Laos’ Path to Financial Inclusion: Mobile Money, Digital Payments, and Future Growth

Laos, one of Southeast Asia’s poorest nations, has made progress in poverty reduction and digitalisation, while facing challenges like high debt and inflation. The country is focusing on fintech solutions like mobile payments and cross-border systems to boost financial inclusion and economic growth.

Laos, a landlocked country bordered by Myanmar and China to the north, Thailand to the west, Vietnam to the east, and Cambodia to the south, has a rich but challenging history.

Today, as a member of the Association of Southeast Asian Nations (ASEAN), it remains one of the poorest countries in the region, with a gross domestic product (GDP) per capita of just over $2,100.

Over the past two decades, Laos has made notable progress, including halving poverty, improving education and healthcare, and reducing hunger. Economic reforms in the 1980s, known as the ‘New Economic Mechanism,’ helped shift the country from a centrally-planned to a market-oriented economy.

However, challenges persist. A quarter of the population still lives below the poverty line, and the economy is heavily dependent on mining and hydropower. Issues such as underdeveloped private sector, poor education quality, and skills shortages continue to hinder further growth.

Post pandemic

Like much of the world, Laos suffered during the pandemic, and while tourists have started returning, the economy has yet to fully recover. The country is grappling with 25 per cent inflation, marking the third consecutive year inflation has exceeded 20 per cent, making it the second highest in the ASEAN region after Myanmar.

Laos also faces a high debt burden, with the majority owed to foreign creditors, including China and Thailand. Much of the country’s growth has been driven by infrastructure projects funded through this debt, which now stands at 112 per cent of GDP—nearly double what it was before the pandemic.

Despite government efforts to boost economic growth through tighter monetary and fiscal policies and stronger foreign exchange controls, restoring macroeconomic stability remains a challenge. The International Monetary Fund (IMF) declared the country in debt distress last year.

Despite these challenges, Laos, with a population of 7.6 million, boasts over 66 per cent internet penetration and a mobile penetration rate of 88.5 per cent.

Financial inclusion

In terms of financial inclusion, Laos has at least 42 banks, including Banque Pour Le Commerce Exterieur Lao Public (BCEL), Agricultural Promotion Bank (AP Bank), Joint Development Bank (JDB), Allied Bank (ABL), Lao Development Bank (LDB), ST Bank (STB) and Lao Viet Bank (LVB). However, there are only around 1.5 million bank accounts across these institutions, leaving a significant gap in financial access, with an addressable market of 4.5 million people — meaning the majority still lack access to formal banking services.

Key developments in the fintech and digital ecosystem have emerged over recent years. In 2015, the Laotian national bank card payment system was launched through a collaboration between China UnionPay, China Development Bank, and the central bank of Laos, with support provided for the construction, operation, and maintenance of the payment system.

Although this may seem outdated to some, it wasn’t until 2016 that Laotians could pay taxes digitally instead of with cash. In that year, the Ministry of Finance introduced custom and tax payment instruments, and by 2017, new systems were implemented to process tax payments through banking and digital technologies, eliminating the need for tax officers to handle cash payments.

Fintech developments

According to a 2019 report from the Asian Development Bank (ADB), Laos had a nascent fintech ecosystem at the time, primarily focused on basic services like mobile top-ups and utility bill payments, which required a formal bank account, internet access, or a mobile phone.

In the formal financial sector, key developments included Banque Pour Le Commerce Exterieur Lao (BCEL) launching a mobile application to facilitate payments and transactions for cardholders. Additionally, BCEL and telecom provider UNITEL were planning to introduce a mobile app, and the Central Bank of Lao PDR was preparing to roll out branchless banking services.

In 2020, Laos PDR granted its first e-wallet license to M-Money, created by Lao Telecom Group. Today, over 30,000 merchants across the country are linked to the M-Money system, primarily using QR codes. The platform offers services such as tax remittances and government pay-outs, with future plans to expand into remittances. M-Money has significantly improved financial inclusion, providing essential services to a population in need of accessible financial solutions.

With over 60 per cent of Laos’ population living in rural areas, M-Money has expanded a nationwide network of agents providing cash-in/cash-out services, similar to the success of mobile money in parts of Africa. Currently, there are over 3,500 agent locations, with plans to establish at least one agent in every village of over 300 people. M-Money’s impact has drawn comparisons to Kenya’s M-Pesa and the Philippines’ GCash, earning it recognition as the ‘Fastest Growing Mobile eWallet 2023’ by International Finance Magazine and a bronze award for Digital Inclusivity at the ASEAN Digital Ministers Meeting earlier this year.

Other developments

QR codes are also becoming increasingly popular in Laos, reflecting trends seen across Asia. The financial services sector is further digitalising, with AP Bank partnering with Hi Sun Fintech Global Limited in 2022 to modernise its core banking system.

Laos is also experimenting with central bank digital currencies (CBDCs). In collaboration with Japanese fintech firm SORAMITSU, the country successfully trialled a digital currency prototype — the Digital Lao Kip — last year.

In terms of cross-border collaborations, Laos is working closely with its ASEAN neighbours. The Lao PDR central bank and the National Bank of Cambodia (NBC) signed an MoU to facilitate cross-border transactions in 2022.

In July, Thai tourists in Laos were able to scan QR codes to pay for goods and services, with Bank of Ayudhya (Krungsri) becoming the first Thai bank to offer this service through its app. Laos also joined the ASEAN Regional Payment Connectivity (RPC) initiative, which aims to accelerate cross-border payments using technologies like QR codes and fast payment systems.

Despite its challenges, Laos has the potential to leverage fintech to drive both financial inclusion and broader economic development.

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