The Bank of Lao PDR Introduces New Amendments to the Decree on Microfinance Institutions (2012)

The Bank of the Lao PDR (“BOL”) issued a decree (No. 184/G) on 20 June 2022 (the “Decree”) replacing the Decree on Microfinance Institutions (No. 460/G) dated 3 October 2012, that previously regulated the licensing and business activities of deposit-taking and non-deposit taking microfinance institutions in the Lao PDR.

In this article, we have listed the key changes introduced by the Decree:

I. Deposit-taking microfinance institutions (“DTMFI”)

• Foreign investment: Foreigners (natural or legal persons) are permitted to invest up to 51% of the share capital of a DTMFI.

• Registered capital: A DTMFI is required to
  1. have a minimum registered capital of LAK30 billion (~USD2 million);
  2. obtain the capital contribution by way of cash or in-kind;
  3. ensure that the in-kind contribution does not exceed 10% of its total registered capital and
  4. obtain prior approval of BOL to change its registered capital.

The Decree states that BOL may change the registered capital amount upon agreement with the government.

• Investment in other businesses: A DTMFI may own shares in another company in the amount represented by the following percentages of its tier 1 capital:
  1. 5% (in any one organization) and
  2. 30% (in aggregate).

• Notifying suspension of services: A DTMFI will require to obtain permission from BOL to suspend its services and notify its customers three (3) days before suspending its business.

• Reporting requirements: A DTMFI is required to report business operations to BOL as follows:
  1. Administration, operation, and financial statements as determined by BOL;
  2. Other relevant information as requested by BOL;
  3. Branches and units of a DTMFI must report their activities to head offices on a monthly, quarterly, and yearly basis. For branches and units that are located in areas where there are branches of BOL, they must submit the report to such branches of BOL.

II. Non-deposit taking microfinance institutions (“NDTMFI”)

• Form of company: An NDTMFI may now also be established as a sole company limited. The applicant is required to provide such documents that are listed in the Decree.

• Foreign investment:  No limit to investment by foreigners (either by natural or legal persons).

• Registered capital: An NDTMFI is required to:
  1. have a minimum registered capital of LAK10 billion (~USD 666,000);
  2. obtain the capital contribution by way of cash or in-kind;
  3. ensure that the in-kind contribution does not exceed 10% of its total registered capital and
  4. obtain prior approval of BOL to change its registered capital.

The Decree states that BOL may change the registered capital amount upon agreement with the government.

Effective Date of the Decree

The Decree states that it will become effective on and from 15 days after it is published in the official gazette, i.e., 12 July 2022 (“Effective Date”).

Transition period for existing microfinance institutions

The Decree further states that microfinance institutions established prior to its promulgation are required to comply with its provisions within a period of two (2) years starting from the Effective Date.