 213,000,000 0 25,914,373 68
income
Household yearly total income 19,140,172 8,100,000 213,000,000 380,000 40,947,644 68
Independent variables:
Months as VSG member 0 0 0 0 0.00 68
Does household has a VSG member?(0/1) 0 0 0 0 0.00 68

93
Appendix A

Table 4: Descriptive statistics for variables by nonmember (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Independent variables
Value of household owned land 5 years ago 30,337,816 5,000,000 911,000,000 0 113,000,000 68
Sex of household head (female=1) 0.09 0.00 1.00 0.00 0.29 68
Gender of respondents (entrepreneur) (female=1) 0.82 1.00 1.00 0.00 0.38 68
Maximum education of respondents 5.01 5.00 19.00 0.00 3.92 68
(entrepreneur) (years)
Household size 5.24 5.00 12.00 1.00 2.25 68
Age of respondents (entrepreneur) (years) 41 39 75 19 13.69 68
Number of months doing business 172 121 624 1 152.41 68
Number of Generations of family in village 0.51 0.00 6.00 0.00 1.13 68
Number of relatives in village 2.87 1.50 40.00 0.00 5.27 68
Are you member or head of the group committee? 0.00 0.00 0.00 0.00 0.00 68
(0/1)
Number of civil servant in household 0.16 0.00 2.00 0.00 0.44 68
Number of wage employment in HH 0.88 1.00 4.00 0.00 0.99 68
Number of school age in HH 1.19 1.00 6.00 0.00 1.28 68
Number of dependent on your income in HH 2.59 2.00 10.00 0.00 1.85 68
Village is near river (0/1) 0.47 0.00 1.00 0.00 0.50 68
Village has pig pond which has water throughout 0.37 0.00 1.00 0.00 0.49 68
the year (0/1)
Village has either pig pond which has water 0.56 1.00 1.00 0.00 0.50 68
throughout the year or be near river (0/1)
Village is located in district capital (0/1) 0.12 0.00 1.00 0.00 0.32 68
Does village have paved road or near main road 0.31 0.00 1.00 0.00 0.47 68
(Km 13 road)? (0/1)
Village has irrigation (0/1) 0.19 0.00 1.00 0.00 0.40 68
Does village have school until secondary level? 0.12 0.00 1.00 0.00 0.32 68
(0/1)

94
Appendix A

Table 4: Descriptive statistics for variables by nonmember (continued)

Variable descriptions Mean Median Maximum Minimum Std. Dev. Observations


Independent variables
Does village have primary school up to grade5? 0.68 1.00 1.00 0.00 0.47 68
(0/1)
Distance from village to main markets 20.97 20.00 33.00 15.00 6.30 68
Price of one cattle 1,628,676 1,500,000 2,000,000 1,300,000 252,645 68
Price of one buffalo 3,338,235 3,500,000 4,000,000 2,500,000 535,607 68
Price of pig per Kg 15,262 11,667 25,000 10,000 5,310 68
Price of duck per Kg 14,551 15,000 15,000 13,500 664 68
Price of traditional chicken (Gailard) per Kg 19,044 19,000 20,000 18,000 871 68
Daily wage for harvesting rice 20,515 20,000 30,000 0 7,877 68
Daily wage for planting rice 30,853 35,000 50,000 0 16,678 68
Daily wage for construction 23,934 25,000 27,500 20,000 2,040 68

Source: Author’s survey data, September 2005 and March 2006.

95
Appendix A

Table 5: Impact of savings group on household house value - GLS.

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Error Coefficient Std. Error Coefficient Std. Error
Error
Months as VSG 292,097** 147,784 292,097* 149,683 335,021*** 122,254 358,260*** 123,456
member
Does household 1,481,225 3,606,033 1,481,225 3,652,365
have a VSG
member?(0/1)
Sex of -8,395,409 6,494,524 -8,395,409 6,577,969 -8,192,279 6,446,844 -8,324,504 6,502,591
household head
(female=1)
Gender of 14,021,407** 6,760,261 14,021,407** 6,847,120 14,277,586** 6,841,554 10,800,449* 6,236,708
individuals
(entrepreneur)
(female=1)
Maximum 854,694** 422,396 854,694** 427,823 875,203** 4,152,112 912,698** 405,066
education of
individuals
(entrepreneur)
(years)
Household size 1,037,618 752,418 1,037,618 762,086 1,031,433 761,675 1,141,685 753,676
Age of 312,418** 136,471 312,418** 138,225 317,848** 136,362 347,865*** 137,941
individuals
(entrepreneur)
(years)

96
Appendix A

Table 5: Impact of savings group on household house value - GLS. (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Error Coefficient Std. Error Coefficient Std. Error
Error
Number of 29,502*** 11,177 29,502*** 11,321 29,811*** 11,347 33,317*** 11,108
months doing
business
Number of 843,836 1,191,177 843,836 1,206,481 796,147 1,209,852 542,343 1,190,404
Generations of
family in village
Number of 1,552,376*** 387,633 1,552,376*** 392,613 1,548,088*** 392,040 1,544,427*** 381,940
relatives in
village
Are you 12,703,787*** 4,169,217 12,703,787*** 4,222,785 12,597,429*** 4,225,101 12,995,561*** 4,189,169
member or head
of the group
committee?
(0/1)
Number of civil 5,058,192 3,566,208 5,058,192 3,612,029 5,216,180 3,483,950 5,351,551 3,463,556
servant in
household
Value of 0.0688 0.0498 0.0688 0.0504 0.0697 0.0502
household
owned land 5
years ago

97
Appendix A

Table 5: Impact of savings group on household house value - GLS. (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Error Coefficient Std. Error Coefficient Std. Error
Error
Village has -44,768,692 36,726,790 -45,892,240 36,782,065 -47,125,621 36,182,599
either pig pond
which has water
throughout the
year or be near
river (0/1)
Does village -17,908,249** 7,655,365 -18,358,229** 7,784,479 -18,674,677** 7,906,479
have paved road
or near main
road (Km 13
road)? (0/1)
Does village 45,390,649 38,241,483 46,212,441 38,344,587 47,538,868 3,764,1126
have primary
school up to
grade5? (0/1)
Distance from 583,219 424,715 599,591 416,257 585,607 424,001
village to main
markets
Price of -258 1,783 -429 1,846 -171 1,841
traditional
chicken
(Gailard) per
Kg

98
Appendix A

Table 5: Impact of savings group on household house value - GLS. (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Error Coefficient Std. Error Coefficient Std. Error
Error
Daily wage for -1,018 1,542 -886 1,613 -977 1,613
construction

F-statistic= 2.858314 F-statistic=2.858314 F-statistic=3.044732 F-statistic=2.911104


Prob(F-statistic)= Prob(F-statistic)= 0.000149 Prob(F-statistic)= 0.000080 Prob(F-statistic)= 0.000217
0.000149
R-squared=0.181513 R-squared=0.181513 R-squared=0.181768 R-squared=0.166006

Note: the superscripts ***, ** and * denote rejection at 1 per cent, 5 per cent and 10 per cent critical values.

Source: Author’s survey data, September 2005 and March 2006.

99
Appendix A

Table 6: Impact of savings group on yearly self-employment income from livestock - GLS.

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Coefficient Std. Coefficient Std.
Error Error Error Error
Months as VSG 19,962* 10,589 19,962* 10,725 5,374 6,546 5,948 6,388
member
Does household have -557,276 358,369 -557,276 362,974
a VSG member?(0/1)
Sex of household -300,623 207,914 -300,623 210,585 -368,213* 204,348 -371,531* 202,203
head (female=1)
Gender of individuals 80,203 845,785 80,203 856,652 -6,467 855,017 -84,635 861,953
(entrepreneur)
(female=1)
Maximum education 12,190 33,842 12,190 34,277 2,017 33,190 4,484 33,169
of individuals
(entrepreneur) (years)
Household size 318,013*** 97,539 318,013*** 98,792 306,585*** 95,545 310,764*** 95,568
Age of individuals 4,370 10,151 4,370 10,281 1,298 9,339 2,549 9,296
(entrepreneur) (years)
Number of months -809 818 -809 828 -761 806 -689 792
doing business
Number of 107,168 83,641 107,168 84,716 110,511 78,823 110,934 78,738
Generations of family
in village
Number of relatives 46,844 32,868 46,844 33,290 48,340 31,638 49,922 32,272
in village

100
Appendix A

Table 6: Impact of savings group on yearly self-employment income from livestock – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Coefficient Std. Coefficient Std.
Error Error Error Error
Are you member or 1,378,544*** 483,964 1,378,544*** 490,183 1,413,605*** 473,251 1,445,757*** 479,883
head of the group
committee? (0/1)
Number of civil 413,843.2* 249,040.7 413,843.2 252,240.5 389,296 246,407 395,150 244,608
servant in household
Value of household 0.0023 0.0029 0.0023 0.0029 0.0023 0.0027
owned land 5 years
ago
Village has either pig -3,014,492 2,745,199 -2,626,708 2,695,507 -2,669,113 2,678,944
pond which has water
throughout the year
or be near river (0/1)
Does village have -654,752 684,148 -481,329 656,940 -493,312 659,751
paved road or near
main road (Km 13
road)? (0/1)
Does village have 2,453,660 2,861,017 2,144,790 2,823,562 2,186,486 2,806,690
primary school
grade5? (0/1)
Distance from village -16,485 54,007 -21,839 53,026 -22,598 52,962
to main markets
Price of traditional -99.92 117 -39 99 -31.38 99.5
chicken (Gailard) per
Kg

101
Appendix A

Table 6: Impact of savings group on yearly self-employment income from livestock – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Coefficient Std. Coefficient Std.
Error Error Error Error
Daily wage for 83 69 39 56 35 56
construction
F-statistic= 2.296443 F-statistic=2.296443 F-statistic=2.281757 F-statistic=2.388660
Prob(F-statistic)= Prob(F-statistic)= Prob(F-statistic)= Prob(F-statistic)=
0.002577 0.002577 0.003352 0.002513
R-squared=0.151228 R-squared=0.151228 R-squared=0.142720 R-squared=0.140397

Note: the superscripts ***, ** and * denote rejection at 1 per cent, 5 per cent and 10 per cent critical values.

Source: Author’s survey data, September 2005 and March 2006.

102
Appendix A

Table 7: Impact of savings group on household yearly self-employment income from agriculture - GLS.

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Coefficient Std. Coefficient Std.
Error Error Error Error
Months as VSG -28,206.57*** 9,286.57 -28,206.57*** 9,405.89 -19,530.14*** 7,505.15 -20,080 ***
7,381.74
member
Does household have 286,830.8* 163,582.4 286,830.8* 165,684.2
a VSG member?(0/1)
Sex of household -541,902*** 108,493 -541,902*** 109,887 -512,509*** 107,429.6 -486,574*** 107,728
head (female=1)
Gender of individuals 72,762 129,788 72,762 131,455.9 103,554.6 128,713 74,531 127,055
(entrepreneur)
(female=1)
Maximum education -41,017.54** 19,608.96 -41,017.54** 19,860.9 -39,569.5** 19,779.25 -28,725.78 17,799
of individuals
(entrepreneur) (years)
Household size 74,184.43*** 25,956.19 74,184.43*** 26,289.69 74,259*** 25,928 80,356*** 25,993
Age of individuals 6,792.35 4,806.29 6,792.35 4,868.04 5,987.76 4,768.41 7,609* 4,585
(entrepreneur) (years)
Number of months 2,310.43*** 573.26 2,310.43*** 580.63 2,347.08*** 579.52 2,375.99*** 572.196
doing business
Number of 137,675.9** 58,040.65 137,675.9** 58,786.38 138,985** 57,809 127,145.7** 56,916
Generations of family
in village
Number of relatives 11,847.96 21,677.13 11,847.96 21,955.64 11,319.47 22,153.05 11,529.7 22,208.8
in village

103
Appendix A

Table 7: Impact of savings group on household yearly self-employment income from agriculture – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Coefficient Std. Coefficient Std.
Error Error Error Error
Are you member or 536,173.8 563,871 536,173.8 571,115.9 506,895 569,192.6 507,812.4 567,530
head of the group
committee? (0/1)
Number of civil 82,783.2 118,974.4 82,783 120,503 107,797.9 115,761.5 158,546 105,499
servant in household
Value of household 0.001251*** 0.000365 0.001251*** 0.00037 0.001144*** 0.000367
owned land 5 years
ago
Village has either pig -1,348,716 5,157,754 -1,576,873 5,166,868 -1,521,957 5,156,553
pond which has water
throughout the year
or be near river (0/1)
Does village have -1,464,704 3,444,240 -1,550,032 3,444,890 -1,536,444 3,437,276
paved road or near
main road (Km 13
road)? (0/1)
Does village have 4,407,984 8,395,579 4,576,076 8,394,287 4,510,155 8,377,608
primary school up to
grade5? (0/1)
Distance from village -118,734** 59,639.55 -116,338** 59,163.12 -116,370** 59,044.5
to main markets
Price of traditional -697.26 998.98 -724.56 999.12 -720.7 996.85
chicken (Gailard) per
Kg

104
Appendix A

Table 7: Impact of savings group on household yearly self-employment income from agriculture – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Coefficient Std. Coefficient Std. Coefficient Std.
Error Error Error Error
Daily wage for 637.56 792.33 663.61 793.01 656.64 791.38
construction
F-statistic= 1.492664 F-statistic= 1.492664 F-statistic=1.537622 F-statistic=1.607735
Prob(F-statistic)= Prob(F-statistic)= Prob(F-statistic)= Prob(F-statistic)=
0.093412 0.093412 0.082866 0.067655
R-squared= 0.103790 R-squared= 0.103790 R-squared=0.100871 R-squared=0.099043

Note: the superscripts ***, ** and * denote rejection at 1 per cent, 5 per cent and 10 per cent critical values.

Source: Author’s survey data, September 2005 and March 2006.

105
Appendix A

Table 8: Impact of savings group on household monthly rental expenditure - GLS.

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Error Coefficient Std. Coefficient Std. Error Coefficient Std.
Error Error
Months as VSG 138.904** 60.75 138.904** 61.53 144.28** 45.69 144.421*** 45.613
member
Does household has a 175.558 1,355 175.558 1,372
VSG member?(0/1)
Sex of household 2,153 1,313 2,153 1,330 2,127.22 1,358.16 2,120.69 1,352.03
head (female=1)
Gender of individuals 514 1,036 513.95 1,049.55 460.495 1,024.501 367.014 1,024.34
(entrepreneur)
(female=1)
Maximum education 483.38** 204.63 483.38** 207.25 488.83** 207.36 498.64** 208.93
of individuals
(entrepreneur) (years)
Household size -164 439.83 -164 445.48 -163.57 439.61 -155 439.1
Age of individuals -342.71*** 124.83 -342.71*** 126.43 -345.779*** 123.026 -343.272*** 121.85
(entrepreneur) (years)
Number of months -9.44** 4.09 -9.44** 4.14 -9.41** 4.008 -9.364** 3.985
doing business
Number of 8,346*** 2,666 8,346*** 2,700.43 8,417.66*** 2,626.15 8,413.08*** 2,616.92
Generations of family
in village
Number of relatives -325** 134 -325** 135.42 -335.64*** 131.47 -333.027*** 130.446
in village

106
Appendix A

Table 8: Impact of savings group on household monthly rental expenditure – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Error Coefficient Std. Coefficient Std. Error Coefficient Std.
Error Error
Are you member or -2,927** 1,212 -2,927** 1,228.03 -2,959.98** 1,217.54 -2,912.395** 1,204
head of the group
committee? (0/1)
Number of civil -1,736** 891 -1,736** 902.81 -1,734.42** 837.19 -1,684.74** 824.22
servant in household
Value of household 0.0000027 0.0000035 0.0000027 0.0000036 0.0000027 0.0000035
owned land 5 years
ago
Village has either pig -46,764.79 83,436.6 -46,847.70 84,100.69 -46,844.96 83,916.4
pond which has water
throughout the year
or be near river (0/1)
Does village have -30,659.31 55,918.17 -30,707.13 56,154.46 -30,713.54 56,031.4
paved road or near
main road (Km 13
road)? (0/1)
Does village have 78,514.40 137,373.4 78,573.59 137,835.7 78,567.17 137,533.2
primary school up to
grade5? (0/1)
Distance from village -898.635 942.369 -897.67 932.11 -898.15 930.08
to main markets
Price of traditional -9.975 16.173 -9.984 16.258 -9.98 16.22
chicken (Gailard) per
Kg

107
Appendix A

Table 8: Impact of savings group on household monthly rental expenditure – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Error Coefficient Std. Coefficient Std. Error Coefficient Std.
Error Error
Daily wage for 8.714 12.837 8.730 12.911 8.72 12.88
construction
F-statistic= 2.851135 F-statistic=2.851135 F-statistic=3.099860 F-statistic=3.309186
Prob(F-statistic)= 0.000155 Prob(F-statistic)= Prob(F-statistic)= Prob(F-statistic)=
0.000155 0.000060 0.000032
R-squared=0.181139 R-squared=0.181139 R-squared=0.184452 R-squared=0.184518

Note: the superscripts ***, ** and * denote rejection at 1 per cent, 5 per cent and 10 per cent critical values.

Source: Author’s survey data, September 2005 and March 2006.

108
Appendix A

Table 9: Impact of savings group on household monthly educational expenditure - GLS.

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Error Coefficient Std. Coefficient Std. Error Coefficient Std.
Error Error
Months as VSG 5,670.26** 2,768.37 5,670.26** 2,803.94 5,961.41** 2,328.64 5,975.62** 2,323.98
member
Does household has a 7,079.72 29,520.13 7,079.72 29,899.42
VSG member?(0/1)
Sex of household -73,346.61 49,733.75 -73,346.61 50,372.75 -71,354.07 49,884.70 -71,423.84 49,472.92
head (female=1)
Gender of individuals -21,040.16 29,964.27 -21,040.16 30,349.26 -20,434.61 28,795.59 -16,808.54 28,283.16
(entrepreneur)
(female=1)
Maximum education 6,287.33 3,930.84 6,287.33 3,981.35 6,318.587 3,875.395 6,305.82 3,879.46
of individuals
(entrepreneur) (years)
Household size 20,529.96*** 5,012.84 20,529.96*** 5,077.25 20,845.82*** 4,978.39 20,763.81*** 4,937.83
Age of individuals 1,592.31 1,142.47 1,592.31 1,157.15 1,550.24 1,129.29 1,464.46 1,108.08
(entrepreneur) (years)
Number of months -210.32** 97.97 -210.32** 99.23 -201.72** 100.08 -207.34** 97.26
doing business
Number of -19,403.54** 8,778.61 -19,403.54** 8,891.41 -19,900.6** 8,926.37 -19,117.51** 8,493.06
Generations of family
in village

109
Appendix A

Table 9: Impact of savings group on household monthly educational expenditure – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Error Coefficient Std. Coefficient Std. Error Coefficient Std.
Error Error
Number of relatives -135.896 1,292.505 -135.897 1,309.112 -186.27 1,232.45 -242.82 1,241.64
in village
Are you member or -19,447.98 76,584.68 -19,447.98 77,568.68 -23,655.88 7,3921.90 -24,936.75 73,712.6
head of the group
committee? (0/1)
Number of civil 11,323.64 21,117.49 11,323.64 21,388.81 12,310.31 19,502.08 11,545.31 19,684.12
servant in household
Value of household -0.0000758 0.0000979 -0.0000758 0.0000992 -0.0000769 0.0000914
owned land 5 years
ago
Village has either pig -321,772.9* 166,552.9 -328,547.7** 155,380.5 -327,368.3** 154,914.8
pond which has water
throughout the year
or be near river (0/1)
Does village have -142,432.3 98,762.85 -144,617.5 93,385.55 -144,249.4 93,205.14
paved road or near
main road (Km 13
road)? (0/1)
Does village have 408,506* 223,862.9 413,289.4* 214,578.9 411,673.4* 214,079.6
primary school up to
grade5? (0/1)
Distance from village 1,380.33 1,975.93 1,476.9 2,101.4 1,454.18 2,092.53
to main markets

110
Appendix A

Table 9: Impact of savings group on household monthly educational expenditure – GLS (continued)

Independent Fixed Effects model Nonfixed effects model “Naïve” model “Super-naive” model
variable
Coefficient Std. Error Coefficient Std. Coefficient Std. Error Coefficient Std.
Error Error
Price of traditional -27.08 26.85 -28.12 25.11 -28.35 25.05
chicken (Gailard) per
Kg
Daily wage for 16.933 21.342 17.75 19.87 17.94 19.82
construction
F-statistic= 1.670459 F-statistic=1.670459 F-statistic= 1.835944 F-statistic=1.952906
Prob(F-statistic)= 0.045622 Prob(F-statistic)= Prob(F-statistic)= Prob(F-statistic)=
0.045622 0.024821 0.017032
R-squared=0.114734 R-squared=0.114734 R-squared=0.118129 R-squared=0.117802

Note: the superscripts ***, ** and * denote rejection at 1 per cent, 5 per cent and 10 per cent critical values.

Source: Author’s survey data, September 2005 and March 2006.

111
Appendix B

CASE STUDY

SAVINGS GROUPS IN NAXAITHONG CITY

This section discusses the savings groups in Naxaithong city as a case study under

the Women and Community’s Empowering Project (WCEP), one of the many programs

which launched microfinance programs in the semi-urban areas of Laos. Before going to

that point, we will briefly provide an overview of WCEP.

1. Overview of the Women and Community’s Empowering Project38

1.1 Background, goal and activities

The Women and Community’s Empowering Project (WCEP), formed formally in

October 2002, is cooperation between the Lao Women’s Union (LWU) – a Lao

Government women's organization – and the Community Organizations Development

Institute: Thailand (CODI). The project was implemented in three districts in Vientiane,

the capital of Laos, namely Pak Ngum, Naxaithong and Sangthong cities which were

selected by LWU because they were the poorest districts (Asian Coalition for Housing

Rights, 2005), for the period from October 2002 to September 2005 with budget of

2,650,000 Baht39, supported by the Asian Coalition for Housing Rights (ACHR).

The goal of the project is to improve quality of life for women and their families,

and to support the activities for savings, credit and community fund to be a method for

development. Its main activities have been:


38
This section borrows extensively from the Report on the Implementation of Women and Community’s
Empowering Project: October 2002 - September 2005, produced by the Women and Community’s
Empowering Project (2005). This report which was originally written in Lao language was translated by the
author.
39
In 2002, average exchange rate was 42.96 Baht per one US dollar (Bank of Thailand, 2006).

112
Appendix B

• to establish the savings group and working capital fund;

• to promote community activities with learning promotion, training and

procession provision for community to be able to create activities for self

development such as community development, community welfare

provision, use of natural fertilizer, sharing of experience;

• to improve the functioning of the savings group and its branches by

developing accounting system, and developing administration and

management system for savings group, branch, district fund and central

fund;

• to provide advice on self-employment opportunities as well as provide

training to develop marketing and other related skills

1.2 Savings group

1.2.1 Points of view

Savings groups are still a new development in Laos. There are various definitions

of a savings group. According to Chaleunsinh defined a savings group as:

A group of people who share the same voluntary spirit to help each other in
solving problems on financial liquidity in order to improve solidarity and upgrade
the living standard of people within the village. Basically, the savings group is an
association which accumulates savings of the group’s members40 and loans them
to members who need to borrow them and charging them a loan interest rate
which must be higher than the savings’ rate of return. In addition, some strong
savings groups also provide member support services, such as vocational training
and establishing production group based on the potential of their members
(Chaleunsinh, 2004: 4-5).

40
That must be equal to or higher than the minimum savings the group has established.

113
Appendix B

In addition, according to the savings group manual of the Women and

Community’s Empowering Project (n.d, 3), the savings group has to have its own

organizational structure, which consists of group committee 41 , member, regulation, and

savings group consultant, received promotion from government authority in each level and

other related parties including benchmark village. More details on the organizational

structure will be discussed in following sections. In the next three sections, most of the

information is derived from the savings group manual of the Women and Community’s

Empowering Project (n.d)42.

1.2.2 Objectives

According to the savings group manual of the Women and Community’s

Empowering Project (n.d), the main objectives of the savings group are listed down as the

following:

• To reduce poverty and improve living status of women and their families;

• To accumulate savings for village working capital fund;

• To help each other and exchange knowledge and experiences of economic

activities among members;

• To strengthen women solidarity in a village;

• To improve knowledge and capacity of women such as management,

accounting, credit and banking;

41
Normally, the group committee at village level includes 5 people who are villagers (generally being
membership of Lao women union at village level) in the village. They take caring every thing in the village
savings group such as doing savings account, loan account, cash book, income and expenses account, and
general ledger.
42
This savings group manual which was originally written in Lao language was translated by the author.

114
Appendix B

• To sustain living status of members and villagers and to have good welfare

step by step;

• To be one of the implementations of economic and social development

plan which the Lao government issues in each period.

1.2.3 Establishment process of savings group

The steps for establishing a savings group are described as bellows:

Step 1: The project proponents meet local authorities at village level to discuss the

possibility of savings group establishment in a village. Then, these authorities will

consult with their villagers.

Step 2: The local authorities at village level submit a list of the names who self

select to be membership of a savings group43; to the promoter (hence may be the Lao

Women Union at district level or the Project). Then, a meeting is held to provide

information about policies of the group and to set up the savings group by:

• Election for group committee and group consultant;

• Setting the roles for group committee, group consultant, and member;

• Dividing the responsibilities for both group committee and group

consultant;

• Managing savings group with respect to the rules settled.

Step 3: Group committee and group consultant accept the first set of savings

group members. The members have to pay their membership fee and deposit money with

43
The members included in the list should not be less than 20 people (Lao Women Union: Lao PDR and
Community Organizations Development Institute: Thailand, n.d: 17).

115
Appendix B

the savings group at the deposit day which has been set out. The group committee

summarizes a financial statement after receiving the member savings.

Step 4: Operations of the savings group’s activities, such as savings and credit

activities, have to follow the rules. The group committee can receive a technical assistant

from the promoter (the project) if the committee do not understand how to operate the

activities, during implementation period.

Step 5: Instead of savings activities, members can think about how to create

activities, for example activities for earning extra income, welfare activity, environment

and others, with respect to suitability and capacity of that local area.

Step 6: The promoter of the project, the government authority at each level and

other related organization have to follow up and promote and support a savings group to

reach the development objective of poverty reduction.

1.2.4 Organizational structure of savings group

The organizational structure of the savings group consists of group committee,

savings group members, group consultant, the promoter of the project, the government

authority and other related organizations.

A. Savings group member: A person who is selected and accepted to be a

member by the group committee, has attributes as the following:

• Self selection to be membership;

• Harmonious, helpful, kindness;

• Acceptable and agreeable to follow the savings group regulations;

• Rational and acceptable to the majority of others;

116
Appendix B

• No gender and age discrimination;

• Be a resident of the village.

B. Group committee: A person who received high scores from the members

by election or voting, has attributes like:

• Being a membership of savings group and self selection to be group

committee;

• Trusted by others, knowledgeable, skillful and leadership experience;

• Satisfied to do the job for others, honest, faithful, patient;

• Healthy

• Good attitude;

• No discrimination on social class and ethic;

• Accepted by majority of members.

C. Group consultant: A person who is a representative of the local authority

at the village level or a high respected person in the village or a teacher, is self selected

and accepted by most of the members.

D. Savings group regulations: The creation of regulation with agreement of

members and group committee is based on particularity, suitability and capacity of a

village or local. Therefore, there are some different and similar articles in regulations

among different savings groups. However, the summary of savings group regulation

should have different articles as:

• Membership criteria;

• Minimum savings per day/per week/ per month.

• Setting date, location and time of deposit;

117
Appendix B

• Setting membership fee;

• Setting rules for members who save irregularly

• Conditions for savings and dropping out from the group;

• Setting loan interest rate for members such as loan for emergency sick;

and normal loans (for doing rice field, crop plant, livestock, education

and other);

• Setting conditions for member borrowing such as condition and right

of borrowing; and term of loan repayment;

• Allocating benefit from total revenue at the year ended such as:

o Dividend payment to members 44 (based on calculation rate of

member deposit or share ratio);

o Administration budget such as wage for group committee and

group consultant; savings group expenditure which is savings

group reserve;

o Village development fund;

o Welfare fund;

o Other fund which is beneficial to village, agreed by member and

group committee;

• Setting aging or period of group committee and group consultant;

• Regulation can be improved and changed with respect to agreement

and suitability of most members.

44
Normally, dividend paid to the member is come from 70% of savings group profit and the rest of the
profit (30%) is allocated to different categories of fund and reserve (for particular rate is depended on
practice of each savings group), according to author’s survey data (September, 2005).

118
Appendix B

1.2.5 Results of the project implementation on savings group

During the period of the project, savings groups have been established in number

of villages in three target districts. It can be seen from table 1 that there were many

villages demanding to voluntarily establish a savings group in own village. As a result,

there were 24 more savings groups than the number planned. Table 2 shows that about

84% of the villages in the three pilot districts have their own savings groups. It means

that savings groups have good outreach to provide financial services for villagers.

Table 1: Number of savings groups established during the period from

October 2002 to September 2005

Areas Number of Savings Group


Planned number Actual number Variation
Pak Ngum district 17 25 8
Naxaithong district 31 37 6
Sangthong district 17 27 10
Total 65 89 24
Source: Women and Community’s Empowering Project (2005: 42)

Table 2: Number of savings group in three districts compared to number of

villages as the statistic of July 2005

Districts Number of Savings Groups


Villages
Number45 Number of Number of Deposit
member families balance in
Kip
Pak Ngum district 53 55 5,201 3,963 3,616,44,500
Naxaithong district 56 38 6,128 3,877 1,674,802,000
Sangthong district 37 30 2,704 2,164 734,514,500
Total 146 123 14,033 10,004 6,025,761,000
Source: Women and Community’s Empowering Project (2005: 43)

45
The number in this column is higher than the figures in third column of table 1 because it included the
number of savings groups implemented before October 2002 as Pak Ngum district with 30 savings groups,
Naxaythong district with one savings group, and Saengthong district with three savings groups (Women
and Community’s Empowering Project, 2005).

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Appendix B

Savings groups in the three districts provide different kinds of loans to their

members. The largest loan balance is loans for planting rice field in all three districts,

followed by credit for trade and other services.

Table 3: Loan balance for the savings groups in each district as April 2005

No. Types of Pak Ngum district Naxaithong district Sangthong district


loan
No. of Loan balance No. of Loan No. of Loan balance
borrowers borrowers balance borrowers
1 Crop plant 230 314,638,000 151 94,700,000 183 141,550,000
2 Textile46 387 212,360,000 27 9,080,000 420 253,260,000
3 Trade and 273 1,304,487,000 144 174,900,000 567 456,380,000
other
services
4 Emergency 327 181,916,000 - - - -
sick
5 Sick - - 95 32,800,000 63 30,750,000
6 Emergency - - 34 76,830,000 75 58,340,000
7 Rice field 1,747 1,570,942,300 700 260,749,500 1,016 619,937,000
planting
Total 2,964 3,584,343,300 1,151 649,059,500 2,324 1,560,217,000
Note: “-” means no balance.

Source: Women and Community’s Empowering Project (2005: 45-46)

However, this paper will focus only on savings groups in Naxaithong district as

the case study due to limitation of time and budget. The following section will discuss

more details about the case study.

2. Savings groups in Naxaithong district

2.1 Background

Naxaithong city, located in the area of Vientiane, the capital of Laos, is about 16

Km from the capital. A total of 56 villages in Naxaithong district are divided to six zones.

46
In Naxaythong district, this type of loan is provided borrowers, who do textile of Lao skirt, called Tam
Hook.

120
Appendix B

Its population is 57,129 people consisting of 28,761 females and there are 10,378 families

(Women and Community’s Empowering Project, 2005: 40-41).

The main economic activities in this district are planting rice fields, crop plants,

livestock, textile and trade. According to the Women and Community’s Empowering

Project (2005: 41), the living status of population in this district was poor before the

establishment of the savings group. This could be seen from low income levels, lack of

capital for production, and lack of finance for smoothing consumption and other activities.

This led to the selling of Green Rice47 and borrowing money from the informal sector

such as money lenders at high monthly interest rates of 10 percent to 30 percent. For

example, in the 38 villages which have savings groups, 423 families sell green rice; 1,202

families obtained a loan from money lender; and 57 families were classified as being of a

poor status before the establishment of the savings groups. In addition, in the absence of

the savings group, the education level of the people was limited due to a lack of learning

opportunities, especially for women and lack of knowledge and ability for management

of different activities.

In June 2001, a savings group was implemented in Naxaythong district. Now,

there are 38 village savings groups available in four zones of this district as shown in the

table 2.

2.2 Financial services of savings groups in Naxaithong District

Savings groups provided some basic financial services such as credit and savings

to their members. The following section discusses the findings of the survey conducted in

47
As Chanleunsinh (2004:8) defined as, “Green rice selling or Khai Khao Khiew means farmers sell rice at
a discounted price, which is evaluated by the middleman or the traders, before it is harvested. The
traders/middle men then come to take the rice after it is harvested”.

121
Appendix B

six of these villages. Six villages which the author did field survey in September 2005

and March 2006.

2.2.1 Source of fund

The two main sources of funds for running savings group are internal funds and

external funds48 . Internal funds come from deposit amounts from member of savings

group (see table 4). At beginning of each month, normally at the first day of the month,

the members have to deposit money to savings groups of at least the minimum required

amount49 which is one of the membership rules. There is no interest paid on such deposits

but members receive dividends every twelve months50. 70 per cent of the savings group

profit is paid to each member as a dividend. The dividend payment to each member is

based on share ratio or proportion of deposit of each member to total deposit balance of

whole savings group. This implies that deposit amount per time from members who

require more dividend tends to be increased every month.

External funds are a soft loan from the central funds which are managed by the

management committee of the project. This loan is lent to a savings group the funds of

which are not sufficient fund for borrowers. The process of making a soft loan request

48
Besides the two main sources of fund, interest income from loan to members is one source of fund for
savings group.
49
Minimum deposit amount is normally 5,000 Kip per month or equivalent to 0.46US dollar as exchange
rate of 10,890 Kip per a dollar in September 2005, according to six savings groups of this case study. Until
September 2005, there has been no limitation for maximum deposit amount in those six savings group.
However, there is limitation on maximum deposit, up to one million kip per time, in case of savings group
in Nakountay village at the time of follow up survey on 2nd March 2006.
50
(a)If members withdraw deposit before dividend payment date, they will not receive any dividend from
their deposit accumulation. (b) If they withdraw at dividend payment date, they will still get dividend from
their deposit, but if they need a sequent loan, they cannot withdraw their deposit. (c) They can withdraw
only at the day of withdrawal, not the deposit day, (The deposit day is the day to make a plan to request for
withdrawal).

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Appendix B

starts with members of savings group making borrowing plans to their savings groups.

The plans are submitted to the committee at zone level, through the fund committee at

district level to the central fund. The central fund committee issues the soft loan to the

fund committee at district level. Then, the committee at district level will lend to the

members of different groups who make borrowing plans with approval of the fund

committee at district level (Women and Community’s Empowering Project, 2005: 63-64).

Table 4: Credit balance and source of fund in six savings groups as

September 2005

Source of fund as
Date of the Members Loan balance September 2005
savings in as September External
group Population savings 2005 Internal fund fund
No. Villages established in village group Kip Kip Kip
1 Nakountay 01-Oct-02 1,089 300 167,000,000 158,148,500 -

2 Huannamyene 12-Jun-03 1,710 338 136,200,000 109,031,000 -

3 Dongluang 01-Apr-04 1,048 153 74,700,000 56,499,000 6,000,000

4 Phonekeo 15-Jun-05 532 145 13,112,000 11,967,000 11,000,000

5 Phonesavanh 01-Jun-05 680 74 650,000 650,000 -


6 Sisavard 10-Aug-05 393 121 1,200,000 1,120,000 -

Source: Author’s survey data, September 2005 and March 2006.

In the survey sample, there were two savings groups which had external funds.

One is a savings group in Dongluang village which received a soft loan from the fund

committee of Naxaithong district amount of six millions Kip with one year term of loan

and 2% interest rate per month, on 5th August 2005. However, the savings group could

123
Appendix B

repay this loan by three months later. A savings group in Phonekeo village was another

one which obtained soft loan from the fund committee of Naxaithong city. On the 1st of

August, 2005, this savings group borrowed from the fund committee of Naxaithong city

the amount of 11 million Kip with a one year term of the loan and 3% interest rate per

month. At the time of follow up survey in this village, 3rd March 2006, this loan was yet

not repaid.

In addition, as table 4 shows four savings groups are dependent on internal funds

(member deposit) in order to lend to their members. This implies that most savings

groups in Laos are much based on savings mobilization for lending to their members

rather than soft loans or external funds for the project. This is in contrast to the village

bank system in Northeast Thailand of the study by Coleman (1999). Even though, this

approach was promoted by Thai NGO, Community Organizations Development Institute:

Thailand (CODI) which follow the “Village Bank” group lending methodology of the

Foundation for International Community Assistance (FINCA)51 (Chaleunsinh, 2004: 7).

This result is consistent with Chaleunshinh that:

“Savings group” operation in Lao PDR, especially in Vientiane Capital, is quite


different from the “Village Bank” system in Northeast Thailand, due to the fact
that most of the village savings groups in Laos are currently based on money
mobilized within their villages or internal funds rather than from soft loans from a
project. However, this approach was promoted by the Thai NGOs, Foundation for
Integrated Agricultural Management: FIAM, and Community Organizations
Development Institute: Thailand or CODI, starting in 1997. Both organizations
follow the “Village Bank” group lending methodology of the Foundation for
International Community Assistance (Chaleunsinh, 2004:7).

51
Please refer to Ledgerwood (1999: 85) for more explanation of Village Bank.

124
Appendix B

2.2.2 Credit

Savings groups lend money to their members on a monthly basis. Normally, the

borrowing day is the day after deposit day. Members who require the loans fill the loan

request form and submit it at the deposit day. The group committee collects all the

request forms52 and summaries the amount of loan requested. They then check how much

money the group has at that time53. The savings group provides different kinds of loan as

shown in table 3. In the six savings groups of this sample, loan size is range from 100,000

Kip to 5,000,000 Kip with a 5% interest rate per month54 and 3 to 6 months term of loan55.

Limitation of loan size is dependent on the practices of each savings groups. For example,

in the case study of the six savings groups, the groups in Dongluang, Huannamyene and

Phonesavanh villages have a minimum loan size of 100,000 Kip while other three savings

groups have not settled for that. For maximum loan size, savings groups in Nakountay,

Dongluang and Phonesavanh villages have settled at amount of 5 million Kip, one

million Kip and 300,000Kip respectively, whereas the rest three savings groups have not

settled for that but they consider the loan size depending on the borrowing request and

how much the group have money for (deposit amount).

52
Generally, borrowing conditions are settled in different way among savings groups. In case of savings
group in Nakountay village, some conditions for member borrowing are: (1) members have to have deposit
amount with the group for guarantee; (2) If they borrow at 500,000kip, TV or freeze can be collateral; if
they borrow amount more than 3,000,000kip, a land certificate can be collateral but it is also depended on
how much volume of their deposit with the group; (3) if member has no any things to be guarantee, friends
can be guarantor; (4) If a wife borrows, her husband has to be guarantor and vice versa.
53
Normally, savings group does not keep any money balance with the group after receiving deposit from
members, then the day after, all money has to lend out to members depending on their request and
borrowing conditions. In case of deposit balance of the group remaining at 1 million Kip, the group
committee will deposit that balance to bank such as Agricultural Promotion Bank, an example of savings
group in Nakountay village.
54
Sometimes, interest rate per month is 3%, an example of savings group at Nakountay village, it is
depended on what kinds of loan.
55
Three new village savings groups have 3 months term of loan while three old village savings group
practice on 6 months term of loan during the survey time. For example, savings group in Nakountay village,
term of loan was 3 months for the period from year 2002 to 2004, but since 2 March 2005, term of loan has
been 6 months.

125
Appendix B

3. Other financial service providers in Naxaithong district

According to the author’s survey in September 2005, some financial service

providers, apart from the savings group, provide basic financial services, mainly credit

and deposits in the survey area. For credit access, 12% of sample survey could obtain a

loan from financial providers. The Agricultural Promotion Bank (APB) was the first

financial provider at 6%, followed by money lender at 4%, while other microfinance

providers covered only by 1% of sample survey (see table 5). It is interesting that 17% of

the control group had access to credit from other financial providers. Of that, APB was

the most dominant financial provider at 12%.

In terms of deposit service, about 9% of those surveyed in the sample deposited

with other financial providers. APB and other microfinance providers covered by 4% per

each while the 2% was covered by money rotating (see table 6). For control group sample,

8% of its sample could access to financial providers which APB and other microfinance

providers shared that percent by half per each.

126
Appendix B

Table 5: Loan balance at different sources of finance for sample survey in six

villages as September 2005

Mean by group: Sources of credit:


Relative
Other Money &
APB MFIs b) lender friend Total
Interest rate per day (%): 0.02 - 0.17 0.167 - 0.2 0.7 - 1 0 - 10
All sample (n=251):
Number of borrowers 0.06 0.01 0.04 0.02 0.12a)
Loan amount (Kip) 40,035,438 41,833 39,982 21,978 40,139,231
Member (n=183):
Number of borrowers 0.07 0.02 0.04 0.03 0.15
Loan amount (Kip) 54,851,885 57,377 51,833 30,145 54,991,240
Treatment group(n=131):
Number of borrowers 0.05 0.02 0.04 0.03 0.14
Loan amount (Kip) 231,870 80,153 10,687 41,729 364,439
Control group (n=52):
Number of borrowers 0.12 - 0.04 0.02 0.17
Loan amount (Kip) 192,452,308 - 155,489 962 193,000,000
Nonmember (n=68):
Number of borrowers 0.03 - 0.03 - 0.06
Loan amount (Kip) 161,765 - 8,088 - 169,853

Note: a) One person could access to credit in both APB and relative &friends.
b) This consists of savings group of Lao Women Union at Naxaithong city, Rural
Development Cooperative Naxaithong and others.

Source: Author’s survey data, September 2005.

127
Appendix B

Table 6: Deposit balance at different institutions as September 2005

Mean by group: Deposit balance at different institutions:


Other
APB MFIs Money rotating Total

Interest rate per year (%): 8 - 24 0-3


All sample (n=251):
Number of depositors 0.04 0.04 0.02 0.09a)
Deposit balance (Kip) 32,207 12,530 1,801 46,538
Member (n=183):
Number of depositors 0.05 0.05 0.02 0.12
Deposit balance (Kip) 30,514 17,186 2,377 50,077
Treatment group (n=131):
Number of depositors 0.05 0.06 0.02 0.14
Deposit balance (Kip) 40,840 22,634 3,321 66,794
Control group (n=52):
Number of depositors 0.04 0.04 0.08
Deposit balance (Kip) 4,500 3,462 7,962
Nonmember (n=68):
Number of depositors 0.01 0.01 0.01
Deposit balance (Kip) 36,765 250 37,015

Note: a) One person deposited with both APB and Money rotating

Source: Author’s survey data, September 2005.

128