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1 Laos Final Report G2P Formatted Rev United Nations Economic and Social Commission for Asia and the Pacific Macroeconomic Policy and Financing for Development Division Project report Enhancing capacities on digital G2P and G2B transfers and digital international remittances in Lao PDR Copyright © United Nations, 2021. All rights reserved The views expressed in this publication are those of the author and do not necessarily reflect the views and policies of the United Nations or other international agencies. Mention of any firm does not imply endorsement by the United Nations. Links contained in the present publication are provided for the convenience of the reader and are correct at the time of issue. The United Nations takes no responsibility for the continued accuracy of that information or for the content of any external website. Reproduction and dissemination of material in this publication for education or other non- commercial purposes are authorized without prior written permission from the copyright holders, provided the source is fully acknowledged. Enquiries on this report can be sent to: Director Macroeconomic Policy and Financing for Development Division United Nations Economic and Social Commission for Asia and the Pacific United Nations Building, Rajadamnern Nok Avenue Bangkok 10200, Thailand [email protected] How to cite this report: United Nations, Economic and Social Commission for Asia and the Pacific, Enhancing capacities on digital G2P and G2B transfers and digital international remittances in Lao PDR, Macroeconomic Policy and Financing for Development Project Report (Bangkok, United Nations 20201, available at https://www.unescap.org/events/2020/workshop-digital-adaptation- msmes-cambodia-and-lao-pdr-including-role-digital Photo credit: UN4U (54-1-SOUTHISANE Vilasak-UN.jpg) About this report This report was commissioned by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in the context a technical cooperation project on Supporting the Digital Adaptation of MSMEs During and After the COVID-19 Pandemic in Cambodia and Lao PDR. The report was prepared by consultant, Mr. Cedric Javary under the direction of Alberto Isgut from ESCAP. i Contents About this report ..................................................................................................................... i Contents ................................................................................................................................. ii Executive Summary ............................................................................................................... v 1. Diagnostic: an environment not conducive for large scale G2P/G2B transfers and under-developed cross-border remittances ....................................................................... 1 1.1 What means to target and verify people most in need of cash relief? ....................... 1 1.1.1 Poverty targeting policies and their implementation .................................................. 1 1.1.2 Verifying the identity of a beneficiary ......................................................................... 2 1.2 Financial inclusion at a reasonably good level, but shallow ...................................... 3 1.3 Good penetration of online channels but digital skills of users in question ............... 5 Government systems to administer a large safety net not yet in place ................................ 7 1.3.1 Legislation and Government of Laos policies ............................................................ 7 1.3.2 Limited coverage ....................................................................................................... 8 1.3.3 Difficulties of implementation ..................................................................................... 9 1.4 Very low level of formal incoming int’l remittances compared to peer countries ..... 10 1.4.1 The CLM countries’ similar migration patterns ........................................................ 10 1.4.2 Mass unemployment of Lao workers in Thailand to halve official remittances inflows .............................................................................................................................................. 12 2 Challenges stemming mostly from lack of a unified strategic vision and coordination, and infrastructure investments .................................................................. 13 2.1 How to develop effective digital identities while architecture is still in the design phase? ............................................................................................................................... 13 2.2 Modernizing GoL systems of social protection & redistribution ............................... 14 2.3 Financial operators not yet harnessing operational efficiency for universal access 15 2.3.1 Regulation has opened payments to non-banks, but still few licensed ................... 15 2.3.2 An innovative industry but lacking capital and not yet open to regional and global players 16 2.4 Lack of interoperability in the financial sector .......................................................... 22 2.4.1 Unsatisfactory interoperability of the Lao banking system ...................................... 22 2.4.2 Public-private payments infrastructure operators lacking strategic clarity ............... 23 2.5 Formal cross-border transfer services not up to the informal sector ....................... 25 2.5.1 Official foreign exchange regime favoring informal remittance channels ................ 26 2.5.2 Difficult cooperation for efficient and cost-effective transfers Thailand to Laos ....... 28 3 Pathways to build an enabling and inclusive ecosystem ......................................... 31 3.1 Progressively operationalize interoperability with private sector ............................. 31 3.2 No-frills accounts for all, with diverse offerings ....................................................... 31 3.2.1 Transactional accounts without maintenance costs ................................................ 31 3.3 GoL to generate use cases for Digital Financial Services (DFS) ............................ 32 ii 3.3.1 Tax collection broadened and accelerated .............................................................. 33 3.3.2 Use of digital financial services for transparent and timely GoL payments ............. 33 3.4 Alternative repository of digital identities and tiered KYC to accommodate the large share of the population without digital IDs ......................................................................... 34 3.5 Ubiquitous coverage of physical touch points for e-money ..................................... 35 3.6 Coordinated policy to shift the Thailand-to-Laos remittances to the formal system 36 3.6.1 Encourage private sector alternatives to traditional MTOs ...................................... 36 3.6.2 Financial Inclusion module to migrant workers under MOU .................................... 37 3.7 Financial and digital literacy .................................................................................... 37 Figures and tables Figure 1: Savings and Credit market shares of banks by outreach ......................................... 2 Figure 2: Regional comparison of the dimensions of financial inclusion ................................. 4 Figure 3: GSMA Mobile Connectivity Index CLMV, 2019 ........................................................ 5 Figure 4: Status of Digital of Lao PDR ..................................................................................... 6 Figure 5: Penetration of Facebook in Lao PDR ....................................................................... 6 Figure 6: Popularity ranking of apps Laos /Cambodia /Thailand (for iPhone) ......................... 7 Figure 7: Lao Social Security cards public (in yellow) & private (in blue) sectors .................... 9 Figure 8: International personal remittances to/from Laos .................................................... 10 Figure 9: Bilateral remittance flows to/from Laos 2017 .......................................................... 11 Figure 10: Interconnectivity of the CMIS (source WB) ........................................................... 14 Figure 11: BCOME web banner ............................................................................................. 18 Figure 12: History of BCOME transactions activity since inception ....................................... 19 Figure 13: U-Money lucky draw to boost registration (September 2020) .............................. 21 Figure 14: Diagram of LAPNET interbank services through ATMs (LAPS) and mobiles (LMPS) ................................................................................................................................... 24 Figure 15: Facebook post of informal broker Thailand to Laos, 2018 ................................... 25 Figure 16: commercial banks published rates vs. BoL reference rate ................................... 26 Figure 17: Compared THB/LAK exchange rate of Kasikorn Laos (tope) vs. Kasikorn Thailand (bottom) ................................................................................................................................. 27 Figure 18: sample Money changers published rates (25 September 2020) .......................... 28 Figure 19: Krung Sri and LDB ads for real-time transfer Laos↔Thailand ............................. 29 Figure 20: Kbank regional 'alternative' remittances channel ................................................. 30
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