The poverty problem becomes the important issue in the world, because the poor people living
without basic need. They lack of financial source to run their business and not have a chance to reach the formal financial sector because they lack of collateral. Village Development Fund is an important tool to help the poor people in Lao, and has been established across Lao PDR since 1997. This study assesses and compares operational efficiency of the village development fund in urban and rural areas of Lao PDR. Data envelop analysis (DEA) approach is used to analyze operation efficiency for 2010 of village development funds in Pakse (urban) and Bachieng (rural) districts of Champasak province. From three inputs and three outputs as indicators, the result shows that the village development fund, on average, had technical efficiency scores under variable and constant return to scale of 0.87 and 0.90 respectively. The fund had the scale efficiency of 0.97. The village development fund in rural areas, despite their small
sizes and located in poor infrastructure and public facilities, were more efficient than those in urban area. The main input factors contributing to inefficiency were number of staff and operating costs while output factors contributing to inefficiency were the contribution money and financial revenue. More village development funds in rural area also had better repayment rate than those in urban area