Micro credits have become an important tool in development efforts globally as well as at the
national or local level. They are also increasingly linked to sustainable forest management and
its role in poverty reduction in developing countries. The potential of micro credits in
alleviating poverty is now recognized worldwide. Governments, donors, development
agencies, banks, researchers and consultants are also increasingly interested in microfinance.
In Laos, poverty is still widespread, and it has strong geographic characteristics with the poor
concentrated in the remote and mountainous north and in the southeast along the border with
Vietnam where many ethnic minority groups live. In Laos the official poverty reduction and
economic growth strategy has been led by the country’s ongoing transition to a market
economy, and it is also increasingly affected by the rapid economic development of
neighbouring countries.
The objectives of the present study were (1) to analyse the livelihood assets (natural, physical,
financial, social and human capital) and activities of selected households with the emphasis
on a comparison between poor and non-poor households and those which had and had not
received a micro credit, (2) to assess whether the well-being of the villages and households
had improved as a consequence of the application and implementation of village development
funds, that is, micro credits, and which were the factors affecting poverty, and (3) to evaluate
provincial level forestry and district leaders’ and other leaders’ opinions on village
development funds in contributing to well-being. The selected context was an ongoing,
internationally supported project in Laos, the Sustainable Forestry and Rural Development
Project in the Lao PDR (SUFORD).
Microfinance comprises formal and informal services available to individuals living on low
incomes, to help them save, borrow, manage risks and move money. With respect to
ownership, an important goal of aid agencies has been to strengthen the network of
microfinance organisations that are able to provide more and better microfinance services on a
sustainable basis. In this study the role of microfinance organizations was taken and
performed by the Village Development Committees (VDCs).
The theories of sustainable livelihoods and entrepreneurship were used in analyzing the
impact of micro credits on the welfare of villagers and their livelihood assets. The theory of
sustainable livelihoods guided the development of the empirical framework. It comprises five
key resources and assets, namely, those related to human, natural, financial, social and
physical capital. The vulnerability dimension of the theory of sustainable livelihoods refers to
the seasonality, trends and shocks that affect people’s livelihoods.