The joint UNCDF-UNDP programme Making Access to Finance more Inclusive for Poor People organized a training on Risk Based Audit for Microfinance Institutions. The training was delivered over a 10 day period to 20 participants, of which 18 were from the audit sector of Lao PDR and 2 participants were from Bank of Lao PDR (BOL).

Weakness in the internal and external audit function is a common issue for most MFIs in Lao PDR. The training course focused on the Risk Based Audit (RBA) approach, covering topics including MFI accounting, discrepancies between real and reported portfolio quality, risk management and diagnostic tools and portfolio management policies. The purpose of the course was to improve the effectiveness, efficiency, and impact of an MFI audit by shifting the function from the traditional “policing” approach, focused on compliance, to a pro-active “strengthening” approach, focused on analysis and sustainability.

The course also addressed differences between an MFI audit and that of a bank, allowing participants to become more familiar with analysis of MFI portfolio quality and their ability to lead an independent audit of an MFI. The course also taught the use of statistical sampling to validate conclusions, combined with rigorous ratio analysis, yield-gap analysis and other risk-based diagnostic tools.

RBA improves risk management, strengthens management capacity, uncovers hidden asset-quality issues before it is too late, reduces systemic risk, and, most importantly, ensures that microfinance remains true to its social mission: to increase access to finance for Lao PDR’s poor, without burying them in debt. One of the participants from a private audit firm commented at the conclusion of the training: “It is good to get the External Audit Training Certification which means I can provide better audit services for MFIs and SCUS (savings and credit unions) in Lao PDR”.

The RBA will position the BOL Financial Institutions Supervision Dept and local audit partners to improve their skills in MFI oversight, including on-site examination and financial sector stability and as leaders in building the skills for a more professional audit practice in Lao PDR’s microfinance sector. The course concluded with an exam which covered the main topics addressed in the training and certificates were issued to participants in recognition of their attendance and participation.