As the poorest country in Southeast Asia, the Lao Peoples Democratic Republic faces many challenges. UNCDF has invested with the poor in this landlocked country for more than 20 years through a variety of innovative initiatives to help the people overcome some of their formidable obstacles. UNCDF's programmes over this period have totaled more than US $26 million.

Local Governance and Infrastructure Development

In the early 1990s, UNCDF financed a project to help improve living conditions in the capital, Vientiane. During this time, Vientiane was faced with the challenge of a fast growing population in the capital, and poor urban planning. In addition, an inadequate draining system caused the periodic flooding of up to three quarters of the city. To better meet future needs of the growing population, UNCDF financed a project to improve part of a drainage system, which required rehabilitating major drainage canals and their secondary network system. The area in which the project was carried out is today densely populated, it is no longer flooded and the roads as well as the drainage canals are maintained by the Municipality of Vientiane.

In the remote northwest of the country, UNCDF built a road that is today a major artery linking the provinces of Sayabury and Luang Prabang with Thailand and China. This road, which is nearly 300 kilometers long, has had a major impact in the region, providing a source of livelihood for thousands of people. Many villages that were cut off from the outside world today are able to export their crops to market and import things like household goods, tools and farm implements.

The projects have been working with the Lao PDR Ministry of Communication, Transport, Post and Construction, and assisting it with the development of its national capacity in the road construction sector. This capacity building has focused on improving the Ministry's institutional capacity in contracting and managing private sector services through the adoption of transparent bidding process.

The last 56 kilometers of the main road were completed in 2001. This last segment had a separate project component that addressed some of the negative impacts of giving the wider world access to a remote region. For example, it included an HIV/AIDS awareness campaign, since this deadly disease often comes in the wake of new roads.

Two major projects in the north of the country, the Eco-Development and Irrigation project (also called the EDI project) and the Nam Tan Sustainable Watershed Management Project, were initiated in 1994 and 1998 respectively. In their original structure these projects were based on UNCDFs framework for eco-development projects that focused on integrated natural resource management. Based on the change of focus in UNCDF's policy and evaluations of the two projects in the year 2000, the projects were re-oriented to better support the implementation and support to local governing institutions.

Situated in the provinces of Sayaboury and Oudomxay, the current Nam Tan and EDI projects are building on the aforementioned initiatives. Working directly with local and national authorities, both projects focus on building local institutions to manage the irrigation schemes. To secure the sustainability of the irrigation systems, which are crucial for the income and livelihood of the populations, these projects are establishing and training Water User Associations to manage the use, maintenance and fee collection of the farmers using water from the irrigation canals. The fees are used for the operations and maintenance. The activities are centered around the institutional capacity building of the Water User Associations. In addition, in order to support the institutional sustainability of the programme, the following four additional outputs are being addressed:

The first output involves Extension Services

The projects provide access to appropriate extension services and inputs for agricultural production and other income generating activities. Working closely with the district authorities, the projects are introducing new crops, technologies and farming practices that are increasing agriculture production. This includes establishment of fruit tree orchards, introduction of cash crops and new natural fertilizer systems as well as farming techniques to hinder erosion on the step mountain slops. Already the extension work has created higher yields and a larger variety of goods at the local markets in Nam Tan. As a spin off from the extension services and the irrigation canals, opportunities have been created for private sector investments in the region.

The second output involves Community Forestry Development

The projects are working with local authorities to introduce community forestry activities. For instance in Nampang Neua village in the Nam Tan watershed, a village was relocated from the immediate forest area in 1995 to help safeguard the ecosystem. At that time there were approximately 30 families. The current population is 60 families. They have been allocated forest land and some lowland area suitable for rice cultivation. However, the new land allocation did not put in place management systems that could support a sustainable use of the land and forest resources. In cooperation with the district authorities, the project aims to develop a community forestry model for this village with the long-term perspective of replicating the model in other villagers in the watershed and the country. The project is therefore also working closely with the national extension agency and central forestry department.

The third output involves the provision of basic infrastructure

The infrastructure that is being provided through the projects is improving the livelihood of the villagers in the watershed so that they can make full use of the irrigation scheme. The infrastructure ranges from schools and water supply systems to latrines, bridges and access roads and is intended to stimulate economic activity, and promote health and education. In addition, local authorities are trained in the operations and maintenance of the infrastructure, and monitoring committees are established at the village and district levels so as to ensure the long-term viability of the projects.

Ensuring that decision-making responsibilities are entrusted to people and institutions as close as possible to those affected by these same decisions, Basic Needs Assessment and Participatory Rural Approach methodologies are used to identify which kind of basic infrastructure each village in the area is in need of. The villagers provide labor and some of the material for the construction of the infrastructure identified as needed.

Microfinance

UNCDF in Laos also has extensive experience in the realm of microfinance, having launched the first pilot microfinance initiative in the country in 1998. Based on principles of sustainability and sound MF practices, three small local microfinance programs were established. After two and a half years of operation the project had reached more than 3,000 active borrowers with a loan repayment rate of nearly 99 percent.

The microfinance project came to an end in 2002. UNCDF explored the possibility of extending the initiative into a new phase which would support the creation of a full-fledged legally licensed MFI - an approach increasingly being used by UNCDF to promote financially viable institutions that can eventually operate as part of the financial sector. However, after much discussion with the government and project stakeholders it was deemed premature for such an approach in Laos at this time.

UNCDF's experience in promoting microfinance in Laos offers several lessons that have been shared with other organizations and partners. The Government of Laos is using some of theses lessons to formulate its own microfinance policy and work toward the development of a more enabling policy environment for a sustainable microfinance industry in Laos.

The two current local development projects in Laos, The Nam Tan and the EDI projects, will end in 2003. Preparing for a possible new programme in Laos, UNCDF fielded a fact finding mission in 2002 with the aim to assess the extent to which the current conditions in Laos may be suitable for new programming in the area of support to local governance and the decentralisation process started by the Government of Laos.