Microfinance in Vietnam

5/26/2018 Microfinance in Vietnam

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The Role of NGOs in

developing MicrofinanceinVietnam

Chung

ECON 462


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Key principles of

microfinance(Consultative Group to Assist the Poor, 2004)

!Government enables, not providedirectly NO

!Pay for itself (sustainable) NO

!Build permanent local institutionsNO

!Integrated into the mainstream financialsector NO


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Overview!Vietnam: market-based reforms, 1980s

!Poverty rate from 58.1% (1993) to19.5%(2004)

!1980s: Microfinance introduced by NGOs

!1990s: State banks

"Vietnam Bank for Agriculture and RuralDevelopment (VBARD)

"Vietnam Bank for the Poor (VBP)


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MF environment!2005: Decree 28

!International NGOs not allowed to set up

financial institutions!Can only contribute capital jointlywith

legal domestic organizations

!57 international NGOs

!With socio-political organizations, Women

Union (WU)


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Market share


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My paper! Economic problems

1) Unhealthy competition

2) Institutional Conflict

3) No integrated network

! Role of NGOs


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Economic Problem 1:

Unhealthy Competition Microfinance: Government supported

social welfare program

Policy lending Bank: VBP

#crowd out current NGOs


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EvidenceInterest rate (as of December 2004)

"VBP: 0.5%

"Oxfam: 1.5%

"Save the Children: 1.5-1.7%

#Only credit-worthy households can benefit

#NGO: no financial sustainability

Eg: Save the Children/ UK (SC/UK)

5-year Poverty Alleviation Program but didnt

sustain


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Role of NGOs: Face competition Improve schemes: best practices

#serve no-collateral clients

SC/USSolidarity Group

SC/Japan, Plan

International, WVI

Village Bank

Vietnam Plus,

Action Aid

Grameen Bank


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Role of NGOs: Face competition!Lobby for changes

Eg: 2002, when VBP was established

" 7 NGOs against subsidized interest rates:FAILED

!Improve public information about different

schemesEg: SC/UK program: shown at least 3 times on

Vietnamese National Television


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Economic problem 2:

Institutional conflict!Women Union (WU): oversees programs

funded by international NGOs

#headquarter-subsidiary conflict

"HQ: financial sustainability

"Subsidiary-Local: poverty reduction

#Hard to go from infant to mature state

#Mean technical EFFICIENCY: 69%-78%


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Evidence WU staff: knew nothing about

microfinance management

Mission-Market tension

"HQ: high IR

"Subsidiary: follow state banks


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Role of NGOs: Resolve Conflict!Expatriate management

!Training/ Building capacity

Bottom-up influence


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Economic Problem 3:

No Integrated sector!Lack of networking

"NGO: multi-purpose

Eg:global SC/UK strategy: microfinance is nottop priority

"WU: same

SEGMENTED MARKET


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Role of NGOs: Improve Network 2004, Microfinance Working Group

(MFWG) formed

email list serve, regular meetings, semi-annual microfinance newsletters

#Representative voice

#Should turn into a formal association

National Strategy: Integration intooverall financial system


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Conclusion!Paradox of sustainability: rests more on

social and political considerations than

on economic ones (Devine, 2003)

!Role of NGOs: crucial

Documents

Microfinance in Vietnam