As a least developed country, the economy of Lao PDR is agricultural based with high percentage of poor people living in rural area, poverty eradication and rural development is at the centre of the government’s economic and social development policies. Village development fund has been used as an important strategy to increase access to financial capital of the rural poor. This paper reviews the development of village development fund in Champasak province, Lao PDR and assess its operation and management especially on the structure, management rules, operation and performance aspects, and supported by the interview of village development fund management committees of two districts in the province. The results show that the village development fund has expanded gradually over the past few years. The management is generally satisfactory. However, main problems encountered are those related to ethical ground and good governance of management personnel. By policies, the village development fund shall contribute to social development in the villages. This requires not only management skills and experiences to optimize business and social goals, but also knowledge and understanding of the members to accpet flexible or relative moderate rate of return to deposit. The non-performance loans, as observed, are mostly caused by crop or livestock raising failure. Hence, to sustain the village development fund in Champasak province, it is important to widen the capacity development by more campaign on basic knowledge of principles/concepts among the members; ethical development and good governance among management and advisory committees. To avoid non-performance loan, it is essential to reduce risks from investment in agricultural or non-agricultural activities. This requires more support from the public sector to ensure efficiency and sustainability of the village development fund.