microfinance industry report - Vietnam - Banking with the Poor Network

The availability of liquid, small-balance savings
products that poor people generally demand
is more limited than credit in the policy-driven
microfinance market in Viet Nam. The relatively
extensive branch network of VBARD, VPSC via the
post offices, VBSP and the growing PCF network does
in principle ensure access by most BOP households
to formal sector savings services in proximity to
their residences. However, as assigned banks, both
VBSP and VPSC are required to transfer mobilized
voluntary savings to other government investment
vehicles such as VDB, or face deductions in their
government funding budgets, and hence their
motivation to expand savings services is limited.
VBARD, as a more commercial bank, prefers larger
and longer-term deposits, and thus does not offer
many savings products that are suitable for the poor.
MFOs remain barred from intermediating voluntary
savings until Decree 28/165 comes into effect and
they become licensed. With the transformation of
the largest MFOs to deposit-mobilizing microfinance
institutions under Decree 28/165, the supply of more
sophisticated savings services to BOP may increase.
By all accounts, the demand for low-cost insurance
services among BOP households is very high and
largely unmet; on the demand-side, awareness is
low and perceived pricing of premiums is higher
than actual costs. On the supply-side, the potential
size and profitability of the BOP market segment has
only recently been recognized with the larger MFOs
leading the way toward promising life, credit-life,
and health insurance schemes.
Outside the traditional BOP market, demand for
financial services is also created by small and medium
enterprises, which play a key role in the economy. 35
As of 2006, Viet Nam had over 2.7 million registered
businesses, of which 90% were classified as micro-,
small and medium-sized enterprises (MSMEs). 36
35 SMEs were officially recognized and authorized by Government
Decree 90/2001/ND-CP in November 2001 to include stateowned,
private, and cooperative businesses as well as ‘business
households’. The decree also established an SME Department
under the Ministry of Planning and Investment, and a SME
Development Plan for 2006-2010 was been approved in 2006.
36 IFC, Financial Sector Diagnostic, 2007.
Table 9. Enterprise delineation
Enterprise
type
# of
employees
Assets/Sales
Micro/individual 0-9 Monthly revenue
of VND 6-40
million (USD
375-2,500)
Small and
Medium-sized
10-299 Max. VND 10
billion ($625,000)
Businesses in this sector, the engine for economic
growth in Viet Nam, consistently state that
insufficient access to finance is the most important
obstacle to business growth, and the share of firms
that see it as a “severe” or “major” constraint to their
development is significantly higher than in other
Asian countries. 37 This appears to be a contradiction
because the Vietnamese financial market has
expanded at a frenetic pace over the past years and
credit to the private sector reached 82.5% of GDP in
2007. The explanation relates to credit allocation:
as presented above, very small loans (up to VND 30
million or US$1,875) are quite readily available to
farmers and micro-businesses in large part because
of government policies. However, slightly larger
businesses (especially in urban areas, with the
notable exception of clients of CEP in Ho Chi Minh
City) and households that need credit but do not
qualify as ‘poor’, face difficulties accessing credit and
other financial services.
Formal credit providers are often reluctant to lend to
micro and small enterprises (MSEs), or they require
collateral that these businesses and low-income
households are unable to provide. Heavy reliance on
collateral is the flip side of the limited capacity for risk
assessment by the dominant formal sector lenders 38 .
Delays in the issuance of land use certificates (LUCs),
which can be used as collateral, have compounded
the problem. The informal markets (money lenders)
that are willing to offer finance to MSEs often lend at
rates that may jeopardize the borrower’s business 39 .
37 World Bank: Doing Business. Viet Nam Country Profile/Survey,
2005.
38 Viet Nam Country Development Report 2006: Business.
39 UNDP: Human Development Report, 2004.
Banking With The Poor Network 15
Vietname_Report_FOR_PRINT.indd 15
27/05/2009 7:46:01 PM