Barriers to SME access to credit and growth in Laos: An emerging economy perspective

Although prior literature acknowledges that credit access is one of the critical factors contributing to small and medium enterprise (SME) growth, there is a dearth of empirical research on pre-credit access factors and post-credit access factors that influence SME growth in the least developed countries (LDCs), including in Lao PDR. This lack of research is surprising, given SME growth is at the forefront of many LDCs policy initiatives to transform their LDCs status. The present study seeks to address this gap in the Laos context by exploring SME pre-credit access and post- credit access factors, and their influence on SME growth in Lao PDR. Drawing on qualitative data from 37 “elite” external stakeholders, analysis indicate a combination of pre-credit access factors, particularly insufficient, “affordable” finance, complex application process, owner-manager skills and inducement incentives, and post-credit access factors, namely lack of financial management skills and mismanagement of funds influence SME growth. Given the fact that access to finance is the significant barrier to the growth of SMEs in the Lao PDR, post-credit access such as adaptability, lack of financial literacy and inability to the growth of Lao SMEs may be more substantial constraints than the pre-credit access issues. The paper advances theory and offers implications for policy change.