Small and medium-sized enterprises (SMEs), particularly women-led businesses, continue to face high operating costs and limited access to credit, highlighting the need for simpler public services, stronger financial support and greater digital adoption, according to the third edition of the Provincial Facilitation for Investment and Trade Index: Measuring Economic Governance for Business Development in the Lao People’s Democratic Republic (ProFIT report), launched by the Asian Development Bank (ADB) and the Lao National Chamber of Commerce and Industry (LNCCI).

“The ProFIT report captures the views of businesses across the country and highlights areas where reforms can have the greatest impact,” said Oudet Souvannavong, President of LNCCI. “It can help strengthen public-private dialogue and support more effective actions to reduce the cost of doing business, build confidence and encourage enterprise development.”

The report is based on a survey of 1,386 enterprises across 17 provinces and Vientiane Capital, conducted by The Asia Foundation with support from Australia’s Department of Foreign Affairs and Trade. It examines how businesses experience regulations and public services at the provincial level, including business registration, transparency and access to information, regulatory burdens, informal charges, consistency of policy implementation and the business friendliness of provincial administrations.

“This report provides practical, evidence-based guidance for improving the business environment in the Lao PDR,” said Shanny Campbell, ADB Country Director for Lao PDR. “Simpler procedures, more transparent services and improved access to finance can help businesses grow, create jobs and expand opportunities, including for women entrepreneurs.”

The findings show modest progress in transparency, policy consistency and reductions in informal charges. However, businesses continue to face major barriers in registration procedures, regulatory compliance and access to finance, with significant differences between provinces indicating uneven implementation of national reforms.

SMEs remain a vital part of the Lao PDR’s economy, representing around 99% of formally registered enterprises and 94% of formal sector employment. Despite their importance, many SMEs face high transaction costs, administrative challenges and limited access to formal financing, affecting investment, productivity and job creation. Women-led enterprises often encounter additional obstacles related to formalisation, information access and finance.

Access to finance remains one of the most pressing constraints. The proportion of bank lending directed to SMEs declined from 30.9% in 2015 to 12% in 2022. The report recommends expanding credit guarantee schemes, simplifying loan assessment processes, improving financial literacy, promoting digital finance and increasing the use of movable assets as collateral.

The report also highlights ongoing challenges related to tax compliance, skills shortages and limited digital adoption, noting that only 10% of surveyed businesses use the Lao National Single Window.

The report calls for further simplification and digitalisation of business registration and tax administration, stronger provincial institutions through e-governance, and increased investment in skills development and infrastructure. It aims to support policy dialogue and reforms that strengthen private sector growth and promote more inclusive economic development in the Lao PDR.

KPL