Abstract

Chartchai Sukosol, Pongsak Teppitaki and Chattapong Yodkamol

Village Development Fund (VDF) is a microfinance institution that has been established across Lao PDR since 1997. This study assesses and compares operational efficiency of the VDF in urban and rural areas of Lao PDR. Data envelop analysis (DEA) approach was used to analyze operation efficiency of VDF in Pakse (urban) and Bachieng (rural) districts of Champasak province in 2010. The result showed that the VDF, on average, had technical efficiency score s under constant return to scale and variable return to scale of 0.87 and 0.90, respectively. The fund had the scale efficiency of 0.97. The VDF in rural areas, despite their small sizes and location in poor infrastructure and public facilities, were more efficient than those in urban areas. The main input factors contributing to inefficiency were number of staff and operating costs, while output factors contributing to inefficiency were the contribution money and financial revenue. Most of the VDFs in rural areas also had better repayment rate than those in urban areas. To improve operational efficiency of VDF in Lao PDR, it is important for the management to search for optimum scale of operation. There is a need to improve skill in operation and reduce operating costs. Balancing contribution to social welfare and ensure financial return is also a key to efficiency improvement. Finally, social norms and measure s would also enhance responsibilities and transparency among members and hence improve the operational efficiency of the VDF.