microfinance regulations in vietnam

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NO. 19
BULLETIN
MICROFINANCE REGULATIONS IN VIETNAM
INTRODUCTION
Developing sustainable microfinance has becoming a significant objective for economic
development and been considered the extremely effective tool in the progress of eliminating
hunger and reducing poverty when United Nations chose 2005 as “International Year of
Micro-Credit”.
In Vietnam, throughout about three decades, Microfinance sector has been asserting the
importance in supporting the poor, low-income people to access financial, banking services
in a convenient and consistent way. Therefore, developing sustainable microfinance is the
important objective of Microfinance sector in the process of integration and development.
With the goal towards sustainable microfinance sector, Government approved the Scheme
of Developing organizational system of Microfinance to 2020 with the aim of “Establishing and
developing organizational system of Microfinance safely, sustainably towards supporting the
poor, low-income people, microenterprises to contribute to implement the undertakings of
the Party and Government about ensuring social security and sustainable poverty reduction”.
This is also a significant turning point in the evolution of developing microfinance activities in
Vietnam as well as affirming the State's acknowledgment about the role and position of
microfinance in the national financial system.
It can be asserted that regulatory framework plays a very crucial role in the development of
microfinance institutions in Vietnam. In facts, Microfinance Institutes are facing to lots of
difficulties, challenges in the institutionalized process in order to developing activities in a
sustainable way. The process of formalization of microfinance institutes is still slow since many
different reasons, one of which is the issue relating to legal regulations for microfinance
operation. That is also the concern of Microfinance institutes, Microfinance practitioners in the
process of building strategic orientation in developing their own institutes. With the financial
support from ADA – Luxembourg Organization, Cordaid – Netherlands Organization, and Citi
Foundation - Citi Bank, and coming from the desire of many membership organizations of
VMFWG, the content of this Bulletin 19 focused on the theme of "Microfinance Regulations
in Vietnam".
Editorial Board would like to sincerely thank the organizations and individuals who have
contributed in building and accomplishing process of this Bulletin, to meet the demand of
readers. We hope that the content of the Bulletin will help MFIs Vietnam attain more valuable
experience to conditionally determine the direction for sustainable development in the
future.
EDITORIAL BOARD
2 - VIETNAM MICROFINANCE WORKING GROUP
CONTENTS
Microfinance in Cambodia: Regulatory and Supervisory Framework and
04
Development
Philippine Microfinance
07
Regulations is necessary, but must
10
serve the sector
Microfinance Regulations from the
view of the State Bank of Vietnam
13
Establishment Licences and Microfinance Operations - Case study from
the first institution to be licensed
15
Microfinance institutions formalization
18
procedure - why is it still so slow?
Microcredit interest rates
Benchmark of MFIs Vietnam in 2012
30
Cross-market Benchmarking and
Analysis Vietnam Microfinance - Compared to East Asia and the Pacific
33
peers.
News
36
Building a Sustainable Fundraising: the
41
Role of VMFWG
2013 VMFWG Member Registration
43
The Universal Standards for Social Performance Management
47
2013 Vietnam Citi - Microentrepreneurship Awards (CMA 2013)
50
20
Is the interest rate ceiling suitable for
MFIs in Vietnam at present?
24
Difficulties in meeting the demand of
the liquidity ratio
28
DONORS
EDITORIAL BOARD
1. Nguyen Bich Vuong
Microfinance and
Development Centre (M&D)
2. Nguyen Thi Tuyet Mai
Vietnam Microfinance
Working Group (VMFWG)
3. Nguyen Thi Anh Phuong
Vietnam Microfinance
Working Group (VMFWG)
4. Phan Thi Lan Anh
Vietnam Microfinance
Working Group (VMFWG)
5. Le Thu Huong
Vietnam Microfinance
Working Group (VMFWG)
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 3
MICROFINANCE IN CAMBODIA:
REGULATORY AND SUPERVISORY
FRAMEWORK AND DEVELOPMENT
KIM VADA 1
I. Background of Cambodia Microfinance
Having featured since the early 1990s in projects of non-governmental organizations (NGOs)
aimed at greater financial access for the rural population, with its main activities involving
social rehabilitation, health care, and other humanitarian assistance for poor people,
microfinance has been recognized as an important sector contributing to economic
development and poverty reduction in Cambodia.
Against the backdrop of peace and stability, in particular after 1998, microfinance has
continued to grow rapidly. This requires an appropriate regulatory and supervisory framework.
The number of microfinance institutions has increased from 15 in 2005 to 37 today. National
Bank of Cambodia (NBC) has become the supervisory and regulatory authority of the sector
based on two pieces of legislation to support the development and soundness of the sector.
First, the Law on the Organization and Conduct of the NBC (LNBC) of 1996 allows the NBC to
license, de-license, regulate, and supervise banks and financial institutions and other agencies
such as auditors and liquidators including microfinance institutions. The NBC is empowered to
issue regulations and other directives deemed necessary to execute its powers and responsibilities, and the law allows the NBC to exercise its supervisory and regulatory roles in order to
maintain a sound and safe financial system. Second, the Law on Banking and Financial
Institutions (LBFI) of 1999 provides a legal framework for microfinance to offer a broad range
of financial services including rural credit, with appropriate mechanisms for licensing,
regulation, and supervision. This legal and regulatory framework allows the NBC to develop
and maintain sound and efficient microfinance.
1
The writer currently holds a position as a Director General of Banking Supervision of the National Bank of Cambodia (NBC)
Disclaimer: This paper is being written solely to stimulate discussion and references only. The views expressed in the
paper are those of the author and are not necessarily reflective of view of the National Bank of Cambodia.
July 2013
4 - VIETNAM MICROFINANCE WORKING GROUP
Description
2005
2006
2007
2008
2009
2010
2011
2012
June
2013
Licensed MFIs
15
16
17
18
20
25
30
34
37
Of which MDIs
-
-
-
-
1
6
7
7
7
Registered NGOs
23
24
25
27
26
27
28
33
33
Source: National Bank of Cambodia
This table shows a doubling in the number of
microfinance institutions to 37 in June 2013,
with those allowed to take public deposits
also increasing from 1 in 2009 to 7 in June
2013. In addition, there are also currently 33
registered NGOs who are operating rural
credit in the country.
II. Supervisory Roles of NBC
The role of the NBC in microfinance development is envisaged as a direct and ongoing
involvement with the microfinance operators. This role cannot be performed successfully without a favorable environment
provided by the government through various
forms of stable political environment, policy
supports, social physical infrastructure development, and other support functions under
the umbrella of government agencies and
other international organizations.
As the supervisory authority, NBC has conducted both off-site and on-site supervision.
Off-site supervision consists essentially of the
review and analysis of financial and activity
reports submitted periodically by microfinance institutions. The main objectives of the
off-site supervision are to ensure compliance
with regulatory requirements, to monitor financial conditions and performance, and to
detect irregular transactions.
On-site supervision allows NBC to go on location and investigate beyond the data and information contained in off-site reports. By
going on site, inspectors can perform a direct evaluation of an institution’s management and operational practices. On-site
inspections are complementary to off-site supervision. The main objectives of the on-site
supervision are to assess management quality, to confirm financial viability, to check loan
portfolio quality, and to detect fraud and illegal activities.
III. Regulatory Framework
NBC has established a regulatory framework
that reflects the level of risks undertaken by
various categories of financial institutions in
order to encourage imprudent risk-taking
and “impose prudential standards to ensure
that financial institutions conduct their activities in an appropriate manner”. This regulatory framework consists of a set of regulations
and prudential norms dealing with minimum
capital, minimum liquidity, leverage, loan
portfolio quality, and other such requirements that represent the basic standards
that sound financial institutions must satisfy to
ensure their sustainability.
Non-Registered NGOs: Under the regulatory
authority of Ministry of Interior (MOI) and Ministry of Cooperation and Foreign Affairs
(MoFA)
Non-registered MFIs are mostly local and international NGOs. They are under the supervision of Ministry of Interior and Ministry of
Foreign Affairs and International Cooperation in case they local and international
NGOs, respectively. No criteria required by
the NBC for these types of institutions.
Microfinance Institutions: Under the regulatory authority of NBC
Criteria for Registration (Regulation on Registration and Licensing of Microfinance Institutions)
Registration with the NBC is compulsory for all
NGOs, associations and other entities engaged in microfinance if they meet one of
the following conditions:
- For those engaged in credit, their loan
portfolio outstanding is equal to or greater
than KHR 100 million; or
- For those engaged in savings mobiliza-
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 5
tion, the savings mobilized from the general public amount to KHR 1 million or
more OR the number of their depositors is
100 or more.
Criteria for Licensing of MFIs (Regulation on
Registration and Licensing of Microfinance
Institutions)
IV. Lessons Learnt of Microfinance Development in Cambodia
The rapid development of sound, safe, and
efficient microfinance in Cambodia has
been largely explained by the following
measures.
Licensing is compulsory for all MFIs if they
meet one of the following conditions:
1- Define the clear definition of “Microfinance” and determine its mission and vision.
- For those engaged in credit, their loan
portfolio outstanding is equal to or greater
than KHR 1,000 million OR they have 1,000
borrowers or more; or
2- Create sound macroeconomic policy
that provides price stability, which means
inflation should be at an appropriate
level.
- For those engaged in savings mobilization, the savings mobilized from the general public amount to KHR 100 million or
more OR the number of their depositors is
1,000 or more.
3- Minimize market distortions relating to the
interest rate on microfinance assets and
loans and encourage healthy competition. The interest rate dropped dramatically from 36% p.a to around 18%.
Criteria for Licensing of MDIs (Regulation on
Microfinance Deposit Taking Institutions)
4- The authorities have encouraged the sector by using other means such as building
infrastructure, roads, and bridges to the
very remote areas so that microfinance
can deliver their services to people in
those areas and also reduce their operating costs, i.e., transportation cost for their
credit officers.
MDIs stand for Microfinance Deposit Taking
Institutions. This type of institution, in addition
to its core lending activities, is allowed to collect deposits from the public. Any institutions
not having this license are not allowed to
take deposits from the public.
An MFI requesting a license to collect deposits from the public shall have the following
qualifications:
- Hold a MFI’s license from the NBC for at
least three years;
- Have a good financial condition and
sound management as judged by the internal rating of the NBC, at a safe level, for
at least two years before submitting the
application;
- Have a minimum paid-up capital equal to
KHR 10,000 million;
- Have an effective Management Information System (MIS);
- Implement NBC’s uniform chart of accounts; and
- Have sustainable profitability of at least
two consecutive years in primary operations.
6 - VIETNAM MICROFINANCE WORKING GROUP
5- Behind the backdrop of appropriate supervisory and regulatory framework, a
small sound and safe microfinance institutions would become a big sound and
safe microfinance institutions.
6- Creating a government wholesale fund
mechanism to support retail microfinance
institutions, which can be the best source
of funds for those microfinance institutions
that are solely operated on funds rather
than deposits from the public.
7- Keep updating the regulatory and supervisory framework in line with the development of the market.
PHILIPPINE
MICROFINANCE
THERESE MARIE RICO
THE MICROFINANCE COUNCIL OF THE PHILIPPINES
There are three different types of institutions
providing microfinance services in the country. These are the thrift and rural banks, the
cooperatives with savings and credit services, and the non-government organizations
with microfinance services. Banks engaged
in microfinance operations remain under the
supervision of the Bangko Sentralng Pilipinas
(BSP) and cooperatives fall under the regulatory ambit of the Cooperative Development Authority (CDA), while microfinance
NGOs, as non-deposit taking institutions, are
not subject to any prudential regulation. Microfinance NGOs, nonetheless, are required
to register with and disclose to the Securities
and Exchange Commission (SEC) that they
are engaged in microfinance and related
services.
Recent developments in the sector include
the following.
venting the uninformed use of credit to the
detriment of the national economy. The law
covers any creditor, which is defined as any
person or institution engaged in the business
of extending credit that requires, as an incident to the extension of credit, the payment
of a finance charge. The circular also established a pricing formula that must be followed by all credit-granting institutions.
The circular, which took effect in August 2012,
also included amendments on information to
be disclosed, especially for small business/retail/consumer credit. These are the total
amount to be financed, finance charges expressed in terms of pesos and centavos, net
proceeds of the loan, and the percentage
that the finance charge bears to the total
amount to be financed.
Pricing transparency is monitored and enforced by the BSP, but this is limited to com-
• In December 2011, BSP issued Circular No.
744 that allows banks to offer the option
of “Microfinance Plus” loans of up to PHP
300,000 (US$7,000). Traditionally, the central bank defined microfinance loans as
those below PHP 150,000 (US$3,500).
• New rules issued by the BSP and effective
July 1, 2012, outlaw the use of flat interest
rate calculation methods for regulated institutions. Unregulated NGO-MFIs and cooperatives are encouraged to follow suit.
Pricing Transparency
A central bank circular, BSP Circular 730, encourages MFIs to enhance loan pricing transparency and improve creditor disclosure
practices by updating the Truth in Lending
Act. The declared policy behind the regulation is to protect people from lack of awareness of the true cost of credit by assuring full
disclosure of such cost, with a view to pre-
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 7
mercial and rural banks only as BSP does not
regulate nor supervise other MFIs like cooperatives and NGOs. Thus, there is no examination of compliance with the rule for
non-banks.
Over-indebtedness
The sector has actively responded to the
challenge of multiple borrowing that could
likely translate into over-indebtedness, rising
PAR, and high client turnover. MFIs that are
keen on exchanging lists with other institutions to avoid credit pollution are met with
uncooperative MFIs owing to the latter’s negative experience of client poaching. There
are moves at present to combine a number
of approaches including intensifying financial education, improving product suitability,
outreach mapping, and studies to understand multiple borrowing in order to discourage multiple indebtedness, which can lead
to high PAR of MFIs and over-indebtedness of
clients.
In 2012, the Asian Institute of Management
(AIM), Oikocredit, Mindanao Microfinance
Council (MMC), and the Microfinance Council of the Philippines (MCPI) released a series
of notes on multiple borrowing in the Philippines. One of the notes is a report that
aimed to estimate the incidence and correlation of multiple borrowing by using consolidated branch client data obtained from
several MFI partner organizations operating
in the “Commonwealth” neighbourhood 2 of
Quezon City. The main results suggest that,
on average, 14 percent of active MFI clients
borrow from more than one MFI. Because
loan sizes are generally the same, multiple
borrowers account for a similar proportion of
all outstanding MFI loans, though there are
important distinctions across various types of
loans and substantial variations in the prevalence of multiple borrowing across MFI. There
are generally no systematic differences in the
demographic characteristics between single
borrowers and multiple borrowers, and there
is no evidence to date to suggest that multiple borrowing is associated with repayment
difficulties and delinquency 1.
Credit Bureaus
The Credit Information Systems Act (CISA),
passed in 2008 by the Congress, requires the
establishment of a central credit registry in
the country. The implementation of the CISA
is expected to increase access to credit by
micro, small, and medium enterprises as well
as address problems of multiple borrowings
that could lead to delinquencies. On a
larger scale, the sharing and dissemination
of credit information will lead to a sound,
healthy, and vibrant credit market. To date,
the implementing rules and regulations of
the CISA have already been approved and
some members of the Board have already
been appointed. The implementation and
operations of the Credit Registry are, however, hampered by the lack of budgetary
appropriations from the national government for the initial capitalization requirement
of the Bureau.
Early this year, the seven biggest microfinance institutions in the country led the formation of the credit bureau that aims to
make microfinance providers more comfortable with extending loans to micro-entrepreneurs through the “Microfinance Data
Sharing System (MiDAS)” 2 that would put
credit information on micro-borrowers in a
common database that the lenders would
have common access to. Proponents of the
system said that, with the credit bureau,
micro-entrepreneurs of good credit standing
or those that have not been heavily indebted would have better chances of securing loans from the participating creditors.
MiDAS hopes to address the problem of difficulty in access to loans by perceivably
credit-risky micro-borrowers.
Data Security Law
Philippine banks are governed by the country’s law on Secrecy of Bank deposits,
whereby all deposits of whatever nature with
banks or banking institutions, including investments in bonds issued by the Government of
the Philippines, are considered absolutely
confidential. These deposits may not be examined, inquired, or looked into by any person, government official, bureau, or office
except upon written permission of the depositor, in cases of impeachment, upon order of
1
The authors of the report note that results of the study should be treated as preliminary and interpreted with caution.
Because the analysis is subject to errors of inclusion and exclusion, and because the data are a cross-sectional snapshot that does not capture adequately changes over time, the correlations should be interpreted as mere statistical
association. No causal inferences are made. In addition, because this is an area study, the results should not be interpreted as nationally representative.
2
http://business.inquirer.net/39021/credit-bureau-for-microfinance-formed
8 - VIETNAM MICROFINANCE WORKING GROUP
a competent court in cases of bribery or
dereliction of duty of public officials, or in
cases where the money deposited or invested is the subject matter of the litigation
3
.
Another law, The Data Privacy Act of 2012
(Republic Act No. 10173), supports the former but places more emphasis on the role of
information and communications technology providers in ensuring that personal information
in
the
information
and
communications systems of the government
and the private sector are secured and protected.
Mobile Banking
With the advancement in technology and
the popularity of mobile phones, mobile
banking is recognized to have a huge potential to provide access to the unbanked, particularly in remote locations, and to
significantly reduce both cost and external
risks. Findings from the Philippines show that
one half of the active mobile money users
are unbanked. Of these, 26 percent are
poor, living on less than US$5 per day (the
poverty line in the Philippines) and that 1 in
10 unbanked users saves an average of
US$31 (one quarter of their family savings) in
a mobile wallet.
The SIMM aims to:
• Encourage individuals to open new savings accounts via mobile banking;
• Encourage institutions to establish additional cash-in/cash-out merchant partners by focusing on rural areas;
• Encourage institutions to increase payroll
implementation and adoption to small,
medium, and large businesses and one
Philippine government agency or local
government unit;
• Increase the volume of mobile money
transactions; and
• Share knowledge on mobile banking
through research papers, conferences,
and learning venues.
Recent regulations and circulars issued by
the BSP have also enabled a regulatory environment that promotes greater financial inclusion, or the delivery of financial services to
low income groups at affordable costs.
Among these important policies is the easing
of bank branching requirements and the expansion of the role of micro-banking offices.6
Prior to the Microenterprise Access to Banking Services (MABS)4 Project, the industry already saw mobile phone banking as a
technological solution to extend low cost
banking services to existing clients and unbanked individuals, especially in rural areas.5
Another mobile banking-related project is
the Scaling Innovations in Mobile Money or
SIMM - a two-year undertaking that aims to
train more people through financial education and literacy on the uses of mobile
money and mobile money services for improved household financial management.
3
Republic Act No.1405, as amended, Law on Secrecy of Bank Deposits
4
The USAID-funded Microenterprise Access to Banking Services (MABS) program is an initiative designed to accelerate
national economic transformation by encouraging the Philippine rural banking industry to significantly expand access to microfinance services.
5
Philippine Industry Report, 2010
6
http://www.manilatimes.net/index.php/business/top-business-news/33417-simm-project-provides-clear-receptionto-mobile-banking
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 9
REGULATIONS IS NECESSARY,
BUT MUST SERVE THE SECTOR
JOERG TEUMER
REPRESENTATIVE OF GERMAN SAVINGS BANKS FOUNDATION FOR INTERNATIONAL COOPERATION
TYM, for which I am working as a consultant since many years, is a good example
for the impact of regulation and supervision. Decree No. 28 was issued in 2005.
By the end of that year, long before Decree No. 165 came out and amended
Decree No. 28, the Vietnam Women’s
Union made the courageous decision
that TYM should upgrade to become a
registered “Small-scale financial Institution”. In August 2010, after 2 years of
waiting and repeatedly having to
change the application dossier, TYM was
awarded the Licence. It took another
year to complete all registration documents and become the first official MFI
of Vietnam. Meanwhile the revised Law
on Credit Institutions (Banking Law) was
adopted, including "Microfinance" - how
it was now called – as a part of the official banking system of the country. A
great step forward, that is what many
10 - VIETNAM MICROFINANCE WORKING GROUP
thought. But in practice it meant that all
implementation rules for Decree No. 28
and No. 165 (which were not even complete yet) became invalid. New rules are
now being drafted. Until they are finished, nobody really knows which rules to
follow. In case of doubt, the much
stricter rules for commercial banks are
applied. Amidst this legal uncertainty,
the State Bank of Vietnam carried out a
full scale inspection if TYM's Head Office
and its 17 Branches, where neither we
nor the SBV knew exactly how to handle
many issues.
Given this far from perfect situation, I fully
sympathize with those microfinance projects, who are not in a hurry to submit or
to update and complete their Licence
application. At TYM during the last 3
years there was not just one day where
we thought it better to give back our Li-
cence to SBV and to return
to our comfortable status as
a special project or incomegenerating enterprise (don
vi su nghiep co thu). After all
TYM belongs to the mighty
Vietnam Women's Union,
who could protect us and, in
case of need, could get
special permits by the Prime
Minister. Still we firmly believe
that working with the Licence and under the supervision of SBV is the only
forward not only for TYM, but
in the end also for many
other microfinance projects.
If nobody was licensed, how
could SBV and the MFIs
themselves find out, if the
rules and regulations are approriate, and what and how
should be changed?
I will now give my personal
thoughts on some of the
"burning" issues in regulation
in Vietnam:
1. Who shall be regulated?
In my view all microfinance
projects which collect savings from the pubic and all
MFIs above a certain size.
And the rules should be the
same for all - Government
owned bank, cooperatives
or MFIs.
2. Why do we need regulation?
The main reason is to protect
clients, especially poor and
low income people, from
losing their hard earned savings, but also to prevent bad
practices in lending. The
main tools for achieving this
are transparent and regular
reporting and certain minimum standards for governance and the key persons
in a MFI. Now, all MF projects
I know in Vietnam, have a
high social orientation, the
reputation of their owners is
beyond doubt. But as the
MFIs and their clients grow,
as services become more
diverse, and more money is
at stake, there must be standards, which are supervised.
3. What should regulation
do and what not?
It should create incentives,
not obstacles for the sector
to grow. If regulations are
too strict, no one will register.
One example: Opening
new branches and outlets
should be made as easy as
possible.
Microfinance
reaches out to large numbers of people who are not
served by banks. While the
impact on people can be
huge, the amounts at stake
are negligible - all microfinance of Vietnam (including VBSP and PCF) accounts
for just 2% of all banking assets. For the same reason,
MFIs in Vietnam, like in many
other countries, should be
totally free from taxes, as
long as they have non-profit
status, i.e. re-invest their profits to improve and enlarge
their services for the people.
The potential tax income for
the state is minimal, but the
current tax policy discourages so many MFIs from getting licensed.
Another issue is ownership of
MFIs. Why must it be limited
to 5 shareholders? Maybe a
MFI wants to make its clients
or staff co-owners, like in
many other countries. Why
can’t one shareholder own
the majority openly, and not
in disguise like in may jointstock banks? Why can’ t the
Women’s Union own several
MFIs?
Regulation should also encourage the provision of
more, better and innovative
services. Many poor and low
income people have the
need for fast and secure
money transfers. Others
need insurance. Small entrepreneurs need to buy equipment
at
favourable
conditions. So instead of restricting MFIs, they should be
allowed to open accounts
for their clients, provide mobile banking, or to set up
subsidiaries for microinsurance and microleasing.
One point, which in my view,
should not be regulated, is
the provision of information
on all borrowers to a centralized database. A Credit Bureau makes sense in a
sophisticated market with
high risks and default rates.
In Vietnam, there is multiple
borrowing, but no problem
of overindebtness. MFIs
have various ways to verify
the existing loans of their
clients and whether they
can afford to repay another
loan, as is proven by the
high repayment rates and
various impact assessments.
A credit bureau with its need
to acquire or change software and assigning staff for
reporting would just be an
additional burden, especially for smaller MFIs.
4. How to improve supervision?
The experience of TYM
shows that the level of understanding of microfinance
by the staff and inspectors of
SBV is still very limited, especially at the local level. It is
even more so for the local
administrations, who must
approve the opening of
new outlets in their area.
Most of them consider MFIs
just another bank and think
they must apply the same
standards, for example using
armoured cars for transport
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 11
of cash or having a sophisticated reporting software.
Improving the capacity of
these people takes time and
money. If there were 10-20
MFIs instead of just 2, SBV
would perhaps need to hire
more staff. Supervision is also
time consuming and costly
for the MFIs - they must explain a lot, prepare reports,
copy
documents.
SBV
should consider lowering the
scope and frequency of reports and on-site supervision
missions. Another idea is
listed in Point 6.
5. What to do with smaller
microfinance projects?
MFIs below a certain size
and offering only loans and
compulsory savings should
not be obliged to register.
Still, they should follow a certain set of standards and be
subject to a minimum of supervision. There was the
idea of the Microfinance
Working Group taking on
the task of collecting information and at least randomly checking the various
projects. However this would
require building the relevant
capacity of the VMFWG
and to secure ongoing funding for this work. Also it could
lead to a conflct of interest,
if members are controlled by
an organisation which is
formed by themselves. Another, currently very popular
option is to set up Social
Funds according to Decree
30. However, this Decree
12 - VIETNAM MICROFINANCE WORKING GROUP
was not really meant for microfinance, and there is little
to none supervision of standards.
6. Could a Wholesale
Fund be a solution for two
problems?
All MFIs in Vietnam, licensed
or not, are in need of funding. Only a few have the
right and capacity to raise
savings from the public and
loans from local and international financial institutions.
Smaller and unlicensed MFIs
could borrow from a professionally run Wholesale Fund,
supervised by SBV. Such a
Fund would need to conduct a due diligence analysis of its borrowers (the MFIs)
and later monitor, how the
MFIs have used the money
and if they will be able to
repay the loan. In other
words, the Wholesale Fund
will "supervise" the MFIs.
There are already 2 such
funds in Vietnam. One is the
Microlending Fund (MLF) of
the World Bank, managed
by BIDV. It is only open for licensed MFIs, its conditions
(e.g. floating interest rates)
and reporting requirements
are not really suitable for
MFIs. The other is the Credit
Support
Fund
of
the
Women's Union, which already lends to several (licensed and unlicensed)
microfinance projects. It
does so on the basis of the
borrower's (MFI's) analysis, at
rates close to the market.
The interest income of the
Fund is used to finance the
staff and operations, i.e. it
covers the "cost of supervision". Any surplus is used to
enlarge the Fund. Perhaps
this Fund could serve as the
basis or model for a larger
Wholesale Fund. Funding
could initially come from
ADB's Microfinance Sector
Loan, later other sources
could be added.
MICROFINANCE REGULATIONS
FROM THE VIEW OF THE STATE
BANK OF VIETNAM
HOANG QUOC MANH: DEPUTY DIRECTOR OF LICENSING DEPARTMENT
BANKING INSPECTION AND SUPERVISION AGENCY
STATE BANK OF VIETNAM
This interview is based on the demand of sharing information of regulations and policies related to Microfinance activities in Vietnam as well as orientating the development of Microfinance Institutions in formalization and professionalization in Vietnam.
The Vietnam Microfinance Working Group (VVMFWG) had a close interview with Mr.
Hoang Quoc Manh – Deputy Director of Licensing Department – Banking Inspection
and Supervision Agency - State Bank of Vietnam about some microfinance regulations in Vietnam.
Question: Will the State Bank of Vietnam replace or modify Decrees No.28/2005/NĐCP and No.165/2007/NĐ-CP regulated the structure and activities of small scale Microfinance institutions in Vietnam? What are the functions of foreign institutions in
capital contribution? Does the State Bank allow microfinance institutions to have legal
status as 100 percent foreign owned companies?
Answer: Implementing the Law on Credit Institutions 2010, the SBV will have guidance
on the process of establishing and licensing MFIs in the near future. Basically, this Circular is based on Decrees No. 28 and No.165. In accordance with the provisions of
the laws as well as the development orientation of the microfinance sector, microfinance institutions will probably be required to establish solely in the form of limited liability companies. Moreover, according to the development scheme of microfinance
to 2020, the State Bank will continue researching the most effective structure for microfinance shareholdings and the involvement of many sectors, including perhaps in-
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 13
ternational companies. However, in terms of
the social goals of microfinance, there
should be participation of social organizations. Thus, there is no possibility of having a
100 percent foreign owned microfinance institution, only foreign participation to a certain level.
Question: Could an international organization or a commercial bank establish a microfinance institution as its subsidiary company
to implement microfinance? Why/Why not?
Answer: Under the current laws, this is impossible. In addition, pursuant to the microfinance establishment draft, there must be a
social-political organization. Thus, a commercial bank can contribute capital to a limited liability company with more than two
members.
Question: It is a fact that formal MFIs are facing more difficulties than informal MFIs in implementing current laws and rules such as
taxes, interest rates, and liquidity. Therefore,
what policies and policy improvements does
the State Bank of Vietnam have to encourage the transformation of informal MFIs into
formal ones?
Answer: Transforming into a formal microfinance institution is a relatively big change in
quality – it requires comprehensive preparation of knowledge, quality of operations, and
other conditions. Thus, in order to support the
formalization of microfinance institutions, the
Asian Development Bank funded a programme to support MFIs’ transformation. All
of the market mechanisms have been operating under a certain legal framework and
under the supervision of the State authorities.
However, due to lack of proper understanding, a difficult tax regime, and liquidity regulations (because MFIs mobilize deposits and
make loans), it is understandable that MFIs
face many difficulties in their operations. In
recognition of this, the government and the
State Bank of Vietnam support the dissemi-
14 - VIETNAM MICROFINANCE WORKING GROUP
nation of legal awareness, which are regulated microfinance activities, and training
activities, as well as supporting to connect
low-interest loans, create favorable conditions for the development of microfinance.
Question: MFIs are licensed to set up and aim
to reach clients who are poor and near-poor
households. In order to help a growing number of poor people access loans for productive development, MFIs need more capital.
However, those organizations are currently
under a shortage of capital and face difficulties in borrowing. Thus, what are the State
Bank’s mechanisms to solve these problems
and help microfinance institutions have sufficient capital for operation?
Answer: In the case of an informal MFI, the
legal status is incomplete, and it cannot independently borrow money. If this organization wants to expand its operations, it must
be formalized and operate within the framework of the law. Then, borrowing will be more
favorable. Thus, MFIs have to convert themselves in order to access capital. If MFIs want
to access loans, they must have mechanisms
to use capital efficiently, with well qualified
human resources and modern technologies.
In summary, in conjunction with MFIs, the
State Bank will support and facilitate the
proper legal framework pursuant to the law.
The State Bank encourages formalization of
MFIs, which brings them many benefits.
Interviewer
Nguyen Thi Anh Phuong
Project Officer
Vietnam Microfinance Working Group
ESTABLISHMENT LICENCES AND
MICROFINANCE OPERATIONS - CASE STUDY
FROM THE FIRST INSTITUTION TO BE LICENSED
TRAN THI NGOC HA
TYM
In August 2010, after two years of working to meet licencing requirements and working as a
small scale financial institution in accordance with the government’s Resolution No. 28/165,
the sole member limited liability institution called Tinh Thuong (previously Tinh Thuong Fund –
Vietnam Women’s Union and abbreviated as TYM) has become the first licensed small scale
organization working in Vietnam. As the first organization to apply for a licence, TYM not only
had advantages, but it also encountered many difficulties. The organization faced opportunities and challenges that no microfinance institution or program had ever experienced before.
1. Advantages, difficulties, opportunities, and challenges
Advantages:
Firstly, TYM was supported promptly and received detailed guidance from the State Bank of
Vietnam. Being the first time preparing such documentation, TYM was overhelmed by requests
to provide a lot of paperwork, files, and data for being licensed. However, thanks to Department 6 of the State Bank of Vietnam, TYM could complete the application step by step.
A second aspect is the professionalization of TYM operations. Pursuant to the regulations of
the State Bank, TYM has gradually improved its policies and made its operations safer and
more methodical, such as the process for assigning the staff performing the cashier function
at branches and transaction offices.
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 15
Thirdly, the licence has brought benefits to
TYM, particularly in raising capital. On one
hand, TYM can borrow capital from international organizations and is guaranteed the
repayment of foreign currencies after registering loans to the State Bank. On the other
hand, TYM has the right to mobilize voluntary
savings from the public and members without limitation. Owing to these advantages,
along with designing flexible products, TYM
has raised the rate on savings balances per
portfolio to approximately 55%, an increase
of nearly 30% compared with prior to the authorization.
Difficulties
Besides these advantages, TYM was also
faced with many difficulties. It took TYM nearly
two years to complete the licensing documents required by the State Bank. In order to
meet the information and data requirements,
both the State Bank and TYM had to study, research, and monitor how to fit the regulation
and the reality together perfectly. During the
licensing procedure, TYM encountered other
matters. These were the series of specified
texts, namely the regulations on the financial
regime, the regime of corporate income tax,
etc., were not issued in a timely manner by
the State Bank and the Ministry of Finance for
small scale financial institutions. Recently,
guidelines were released for implementation
of the Law on Credit Institutions 2010, even
though this came into effect in more than
three years ago. Moreover, several regulations have been developed specifically for
small scale finance (in accordance with the
Law on Credit Institutions 2010 known as microfinance), and they are not consistent with
the typical operations of microfinance. For
example, Circular No. 07/2009/TT-NHNN
dated 17/4/2009 stipulates the prudential limits on the operation of financial institutions and
regulates the percentage of liquidity at 20%.
The numerator of this ratio includes cash, bank
deposits in the State (but excludes required reserve deposits) and deposits in credit institutions, and government bonds (bonds are
guaranteed by the government). The denominator includes compulsory savings and
voluntary savings. This provision is no different
from the regulation for commercial banks.
Yet, microfinance uses compulsory savings to
secure the borrowed capital and to actively
plan on paying the withdrawals of these savings. In the current context of current microfinance, when funds raised from domestic and
16 - VIETNAM MICROFINANCE WORKING GROUP
foreign credit institutions are still limited and
compulsory savings account for a large proportion of the total money-saving mobilization, these regulations reduce the possibility of
increasing the lending capital of microfinance institutions and their opportunities to
gain access to capital for microfinance by individuals and low income households.
Other examples of irregular regulations include Circular No. 09/TT-NHNN dated
03/25/2013, which stipulates the short-term interest rates for loans in Vietnam dong for
credit institutions and foreign bank branches
provided customers in some sectors, while the
short-term interest rate of microfinance must
not exceed 12% per year.
Or regulations on facilities (warehouses, tanks,
cash, transport cars, etc.) of the transaction
offices and branches of microfinance, which
have to be the same as commercial banks,
whereas the amount of cash transacted and
stored at microfinance branches is much
lower.
In addition, TYM encountered some difficulties
during its practical operational process. Firstly,
in 2011, the halt in licensing transaction offices
of microfinance led to the situation where a
series of old TYM branches, which were unlicensed to convert operations into transaction
offices, had to merge their operations with the
licensed branches. This increased the cost of
operating and reduced the ability ofTYM to
expand to new districts. After 2011, the State
Bank had no other notices on the continuation or suspension of licensing transaction offices of microfinance, which has caused
many difficulties for TYM in the development
plans of the organization in recent years.
Opportunities
Firstly, a chance for TYM to innovate and professionalize its operations under the monitoring and guildance of the State Bank.
Secondly, TYM has an opportunity to diversify
the sources of mobilized capital – not only
the small compulsory savings and voluntary
savings from members, but also the large
savings deposits from members, the public
and loans from domestic and foreign credit
institutions. Thirdly, TYM can expand collaborative relationships with other organizations,
where the licence is regarded as TYM’s passport. Presently, TYM has had collaborative
business relationships with nearly 20 organizations over the world. Last but not least,
TYM has the permission to establish a financial unit of TYM. Taking advantage of this opportunity, TYM is taking its very first step to
promote its business development services
(BDS) to support the members as a precursor
to the establishment of TYM BDS centers in
the near future.
Challenges
In the case of TYM, the first challenge is to
provide training for the management staff
and employees to switch from the old type
of operations to the professional banking finance operations. This requires a lot of effort
from both organizations and each individual,
as well as time and money for the training.
Another challenge is to build the image of
TYM in the mind of the public, including upgrading facilities and enhancing communication campaigns. These requirements are
also problems for TYM leaders, when they
have to address another difficult problem:
“Should we invest in the business image or
continue to expand?”
2. Lessons learned:
From our own experiences, these lessons will
help other microfinance institutions in the decision-making, preparation, and commitment in the licensing process and
conversion.
- Before making the licensing decision, it is
of great importance for organizations to
be aware of what they have got. The
changes will take place to determine
whether or not to be licensed or the right
time and the steps for preparation, licensing implementation, and how to convert.
- During the licensing process, instituations
ought to have close contact with Department 6 and the State Bank to obtain guidance and timely support.
- After being licensed, institutions must continue to switch gradually and safely by piloting the principal changes before
deploying them on a large scale.
3. Recommendations:
For smooth licensing, transition, and benefits
to the microfinance industry and the beneficiaries of the industry, TYM proposes a number of recommendations:
- Microfinance institutions /programs: contribute a voice to the power of institutions
/microfinance programs in policy advocacy;
- The Vietnam Microfinance Working Group:
enhance the sharing of licensing experiences between organizations, playing an
intermediary role between organizations
and stakeholders, closely follow the operational situations of organizations in order
to advocate for appropriate policy; and
- The government and related authorities:
promote the implementation of development strategies for the microfinance industry to the year of 2020, closely
monitoring microfinance activities and facilitating the development of microfinance through appropriate policy
management.
For the professionalization and formalization
of microfinance activities, licensing microfinance institutions is essential. Although each
organization needs to carefully consider its
current situation, preparing roadmaps for licensing appropriate to the condition and
the ability of the institution. The most important thing is to transition successfully. In order
to do so, the licensed organization will need
much care and support from the Vietnam
Microfinance Working Group and the authorities through practical activities and appropriate policy promoting the development
of the microfinance industry. TYM, as the first
organization licensed in this field, is always
willing to share experiences and propose
possible solutions based on practical activities at TYM.
- Sharing experiences with organizations
that have been licensed and the Vietnam
Microfinance Working Group to study
practical experiences, as well as sustain
advocacy to get the appropriate policies
and bring benefits to the official microfinance operations.
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 17
MICROFINANCE INSTITUTIONS
FORMALIZATION PROCEDURE - WHY IS IT
STILL SO SLOW?
NGO THI THANH VAN
INDEPENDENT CONSULTANT FOR MICROFINANCE
Although the Government established
the policy on formalization of MFIs nine
years ago, so far formal MFIs are relatively few. Only two out of more than 300
large and small organizations across the
country are licensed by the State Bank
of Vietnam. Was the policy established
too early, has it not been suitable with
the development trend of the industry or
are there other reasons?
Government Decree No. 28 was issued
after a long process of mobilization of
microfinance practitioners with the support of international non-government organizations in 2005 – known as the
"International Year of Micro-Credit." At
that time, microfinance proved its important role in helping poor and low-income
people access financial services conveniently and reasonably. The Government
and donors also recognized microfinance as an effective tool in the struggle
18 - VIETNAM MICROFINANCE WORKING GROUP
to reduce poverty and hunger as well as
to help people in rural, mountainous
areas to develop their economic situation sustainably. Moreover, worldwide microfinance is developing quickly and
drawing attention from many investors,
thus microfinance institutions are required to keep up and comply with international standards in order to attract
more investors. There is no doubt that the
formalization policy for MFIs was established at the right time and reasonably in
accordance with the development
trend of the microfinance industry in
Vietnam and around the world. Why is
the formalization process happening so
slowly in Vietnam and why are MFIs not
really keen on the transition?
In Vietnam, microfinance operations are
often carried out and managed by the
Women's Union (VWU), thus formalizing is
a transition which includes:
i) Transforming from a microfinance program managed by the VWU and implemented by a simple management system
mostly self-designed and not complying
with any standards;
ii) The next stage is to recruit specialized staff
who have specific qualifications to perform and apply the professional management system to comply with the global
standards (e.g. WOOCU, CGAP etc.);
iii) Then the VWU – the owner of the microfinance program – submits applications for
establishing a Social Fund which becomes an independent organization, with
its own seal, charter of operations and
separate organizational system; iv) The
last step is to become a formal financial
institution operating under the authority
and supervision of the State Bank of Vietnam.
Currently, most MFIs are in the process of
moving from the first stage to the second
stage. Although organizations find out their
limitations in the management and operations of MFIs, they still have not found the motivation to change, even when receiving
technical and financial support from donors.
There are many different reasons. Firstly, the
VWU have not foreseen the future of MFIs
under the VWU as a whole. How will they
manage their institutions as they grow and
expand? The relationship between "gain"
and "loss" here is not clear and has not been
researched, particularly at provincial and district levels. The VWU is concerned about finding the answers for this, which is the core of
the "transition motivation".
Secondly, the implementation of policies at
an intermediate level (provincial and district)
also known as "environment policy implementation" is still weak. Meanwhile, this level
plays a critical role in the transition of change
and as the decision-making level for switching or not switching.
vantage and the role of the VWU.
Following the glorious times (between 2005
and 2009), microfinance has gradually subsided and abdicated for the more pressing
concerns of climate change and natural disaster risk mitigation. Similarly, donors are directing there funding elsewhere, as the
microfinance industry is not a primary concern. At the same time, the impact of the
global economic crisis has also reduced the
likelihood of funding/support from many
large donors. Therefore, prioritizing investment is inevitable. There are not many studies
proving the impact and influence of microfinance on climate change, disaster risk reduction, or other development sectors.
In order to quicken the process of formalization of MFIs, the following issues should be
considered; besides the technical and financial support for the conversion process:
- Strengthening the implementation of policies for intermediate levels to create a favorable
environment
for
the
implementation of policies at the macro
level.
- Strengthening the advocacy on policy
and implementation guidelines to ensure
that all policies are well understood and
implemented smoothly from a macro
level - intermediate - micro.
- Clearly distinguish the role of the VWU in
the implementation of policies in the intermediate and micro levels, and study the
"gain" and "loss" of switching to create
transitional motivation for the VWU.
- Carry out research on the role of microfinance in climate change and natural disaster risk mitigation, as well as the
integration of microfinance into other development areas to help microfinance
develop its role fully, and contribute more
actively to the general development of
Vietnam.
Thirdly, the role of the VWU in the implementation of policies is not clear. In terms of the
State, the VWU is under the local government units and the implementation of policies at an intermediate level. In term of the
microfinance industry, the VWU is the owner
of the MFIs and the one implementing the
policies at the micro level. This fact has inadvertently created a conflict between the ad-
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 19
MICROCREDIT
INTEREST RATES
ERIC DUFLOS AND TAM LE THANH
On 16 May 2013, several governments, international and private actors involved in microfinance in Vietnam debated the issue of
microfinance interest rates at a workshop organized by the Vietnam Microfinance Working Group, TYM and the IFC. The emerging
microfinance industry is indeed facing a
challenging interest rate cap of 10 percent
on short term credit 1 and a minimum shortterm deposit rate of 7.5 percent 2. This article
first highlights why microfinance 3 is important
for the poor. It then explains why MFIs need
to charge sustainable interest rates, and why
these rates are higher than bank rates. It then
explains negative consequences of interest
rate caps, highlights specific facts about the
Vietnam situation, and concludes on possible next steps.
Microfinance includes the provision of a diversity of financial services such as credit,
savings, transfers and insurance to low income households and micro-enterprises, but
we focus here on microcredit interest rates.
1
Circular No. 16/2013/TT-NHNN dated June 27, 2013 of the State Bank of Vietnam promulgating the maximum interest
rate for VND short-term loans of the credit institutions and foreign bank’s branches for the customers to satisfy funds
demand serving some economic areas and sectors. In Article 1 “The maximum short-term loaning interest rate in
VND is 9% per annum; people's credit funds and microfinance institutions may impose the maximum interest rate of
10% per annum on short-term loans in VND”
2
Circular No. 15/2013/TT-NHNN dated June 27, 2013 of the State Bank of Vietnam promulgating the maximum interest
rate of VND deposit of organization and individuals at credit institutions and foreign bank’s branches.
3
Microfinance is defined here as the provision of a broad range of financial services such as credit, savings, transfers
and insurance to the un-banked population.
20 - VIETNAM MICROFINANCE WORKING GROUP
Why is microfinance important for poor
people?
A large majority of working adults in Asia
have no access to formal financial services.
Among the poorest 20 percent of the population in East Asia and the Pacific, only 33
percent have formal access to finance
(Source Findex, World Bank). In Vietnam 79
percent of adults still do not have access to
formal financial services according to Findex.
Most unbanked people need to save and
borrow from multiple sources to manage
their financial lives. Many poor people end
up borrowing from money lenders at interest
rates often higher than 100 percent per
annum. To solve this unfair situation, for the
past 30 years, thousands of microfinance institutions (MFIs) have emerged globally.
There are many kinds of MFIs such as NGOs,
specialized banks, cooperatives, finance
companies etc. They provide credit, savings,
and sometimes other financial services that
the poor highly value. With microfinance
services, poor people can save for difficult
days or for educating their children and borrow for their micro-enterprise or in case of
emergency.
Why do MFIs need to charge sustainable
interest rates?
Currently MFIs serve dozens of millions of formally unbanked people in Asia. Most of
these MFIs are private or semi-private organizations. Since they are not charities, they
need to recover their costs. This means that
they must charge market interest rates to
their clients to operate and expand. As illustrated below, the main component of microcredit interest rate is the operation costs (staff
costs, transport etc). MFIs also need to make
a small profit, put money aside for bad debt
(loan losses) and borrow some money that
they can on-lend to poor people (financing
expenses).
Microcredit rates are higher than banks because making many small loans to many
people generates higher operation expenses
than making one big loan to a large company. In addition the MFIs often offer a
doorstep service which is more costly for the
institution but which reduces the opportunity
and transaction costs for the clients. Lastly,
MFIs serve people who have limited collateral and who often live in more remote
areas. These reasons explain why the average loan interest are close to 30 percent per
annum globally (using interest yield as a
proxy).
A recent CGAP publication (Microcredit and
their Determinants 4) shows that interest rates
have declined in the last eight years (see box
below). The causes vary from country to
country, and the decrease may sometimes
be related with increased efficiency and
competition. But we believe that it is unlikely
that these rates will go down to what commercial banks charge because it will always
be more expensive to serve a large number
of small accounts.
DRIVERS OF INTEREST YIELDS, AS % OF YIELD, 2004 - 2011
2004 Interest
Yield
2011 Interest
Yield
Profit
Loan Lossec
Financial
Expense
Operating
Expense
4
http://www.cgap.org/publications/microcredit-interest-rates-and-their-determinants see also the blog post on East
Asia http://www.cgap.org/blog/understanding-microcredit-interest-rates-east-asia
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 21
What are the effects of interest rate caps?
In theory, interest rate caps are appealing
because they sound fair and protective for
the poor. In practice, these caps have had
negative effects on the poor. Caps indeed
prevent MFIs from covering their costs, which
means that they are forced to take one or a
combination of the following actions:
• They target larger clients (because costs
are lower when serving richer clients)
• They may close operations in more difficult to reach areas (e.g. rural areas, remote areas) or stop expanding in these
areas.
• They stop expanding because they lose
money on operations
• They charge fees on top of the official interest rate to be able to recover their
losses.
• They deprive MFIs from loans from local
and international social investors who can
constitute an important re-financing
source for MFIs and who usually shy away
from places that have severe interest rate
caps.
5
As a result clients previously served by MFIs
can no longer access MFI services and they
go back to money lenders who charge exorbitant rates.
What are the interest rate policies for
MFIs in Vietnam
For formalized MFIs, State Bank of Vietnam
(SBV) has imposed an interest rate ceiling,
whereas semi-formal MFIs have to comply
with the Civil Code. The Civil Codes has requested since 2005 that semi-formal MFIs
should not have rates exceeding 150 percent of basic interest rates set by SBV (Clause
1 of Article 476, Civil Code 2005). So legally,
with an SBV rate at 9 percent since 2012,
semi-formal MFIs should not lend at higher
rates than 13.5 percent per annum. While the
Credit Institution Law allowed formal MFIs to
negotiate their interest rates, the SBV has imposed a ceiling since December 2012, which
has been reduced several times since December. Currently, the ceiling interest rates
on short term microloans in 5 priority areas 5
for MFIs is 10 percent.. This rate is the lowest
ceiling the authors are aware of in the region.
5 priority areas are:
a) To service the development of agriculture and rural areas as prescribed in the Decree No. 41/2010/ND-CP dated
April 12, 2010 of the Government on credit policies for agricultural and rural development;
b) To implement the plans, projects of production and trading of exports as prescribed in the Commercial Law;
c) To service the production and trading of medium and small enterprises as prescribed in the Decree No.
56/2009/ND-CP of June 30, 2009, on assistance to the development of small- and medium-sized enterprises;
d) To develop the ancillary industries as prescribed in the Decision No. 12/2011/QD-TTg dated February 24, 2011 of
the Prime Minister on policies on development of a number of supporting industries;
e) To serve the production and trading of the high-tech enterprises as prescribed in the Law on High Technologies,
and relevant laws.
(Circular No. 16/2013/TT-NHNN dated June 27, 2013 of the State Bank of Vietnam promulgating the maximum interest
rate for VND short-term loans of the credit institutions and foreign bank’s branches for the customers to satisfy funds
demand serving some economic areas and sectors)
22 - VIETNAM MICROFINANCE WORKING GROUP
What are the alternatives for MFIs?
MFIs do not have many alternatives to overcome this ceiling. They have five alternatives,
but each of them is either not fully conform
with the law or simply not realistic given the
nature of microfinance:
(i)
MFIs can switch to medium and longterm loans if they want to have negotiated rates. However microfinance is
usually short term and MFIs do not have
much available funds for medium and
long-term loans.
(ii) They can lend outside of the 5 priority
areas. However, most of MFIs work with
clients who are part of these 5 priority
areas.
(iii) MFIs in Vietnam may be tempted to
charge extra fees. However, legally, MFIs
can only apply two kinds of fees: prepaid-payment and fees for syndicated
loans. 6
(iv) MFIs can charge negotiable interest
rates if customers are not satisfied with
the loan conditions in accordance with
the regulations of SBV and their financial
conditions are not considered transparent and healthy. 7 However, an essential
condition for lending is that clients “have
the financial capacity to pay on time”. 8
How can MFIs lend to clients who do not
have good capacity and conditions for
borrowing? 9
annum. With a ceiling of 10 percent on short
term loans, Vietnamese MFIs are unlikely to
become sustainable and to contribute to the
expansion of sustainable microfinance promoted by the National Strategy (Following
the Decision No. 2195/2011/QD-Tgg dated
December 6, 2011 of the Prime Minister on
Approving the Proposal of designing and development of microfinance system in Vietnam up to 2020).
What can the VMFWG do to improve microfinance interest rates?
On the one hand the VMFWG should continue advocating for market based interest
rates for MFIs so that its members can operate on a sustainable basis and expand their
services especially to the poor. The VMFWG
could also encourage MFIs to improve their
efficiency to continue reducing their operational costs. The VMFWG should also foster
more responsible microfinance by ensuring
that clients are treated fairly. This means that
MFIs need to ensure transparency of their interest rates in a comprehensible and comparative way, as well as ensure that their
clients have some means to complain in
case of abusive practices. The IFC, through
its Microfinance Program, supports a sustainable and responsible sector in line with the
Microfinance Strategy launched by the Government of Vietnam which includes support
for the VMFWG to promote more sustainable
and responsible finance.
(v) MFIs could use a flat rate methodology.
However, for formal MFIs in Vietnam, it
may not be consistent with the legal way
of calculating the rates, and it is not consistent with international good practices.
While the interest rate caps are said to be imposed for macro-economic reasons, they will
have negative consequences for the emerging Microfinance sector. Reporting in Vietnam is not highly reliable, but CGAP
estimates that the average interest rate of
Vietnamese MFIs is below 25 percent per
6
Circular No. 05/2011/TT-NHNN dated March 10, 2011 of the State Bank of Vietnam regulating the charge of Credit
Institutions’ Loans to clients.
7
Article 2 of Circular No. 16/2013/TT-NHNN dated June 27, 2013 of the State Bank of Vietnam
8
Article 7 of Decision No. 1627/2001/QD-NHNN dated December 31, 2001 of the State Bank of Vietnam on the lending
regulations of Credit Institutions.
9
Article 10 of the Decision No. 652/2001/QD-NHNN dated May 17, 2001 of the State Bank of Vietnam “Issuing the
Regulation on methods of calculating and accounting the collected and paid interests of the State Bank and
Credit Institutions.
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 23
IS THE INTEREST RATE CEILING SUITABLE
FOR MFIS IN VIETNAM AT PRESENT?
PH.D LE THANH TAM
BANKING - FINANCE INSTITUTION - NATIONAL ECONOMICS UNIVERSITY
Recently, Vietnamese policymakers have turned their attention to the microfinance institutions’
(MFIs) and People Credit Funds’ (PCFs) operational characteristics by allowing them to charge
a 1% higher ceiling interest rate than other credit institutions. According to some international
practices and experiences, this adjustment has not been sufficient for the sustainability of these
institutions. This fact is due to four main reasons.
First of all, if microfinance customers were served by commercial banks, they would
have to bear higher transaction costs and opportunity costs. In fact, most microfinance
customers live in mountainous and remote areas and face problems in accessing traditional
banking services. Assuming that a microfinance client borrows money from a conventional
bank, he/she will have to reach the bank’s transaction office or branch to complete the deal.
Not only does he/she bear the transaction costs (such as travel, meals, documents, records,
papers, etc.), but he/she also bears an increasing opportunity cost due to travel and processing time. If the loan in this example is large, these costs will not be significant (3-5%); however,
if it is a small loan (below 30 million VND), the costs will account for an average of 34% (international practices-ADB/2013).
Total cost of customer’s loan = interest expense + transaction costs + opportunity cost
Although microfinance institutions charge a higher interest rate, it is clear below that customers
bear a lower overall cost.
Table 1: Costs of customer loans from banks and from MFIs
Customer loans
30 million VND/12
months
20 million VND/ 12
months
10 million VND / 12
months
Interest
Rate
Interest
Payable
(%)
(million
VND)
(million
VND)
(million
VND)
(million
VND)
(%)
Commercial
Banks
15
4.5
3
0.48
7.98
27
MFIs
23
6.9
0.05
0.12
7.07
24
Commercial
Banks
15
3
3
0.48
6.48
32
MFIs
23
4.6
0.05
0.12
4.77
24
Commercial
Banks
15
1.5
3
0.48
4.98
50
MFIs
23
2.3
0.05
0.12
2.47
25
Organization
Transaction Opportunity
Total cost
cost
Cost
Effective
Interest Rate
Notes: The transaction costs include travel costs (petrol, food, paper photocopies, purchase
information, registration of security transactions, etc.). To obtain a loan, customers need to
travel 3-4 times. The opportunity cost is the amount of money a customer would receive after
one working day (120,000 VND). The interest rates above are assumed.
In reality, although interest rate of commercial bank is 15% while MFI’s interest rate is 23%, the
effective interest rate of commercial banks is higher. The smaller the loan is, the higher the cost
24 - VIETNAM MICROFINANCE WORKING GROUP
rate is (for a 10 million VND loan, there is a 50% effective interest rate). Microfinance clients are
benefit from decrease in transaction costs and opportunity costs. Thus, if interest rate of MFIs
is higher than current interest rate ceiling, it is still very beneficial for customers, especially customers in rural and remote areas.
Secondly, customers’ transaction costs and opportunity costs are transferred to the
operational costs of microfinance institutions. Customers no longer have to present at the
transaction office because microfinance institutions bring them services (door-to-door banking). As a consequence, costs and time required have been reduced for customers, although
the amount of tasks that one credit staff has to fulfill increases significantly. Therefore, the salary
costs take up a high proportion of MFIs’ operational costs.
70
63.64
61.81
58.95
60
50
40
30
26.25
20
12.48
10
0
TYM
Thanh Hóa
M7MFI
Agribank
QTDNDTW
Figure 1: Percentage of salary costs and other costs related to
salary between some MFIs and credit institutions (%)
Source: Authors' calculations on data from annual financial reports of MFIs (2011-2012)
Overall, the salary costs and other cost related to salary typically account for 60% of the total
operational costs of MFIs. Meanwhile, it was 12.48% for Agribank and 26.25% for the People
Credit Fund. In fact, the microfinance staffs’ salaries are relatively low in comparison with commercial banks. The main reason of high percentage of salary cost is that MFIs use a lot of employees and transfer customers’ costs to their operational costs. Clients can implement
transactions in day with small loans but large number of transactions. Therefore, number of
customers and average loan balance per credit officer of MFIs are much lower than other
credit institutions.
Gross Loan Outstanding per credit office
(million/person
Clients per credit offiver
350
300
250
200
150
100
50
0
286
270
206
1000
945.9
236
861.5
800
771.2
580
161
600
477.8
157
154
400
296.6
284.4
200
0
Average
New MFLs
(0-4 years)
Young
Mature
Super Small
Small MFLs
Medium
Large MFLs
MFLs
MFLs
MFLs
(USD
MFLs (USD
(GLP > USD
(4-8 years)
(>8 years)
(GLP<USD
400.000
1m < GPL <
8 m)
400.000)
< GLP <
USD 8 m)
USD 1m)
Figure 2: Labor Productivity and exposure of MFIs in Vietnam
Source: Authors' calculations on data of the VMFWG members in the period of 2011-2012
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 25
that are difficult to access, customers will have
no choice but to borrow from other sources.
It is also clear that the 1% higher interest rate
would not be sufficient for MFIs to cover the operational costs that are transferred from their customers. Moreover, they will encounter problems
in maintaining operational sustainability due to
the gap of 3.5% between the input and output
interest rate.
Thirdly, the interest rate ceiling can harm the
sustainability of MFIs and have negative impacts on microfinance clients. According to
It is obvious that the labor productivity of MFIs is
lower than commercial banks due to the market
segmentation and approach. In Vietnam, a single MFI credit staff has to deal with an average
of 206 customers and 580 million VND in outstanding loans. This is slightly higher for large and
mature MFIs, (270 and 861.5 million VND for mature MFIs, 286 and 945.9 million VND for large
MFIs). In addition, newly established and small
MFIs have much lower labor productivity. However, this does not reflect inefficiency in MFIs’ operations. There is no doubt that if MFIs cannot
approach customers and provide them services
the calculations of TYM and M7-MFI, the average
input costs are 13-14% per year. Thus, the 11% interest rate ceiling would lead to operational
losses. If this interest rate remains stable for 2.5
years, the two organizations will go bankrupt.
Also, it will cause the following results.
(I) The physical and mental benefits of microfinance clients will be reduced or even disappear
in the long term. In terms of characteristics, MFIs
are social enterprises, with the aim of balancing
sustainability and social benefits. Thus, microfinance clients can get access to highly social financial services. The characteristics of the
market, risk management, products, and personnel differentiate MFIs from other credit institutions.
Table 2: Characteristics of MFIs compared to other
credit institutions and the benefits for customers
Categories
Conventional
credit institutions
Microfinance institutions
Benefits for customers
Targets
Profit only
Sustainability and social targets
- Affordable costs
- High socialization
Customers
Medium and high
income customers
from urban areas
Low income customers from rural
areas
- Better access to official financial
services
Risk
reduction
Guarantee by assets
Unsecured
- Group support
- Higher internal competitiveness
Products
Large loans
- Small loans, gradual payment,
mostly for women
- Several additional products
improve the ability of women
-
Human
resources
Highly qualified and
well trained
Basic qualifications
Good social skills
- Friendly staff - deeply comprehends
customers
Procedure
More complex
Easier
- Door-to-door services, always
available
- Close and friendly services
Approach
Transaction
office/branches
At the customers’
- Reduction of transaction costs
- Easy loan collection
Meet the demands and abilities
Payable
Additional services
Gender empowerment
Source: Compiled by authors from ADB (2013), VMFWG (2013)
26 - VIETNAM MICROFINANCE WORKING GROUP
The benefits that clients receive from microfinance services are extremely huge, both physically and
mentally, especially in social and gender empowerment. Therefore, the interest rate ceiling contributes
to increase the physical value in the short term for customers (due to lower interest paid), even though
MFIs are unable to provide long-term services continuously. Therefore, the future physical and mental
benefits of customers would be seriously affected.
(II) Customers will have to borrow from informal sources to meet their financial needs if they do not
have access to MFIs. Borrowing a loan of under 30 million VND from formal credit institutions is very
difficult because of high total transaction costs and complex procedures. Meanwhile, the average
loan amount of an MFI is 5.7 million VND (VMFWG, 2013). Thus, the customer will have to borrow from
informal sources (private lenders, pawnshops, friends, relatives ...) to meet the financial needs if they
do not have access to MFIs. In fact, although the interest rates of private lenders in Vietnam and the
world are relatively high (averaging 60-100% per year), they still exist and develop, even in crowded
urban areas where credit institutions are developing. Informal sectors have many advantages such as
accessibility without paperwork, no collateral requirements, availability when needed, and timely and
quick disbursement (ADB, 2013). These are also the characteristics that Vietnam MFIs already have.
When comparing the cost of loans between MFIs and informal sectors, transaction costs and opportunity costs are similar. But we can see a huge difference in the costs of borrowing. For example, MFIs’
lending rate is 23-30% per year and customers are able to save 30-77% per year if they borrow from
MFIs. The smaller the loans are, the larger difference in borrowing costs. If low income customers borrow
from the informal sector, they will have to address debt burdens.
Fourthly, International experiences in microfinance interest rate: Lending rates of MFIs on average range from 20-30%, depending on the country or region.
45
39
40
37
35
35
34
30
30
30
26
27
25
30
30
30
28
27
26
25
26
23 23
25
22
21
20
15
10
5
0
World
Africa
2004
2006
East Asia
Central Asia Latin America Middle East
South Asia
2011
Figure 3: Average lending rates of MFIs in the world (% per year)
Source: (Duflos, 2013)
Due to the characteristics of clients and MFIs, lending rates charged for microfinance clients around
the world have been quite high in recent years, averaging 30% in 2004 and dropping to 27% in 2011.
The South Asian countries had the lowest interest rates (averaging 28% in 2004 and 21% in 2011), while
the rates in Africa were the peak (39% in 2004 and 25% in 2011). Data showed that the lending rates
for microfinance were generally lower than the informal sector by 10-25% per month (Duflos, 2013).
Therefore, the current interest rate ceiling for formal MFIs in Vietnam is too low compared to international practices and not enough for the organization to stay alive, showing a huge difference with the
informal sectors, as discussed above.
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 27
DIFFICULTIES IN MEETING THE
DEMAND OF THE LIQUIDITY RATIO
NGUYEN DUC BINH
M7 MFI
1. Formula of the liquidity ratio
The liquidity ratio of microfinance institutions (MFIs) is regulated by Article 8 of Decree
No. 07/2009/TT-NHNN dated 17/ 04/2009.
Pursuant to this Resolution, MFIs have to keep the liquidity ratio at a stable minimum
level of 20%. This ratio is calculated as follows:
Liquidity ration =
Cash + Liquid asets
Total deposits
Cash + liquid assets: Cash, deposits at the State Bank (excluding the required reserve),
deposits at other credit institutions, Government bonds, bonds guaranteed by the
Government.
Total deposits: compulsory deposits and voluntary deposits.
2. Practices and problems faced
During the implementation process, MFIs came across problems in maintaining the
liquidity ratio at 20%, which had a negative impact on operational efficiency. To follow
the Resolution strictly, MFIs have to keep a large amount of cash as required reserve
or at a Bank, while the demand for loans by customers increases. Thus, the demand
cannot be fully met on account of the limited capital of MFIs.
28 - VIETNAM MICROFINANCE WORKING GROUP
In theory, the liquidity of a MFI at a specific time reflects the payment ability of
this institution to matured loans. The formulation illustrates the amount of cash,
bank’s deposits and liquidity bonds that
a MFI holds to arrange payment of interest on compulsory and voluntary deposits.
Compulsory and voluntary deposits differ
(maturity deposits and call deposits).
Compulsory deposits (regulated savings)
are defined and regulated by Resolutions No. 28/2005/NĐ-CP, which are savings or deposits of households, who are
clients of the MFI.
In reality, customers are required to deposit regularly by MFIs in order to create
the habit of saving. It is also extremely important to provide capital and liquidity
for MFIs.
Having awareness of this importance,
MFIs have provided strict rules to regulate withdrawals. Clients, who hold compulsory deposits at the institutions, can
withdraw only if they cease to be customers of the institutions or may partly
withdraw in the event of an emergency.
Due to these regulations, compulsory
deposits are stable and there is a steady
increase in these account balances.
On the other hand, the regulated minimum liquidity ratio of 20% is relatively
high for MFIs, while the ratio for credit institutions is only 15%. Moreover, the cash
flow of MFIs has a rapid rotation. Most of
the loans are short-term and payment is
made more than once every month. In
fact, clients of M7 are required to make
repayments and compulsory deposits
twice a month. This can guarantee MFIs
high liquidity.
3. Recommendations.
In order to implement the regulations of
the State Bank as well as ensure the sustainability of MFIs and help the poor to
access loans which provide sufficient
capital, we recommend that the State
Bank to reconsider the liquidity ratio.
Firstly, by removing compulsory deposits
in the denominator of the formula and
secondly, reducing the liquidity ratio
threshold from 20% to 10%.
Studies show that using cash to ensure
the payment of compulsory deposits is
not reasonable. According to the practice of M7, the mobilization of capital is
mostly from borrowing and mobilizing
deposits. Compulsory deposits account
for over 20% of total deposits. Statistics indicate that to maintain the liquidity ratio
of 20% M7 has to deposit 9 billion VND at
commercial banks. Without compulsory
deposits, M7 has to deposit 7 billion VND
and the rest can be lent to 300 members
for developing business.
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 29
BENCHMARK OF MFIS VIETNAM
IN 2012
A ge
I n s t it u t io n a l c h a r a c t e r is t ic s
Number of institutions
9
11
S c a le b y Gr o s s L o a n P o r f o lio
Ge o g r a phic a l S c a le
Trend
Mature
(Across
(> 8)
Group)
14
District
Province
National
24
8
2
Trend
(Across
Group)
Small
(2m)
Medium
(2-8m)
24
6
Trend
Large (>8m) (Across
Group)
4
238,511 944,211 1,679,822
668,801 1,374,326 2,889,778,926
490,376 2,531,348 183,408,866
Total Asset
305,899 1,193,867 2,070,737
718,451 2,023,839 3,281,441,913
508,376 2,895,244 376,867,953
Age
1
5
13
6
6
16
5
8
14
Staff
12
33
43
21
47
5,008
20
63
1,185
84%
94%
90%
92%
85%
64%
92%
87%
64%
4
15
28
11
32
1,375
10
33
367
Number of active
borrowers
1,463
4,362
9,196
3,287
8,309
3,575,437
2,839
13,002
148,425
Percentage of
Female borrowers
98%
96%
100%
99%
99%
51%
99%
100%
75%
Average Loan Balance
174
157
246
160
203
3,445
166
186
533
Average Loan balance/
GNI per capita
13%
12%
18%
12%
15%
256%
12%
14%
40%
Number of depositors
1,463
5,478
10,430
5,004
10,408
2,126,724
4,708
15,318
151,571
21
34
41
34
23
46
29
35
114
Average Saving balance/
GNI per capita
1.5%
2.5%
3.1%
2.5%
1.7%
3.4%
2.2%
2.6%
8.5%
Borrowers per loan
officer
351
282
352
300
352
1,601
282
462
567
69,973
62,947
93,959
68,358
71,226
1,534,949
57,033
75,647
443,527
Loan officer
O ut r e a c h
Young
(5 - 8)
Gross Loan Portfolio
% Female Staff
Average Saving
balance
F in a n c ia l a n d O p e r a t io n a l P e r f o r m a n c e
New
(0 - 4)
Portfolio per loan officer
Cost per borrower
29
24
15
22
26
231
24
16
29
Operating Expense
Ratio
14%
15%
9%
14%
13%
5%
14%
12%
8%
Total Liabilities/ equity
1.80
1.52
2.02
1.78
1.01
4.50
1.52
1.16
3.38
Loan Portfolio/ Total
Asset
89%
94%
95%
94%
94%
69%
95%
89%
87%
Yield on GLP
22%
24%
22%
23%
22%
18%
23%
22%
25%
Funding expense ratio
1%
3%
4%
2%
1%
13%
2%
1%
6%
SOSS
141%
134%
166%
146%
157%
94%
141%
159%
129%
ROA
7%
4%
9%
7%
6%
0%
7%
7%
4%
Note:
1. All figures are in USD and are calculated medians.
2. Exchange rate on 31st December, 2012: USD 1=20,833 VND
3. The definitions of Small, Medium and Large MFIs are based on the Microfinance Information Exchange classifications for
Asia (Parcific)
4. GNI/capita is USD 1345.85 (Source: MIX market, 2013)
5. We apply 3 ways to classify Vietnamese MFIs, based on age, geographical coverage and GLP. Generally speaking, the
more mature an MFI is, the bigger it is in term of asset, gross loan portfolio, staff and its number of borrowers. The same positive correlations are also manifested in groups of geographical coverage and asset size. However, some indicators sending
mixing message. Observable disrupted trend is largely dependent on various factors, not only on listed difference (age,
geographical coverage, and asset size), but on both external economics condition in different area, and internal model
and purpose of each MFIs.
30 - VIETNAM MICROFINANCE WORKING GROUP
Age
New (0-4 years)
Young (5-8 years)
Mature (>8 years)
Golden Hand Program
(BTV); Economic Development Fund for Poor
Households (VietED); Soc
Trang Fund for Poor
Women; Thanh Hoa Fund
for Poor Women; Women
Development Fund in
Lao Cai; Women Development Fund in Quang
Binh; An Phu Development Fund; Small Credit
Fund For Housing Refurbishment in Da Nang;
Standard Training Unit
(STU)
Anh Chi Em (ACE); Microfinance
Program- Women's Union, Ben
Tre Province (BTWU); Credit Project- Women Union Soc Son Distric (PNN Soc Son); Dong Trieu
Women Development Fund (M7
Dong Trieu); Mai Son Women
Development Fund (M7 Mai
Son); Uong Bi Women Development Fund (M7 Uong Bi); Center
for Women and Community Development (CWCD); Microfinance Fund for Community
Development (MFCDI); The
Center of Small Enterprises Development Assistance (SEDA);
Ha Tinh Women Development
Fund (Wu Ha Tinh); Microfinance
Unit- World Vision Vietnam (WV
Vietnam)
Credit & Savings project-Women Union,
Phu Yen District, Son La; Ninh Phuoc
Women Development Fund (M7 Ninh
Phuoc); Dien Bien Phu City Women Development Fund (M7 DBP City); Dien
Bien District Women Development Fund
(M7DB District); Capital Aid Fund for Poor
Employees Ba Ria- Vung Tau (CAFPE);
Pro-Poor Center Can Loc, Ha Tinh (PPC);
Credit & Savings Project- Livelihood Program- ChildFund Vietnam; Tien Giang
Capital Aid Fund for Women's Economic
Development Fund (MOM); Women
Economic Development Fund- Ho Chi
Minh City; The Dariu Foundation (DARIU);
Capital Aid Fund for Employment of the
Poor (CEP); Tinh Thuong One Member
Limited Liability Microfinance Institution
(TYM); Vietnam Bank for Social Policies
(VBSP); Central Pepple's Credit Fund
(CCF)
Geography
District
Province
National
Golden Hand Program (BTV); Economic Development Fund for Poor Households (VietED); Soc Trang Fund for Poor Women;
Women Development Fund, Quang Binh;
An Phu Development Fund; Small Credit
Fund For Housing Refurbishment, Da Nang;
Standard Training Unit (STU); Thanh Hoa
Fund for Poor Women; Anh Chi Em (ACE);
Microfinance Program- Women's Union, Ben
Tre Province (BTWU); Credit Project- Women
Union Soc Son Distric (PNN Soc Son); Dong
Trieu Women Development Fund (M7 Dong
Trieu); Mai Son Women Development Fund
(M7 Mai Son); Uong Bi Women Development Fund (M7 Uong Bi); Center for Women
and Community Development (CWCD); Ha
Tinh Women Development Fund (Wu Ha
Tinh); Credit & Savings project-Women
Union, Phu Yen District, Son La; Ninh Phuoc
Women Development Fund (M7 Ninh
Phuoc); Dien Bien Phu City Women Development Fund (M7 DBP City); Dien Bien District Women Development Fund (M7DB
District); Capital Aid Fund for Poor Employees Ba Ria- Vung Tau (CAFPE); Pro-Poor
Center Can Loc, Ha Tinh (PPC); Tien Giang
Capital Aid Fund for Women's Economic
Development Fund (MOM); Women Economic Development Fund- Ho Chi Minh City
Women Development Fund, Lao
Cai; Microfinance Fund for Community Development (MFCDI);
The Center of Small Enterprises
Development Assistance (SEDA);
Microfinance Unit- World Vision
Vietnam (WV Vietnam); Credit &
Savings Project- Livelihood Program- ChildFund Vietnam; The
Dariu Foundation (DARIU); Capital Aid Fund for Employment of
the Poor (CEP); Tinh Thuong One
Member Limited Liability Microfinance Institution (TYM);
Vietnam Bank for Social Policies (VBSP);
Central
Pepple's
Credit Fund (CCF)
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 31
Size (based on Gross Loan Portfolio)
Small (<2m USD)
Medium (2m-8m USD)
Large (>8m USD)
Golden Hand Program (BTV);
Economic Development Fund
for Poor Households (VietED );
Soc Trang Fund for Poor Women;
Women Development Fund,
Quang Binh; An Phu Development Fund; Small Credit Fund For
Housing Refurbishment, Da
Nang; Standard Training Unit
(STU); Women Development
Fund, Lao Cai; Anh Chi Em
(ACE); Microfinance ProgramWomen's Union, Ben Tre Province
(BTWU); Credit Project- Women
Union Soc Son Distric (PNN Soc
Son); Dong Trieu Women Development Fund (M7 Dong Trieu);
Mai Son Women Development
Fund (M7 Mai Son); Uong Bi
Women Development Fund (M7
Uong Bi); Center for Women and
Community
Development
(CWCD); Microfinance Fund for
Community
Development
(MFCDI); The Center of Small Enterprises Development Assistance (SEDA); Credit & Savings
project-Women Union, Phu Yen
District, Son La; Ninh Phuoc
Women Development Fund (M7
Ninh Phuoc); Dien Bien Phu City
Women Development Fund (M7
DBP City); Dien Bien District
Women Development Fund
(M7DB District); Capital Aid Fund
for Poor Employees Ba Ria- Vung
Tau (CAFPE); Pro-Poor Center
Can Loc, Ha Tinh (PPC); Credit &
Savings Project- Livelihood Program- ChildFund Vietnam
Thanh Hoa Fund for Poor
Women; Ha Tinh Women Development Fund (Wu Ha Tinh); Microfinance Unit- World Vision
Vietnam (WV Vietnam); Tien
Giang Capital Aid Fund for
Women's Economic Development Fund (MOM); Women Economic Development Fund- Ho
Chi Minh City; The Dariu Foundation (DARIU)
Capital Aid Fund for Employment of the Poor (CEP); Tinh
Thuong One Member Limited Liability Microfinance Institution
(TYM); Vietnam Bank for Social
Policies (VBSP); Central Pepple's
Credit Fund (CCF)
32 - VIETNAM MICROFINANCE WORKING GROUP
CROSS-MARKET BENCHMARKING AND
ANALYSIS VIETNAM MICROFINANCE
COMPARED TO EAST ASIA AND THE
PACIFIC PEERS.
LE LINH CHI
VMFWG VOLUNTEER
Vietnam belongs to East Asia and the Pacific (EAP) region, which includes approximately seven countries (Cambodia, China, East Timor, Indonesia, Laos, Philippines,
and Vietnam). This analysis will not delve into detailed analysis of EAP microfinance,
which stakeholders can find on MIX report archive, but to sketch out an overall view
of development of Vietnam Microfinance sector among other peer countries on several main indicators.
1. Institutional Characteristics
800
60,000,000
700
50,000,000
600
40,000,000
500
400
30,000,000
300
Personnel (median)
Total Assets, GLP, Deposit blanace (Median In USD)
Total Assets, Gross Loan Portfolio, and Deposit Balance Of Coutries in EAP
20,000,000
200
10,000,000
100
0
Vietnam
China, People’s
Republic of
Assets (median)
Laos
East Timor
Gross Loan Portfolio (median)
Indonesia
Philippines
Deposits (median)
Cambodia
Region
0
Personnel(median)
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 33
Regarding of median value of Total Assets, Gross Loan Portfolio and Deposit, Vietnamese MFIs stays at
the bottom of the region ranking. Only 4 of 34 MFIs of Vietnam are classified as “large credit institution”
with total asset more than USD 8 millions, the rests are ranging from approximately USD 80,000 to more
than USD 3 millions.
Relatively insignificant Loan Portfolio and Deposit value of Vietnam MFIs are derived from two main
factors: smaller number of active clients (including both borrowers and depositors clientele) and smaller
average loan/deposit balance per client. With comparatively smaller loan sizes and deposit balance
relative to national income per capita, Vietnam MFIs in general are more focused on poor household
than peer institution in the region.
Operational scale of Vietnam MFIs is also smaller in the region judging by the number of staff, which is
especially heavily composed by female (89% vs. 48% of the region median institution) due to the fact
that a large portion of Vietnam MFIs are directly controlled by Women Unions.
2. Funding Structure
Funding Structure
100%
90%
80%
70%
60%
50%
40%
30%
30%
10%
0%
Philippines
Indonesia
East Timor
Total Ewuity
Vietnam
Total Deposit
China, People’s
Republic of
Cambodia
Laos
Region
Total Borrowings and other liability
MFIs have generally funded by three main categories: Deposit (grows through outreach to clients),
borrowings and other liability (grows through outreach to investors), and equity (though contact with
investors and retained earnings). As observed on the chart, Vietnam MFIs financing structure is composed by moderate equity, slight deposit and heavy borrowings and other liability, compared to their
regional peers.
This visualization demonstrates that outreach to client through deposit channel of Vietnam MFIs is still
limited compared to that of the region; On the other hand, Vietnam MFIs received heavier borrowings,
including both sponsored and subsidized loan, and other market-interest-rate loan, from foreign banks
or various local or foreign development projects and programs.
3. Productivity and Efficiency
Country
Operating expense/ loan
portfolio (median)
Cost per borrower
(median)
Borrowers per loan officer
(median)
Vietnam
12.10%
19
340
China
8.80%
85
148
Indonesia
89.03%
89
254
Laos
21.92%
93
112
East Timor
23.91%
94
157
Philippines
22.01%
107
300
Cambodia
14.18%
127
146
34 - VIETNAM MICROFINANCE WORKING GROUP
In previous year, Vietnam MFIs was reported to be outstandingly efficient and productive compared to other regional peers. This fact was explained by direct support by mean of staff (voluntary or part-time officer to monitor loan) and subsidize from controlling Women Union.
This year data still claims Vietnam MFIs’ loan officers are the most productive compared to
other EAP colleagues with median number of borrowers per loan officer (10% more than the
second countries), and maximum value of the indicator amounts to 1300. On the other hand,
contradicting to previous explanation that cost-efficiency of Vietnam MFIs was thanked to
Women Union’s support of staffs, this year average salary of Vietnam MFIs has median of USD
185 per month, equal to 160% GNI per, showing no proof for previous explanation. Instead, relatively smaller scale and scope of operation of Vietnam MFIs should play a part in explaining
high productivity.
High productivity of Vietnam MFIs’ loan officer results in remarkable low cost per borrowers
(just a fraction of that of other regional peers), and overall operation cost of MFIs.
4. Profitability and Sustainability
Profitability and Sustainabitity of Vietnam MFLs, and of others in the region 2010 - 2012
8.00%
700,00%
7.00%
600,00%
OSS range
5.00%
400,00%
4.00%
300,00%
3.00%
200,00%
2.00%
100,00%
Retunrn on Asset (Median)
6.00%
500,00%
1.00%
0,00%
0.00%
2010 2011 2012
2010 2011 2012
Indonesia
China
2010 2011 2012
Range of OSS
Philippines
2010 2011 2012
2010 2011 2012
East Timor
Cambodia
OSS Median
2010 2011 2012
Laos
2010 2011 2012
Vietnam
Return on Asset (Median)
Even though generally MFIs in Vietnam have lower yield on gross loan portfolio (nominal) than
their regional peer institutions, thank to cost structure (high productivity) and favorable funding
structure (a large proportion of sponsored and subsidized loan), Micro Finance sector of Vietnam stands out as one of the most profitable and sustainable in the region.
Certain level of diversification of OSS among Vietnam MFIs is presented, but the heuristic trend
observable on the chart is a stable improvement of Vietnam MFIs’ capacity to stay profitable
and self-sustaining.
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 35
NEWS
LOCAL NEWS
1. Bao Viet Hanoi and M7-MFI officially
cooperate to provide loan insurance
products
In order to implement the mission and the vision of the organization, M7-MFI has been
steady steps to become the institution providing microfinance services efficiently and
bringing to customers the best products as
well as ensuring the financial sustainability of
the organization. On 06/28/2013, M7-MFI and
Bao Viet Hanoi has officially signed a cooperation agreement to provide loan insurance
products.
As the cooperation with Bao Viet Hanoi - a
member of Bao Viet Insurance Corporations
which is one of the leaders providing insurance products, finance services for institutions and individuals in Vietnam, M7 -MFI has
become an official partner of Bao Viet Hanoi
besides some potential customers such as:
Hong Kong Shanghai Bank (HSBC), Vietnam
Technological and Commercial Bank (Techcombank) and many other well-known organizations. This asserts reputation and
position of M7-MFI in the financial sector and
the customer services in order to become the
top microfinance institution in Vietnam.
2. The Government allows CFRC to
continue piloting the project M7MPA
To overcome the difficulties of the legal
framework, in 3/2013 CFRC sent an official
letter to the State Bank of Vietnam, Ministry
of Finance and the Government Office for
36 - VIETNAM MICROFINANCE WORKING GROUP
permission to continue implementing birth
mutual protection association (mutual protection association - MPA) cooperated with
organizations and micro-finance programs
for low-income people. Vietnam Study Encouragement Association, governing the
CFRC, also sent to the Government the project of birth mutual protection of CFRC.
After presenting to competent authorities, CFRC has received very positive supports. In detail, Deputy Governor of the State
Bank Dang Thanh Binh has allowed MFIs
M7MFI fully implemented "collection of payments for their clients" for the MPA in his documented reply to CFRC and Ministry of
Finance, Deputy Minister Tran Van Ha mentioned in an official letter to the Government
that the project "The protection of mutual security" should be encouraged by the CFRC.
Therefore, the Government allowed CFRC to
continue carrying out project with the guidance of the Ministry of Finance as well as assigned the Ministry of Finance to be
responsible for issuing a microfinance insurance policy basing on piloting results of the
project, to have a formal microfinance policy for Vietnam in 2015. The remaining problem depends on the awareness and
commitment to pursue social missions of microfinance institutions whether they follow
CFRC or another path.
3. Vietnam Cooperatives Bank acquired
the Business License
On June 4, 2013, the Governor of the State
Bank of Vietnam signed the license number
166/GP-NHNN to establish the Vietnam Cooperative Bank as the request of the Central
People’s Credit Fund. This license has come
into effect as the signed date.
According to the license, the Vietnam
Cooperative Bank is headquartered at 15T
Nguyen Thi Dinh Street, Trung Hoa Ward, Cau
Giay District; has chartered capital of 3,000
billion VND, including supported capital from
the State’s budget, contributed capital from
People’s Credit Funds and other legal entities. The validity of the license is 99 years. The
Vietnam Cooperative Bank operates with
the geographical of nationwide, and it is allowed to establish network units domestically
and internationally when receiving acceptance from the State Bank of Vietnam. The
Vietnam Cooperative Bank must follow all
regulations and laws of Vietnam.
GLOBAL NEWS
1. Partnerships against Poverty: Government, Business, Finance and Civil Society
The conference brings an opportunity to the
participants to delve into the most advanced and successful examples of publicprivate
partnerships
(PPP)
in
the
microfinance sector. Stakeholders work altogether to enlarge the scale of these programs, involved parties include: government
regulatory agencies, microfinance practitioners, product design experts, providers of
support services, and heads of multinational
banking institutions. With many activities, it
will meet the stakeholders’ demand of a
deep dialogue around challenges and opportunities, and working together on our mission to completely eliminate poverty in the
near future.
For more information
http://partnershipsagainstpoverty.org/
2. 2013 SEEP Annual Conference
http://www.vision6.com.au/ch/14090/2ddv6
qg/1846324/2b5cd7m0c-1.html
The 2013 SEEP Annual Conference “Partnerships and Cross Sector Approaches” will be
held as a fundament to promote learning
and potential opportunities for collaboration.
Economic development practitioners, regardless of regions and organizations, are
seeking ways to break through interventional
boundaries and the traditional mindsets of
roles. Sustainable changes can be achieved
by accepting approaches that focus on optimizing outcomes across sectors and
throughout the entire system.
For more information
http://www.seepnetwork.org/annual-conference-pages-20008.php
ence, networks and exchange techniques
for keeping going on implementation efficient and sustainable financial services in the
region.
For more information:
h t t p : / / w w w . m i c r o fi n a n c e pasifika.org/pmw2013.html
4. 2013 Citi-FT Financial Education Conference
The 2013 Citi-FT Financial Education Conference, which is organized by Citi Foundation,
the Pearson Foundation and the Financial
Times, marks its 10th anniversary as the leading annual global forum on financial literacy
and capability.
This year Conference will:
• Introduce technology and product innovations enhancing the financial capability for low-income groups, including youth,
migrant workers, women, farmers, workers
and the elderly;
• Find out methods for assessing the effects
of financial education programmes;
• Examine potential model, particularly
focus on more sustainable, cost-effective
approaches.
For more information:
https://www.etouches.com/ehome/fined20
13/home/?&
5. The Luxembourg Microfinance and
DevelopmentFund
The Luxembourg Microfinance and Development Fund (LMDF) is an open-ended collective investment scheme (SICAV) supporting
financial institutions, which aim to reduce
poverty, in developing countries in Africa,
3. 2013 Pacific Microfinance Week
http://www.vision6.com.au/ch/14090/2ddv6
qg/1846329/2b5cdp5wh-1.html
2013 Pacific Microfinance Week is the initiative of Pacific Microfinance Network which
includes a chain of events in a week as workshops, field trips and official conferences. The
most comprehensive fundament will be provided to all parties involving microfinance
sector in the Pacific in order to share experi-
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 37
Asia and Latin America.
LMDF concerntrates on medium-sized institutions which hold the 2nd and the 3rd place
in the sector. To receive funds from LMDF, microfinance institutions shall fullfill the following
requirements:
- Having being active for at least 3 years;
- Having AT LEAST 1,000 micro-entrepreneurs as clients;
- Having investment portfolio : 0.5 million
Euros ;
- Generating profit or close to making profit.
- Portfolio at risk (PAR 30 days) does not exceed 10% of gross loan portfolio.
- All accounts are audited.
- Having good social and financial position
(not required but as an advantage)
LMDF pays much attention to the following
aspects :
- Institutional structure: history, management, human resources;
- Operational profile: types of products,
methods, portfolio management;
- Social profile: social mission and vision, targets and the appropriateness of products
provided, geographical scope.
- Financial performance: coverage costs,
resources structure, level of dependence
on sponsors.
- Context: economy, society, politics and
market.
- Value added society and economy expected as a result of LMDF financing.
Contact: Alexandre Brajoud
Investment Officer for Asia and Africa
[email protected]
+352 45 68 68 34
6. Executive Master in Development Policies and Practices (DPP) 2013
The DPP lasts for 2 full-time months and 4
part-time months at place of work and is offered to development practitioners in Central
and Southeast Asia, Africa and Latin Amer-
38 - VIETNAM MICROFINANCE WORKING GROUP
ica. It is also open to Swiss and other ‘Northern’ countries candidates working in international cooperation, whether they are based
in the field or at the headquarters of their organisation.
Module 1: July – August 2014 in Hanoi (5 fulltime weeks)
Studying on public policies and development factors, analytical tools and methodology, strategic management of development
actions
Module 2: September – December 2014 (4
part-time months at place of work)
Job-related professional thesis
Module 3: January – February 2015 in
Geneva (3 full-time weeks)
Strengthening and reflecting on communication, negotiation, mediation, teamwork
and intercultural skills; Delivering professionally these findings and interaction within thematic groups, with professors and experts;
Analyzing the policies and practices of
Geveva-based organizations and public administration.
Scholarships are available for candidates
coming from the Mekong Region (Vietnam,
Cambodia, Laos and Myanmar) and Switzeland.
For more information, please see at link : :
http://dpp.graduateinstitute.ch/home.html
POLICY NEWS
1. Consultation on “The proposed regulatory framework for microinsurance in
Vietnam”
On September 19th, 2013, Asian Development Bank (ADB) coordinated with State
Bank of Vietnam to organized the consultation on “Propose the legal framework for
micro-insurance in Vietnam” in Hanoi. The
delegates listened to presentations related to
ADB Microfinance Development, including:
Micro-insurance Development Support,
Good Practice of Micro-insurance in several
countries, ADB’s recommendations on legal
framework for micro-insurance in Vietnam
and the open discussion for micro-insurance
and legal framework.
2. New Draft Circular on the rules of prudential limits and rates in microfinance
activities
On 17/4/2009, the Governor of the State
Bank of Vietnam issued Circular No.
07/2009/TT-NHNN (Circular No. 07) rules
about prudential ratio in the operation of
small-scale financial institutions. However,
some provisions of the Circular No. 07 were
no longer consistent with the practical operation of microfinance institutions. In July 2013,
the State Bank surveyed some MFIs on the
Draft regulations of prudential limits and ratios for the operation of microfinance institutions to facilitate the development of
microfinance activities in Vietnam, especially
for licensed micro-finance institutions.
3. Workshop "Establishing sustainable interest rates and risk management in microfinance institutions."
In the morning of May 16th, Hanoi, the International Finance Corporation (IFC) collaborated with Tinh Thuong one member limited
liability microfinance institution (TYM - the
Vietnam Women's Union) and the Vietnam
Microfinance Working Group (VMFWG), organized a workshop on "Establishing an sustainable interest rate and risk management
in microfinance institutions after sending the
official correspondence to the State Bank of
Vietnam, Banking Supervisory agency and
Monetary policies Department and proposing the applicable interest rate for the objective of their sustainability in Vietnam.
The principal goal is to raise the awareness of the policy makers and organizations
operating in the microfinance sector about
the importance of interest rates and pricing
policy for the sustainability of MFIs, as well as
risk management in microfinance institutions
in order to prepare for the transition and business development of organization.
develop favorable policies and regulations
for the development of the microfinance
sector in Vietnam, as well as facilitate MFIs to
build suitable price , enhance risk asset management and practice microfinance responsibly.
4. Official Dispatch of The State Bank of
Vietnam about lending interest rate and
the calculating method of interest for Microfinance Institutions
VMFWG is pleased to share with you the content of the SBV’s original response about interest rate for Microfinance operation in
Vietnam (Detail in Official Dispatch of The
State Bank of Vietnam responding for Official
Letter No. 0402/CV-MFWG sent to the SBV in
February 4, 2013, attached),in brief as follows:
- Lending interest rate
For loans as the particularities of Microfinance Institutions that do not meet enough
requirements/conditions about financial
transparency and visibility under the provisions of Circular No. 10/2013/TT-NHNN, Microfinance Institutions implement lending
interest rate mechanism basing on agreement in accordance with Section 3, Article
4, Circular No. 10/2013/TT-NHNN and Circular
No. 12/2010/TT-NHNN in April 14, 2010 of The
Governor of The State Bank of Vietnam.
- The calculating method of interest rate on
loans
Microfinance Institutions implement interest
in accordance with the regulations of the
State Bank of Vietnam and Credit Institutions
about calculating and revenue accounting
, interest payment method issued in accompanying with Decision No. 652/2001/QĐNHNN in May 17, 2001 of The Governor of The
State Bank of Vietnam.
The workshop was held successfully with the
participation of 75 delegates including representatives from relevant ministries, national
and international experts, researchers, policymakers and representatives of microfinance institutions of Vietnam. It is highly
appreciated because of the content and
methods of discussion whichemphasized the
significance of sustainable interest rates and
risk management in microfinance activities,
then contributes to help the State agencies
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 39
NEW PUBLICATIONS OF
VMFWG
sample of three MFIs operating in Long An,
Tien Giang, and Soc Trang provinces in the
Mekong Delta in Vietnam.
1. Microfinance Institutions in Vietnam:
The publication is accomplished by VMFWG
and the cooperation of the research group
including: Dr. Nguyen Huu Thien, Mr. Duong
Phuoc Hoang Lan and MSc, Nguyen Thi
Tuyet Mai with financial support of Citi Foundation – Citi Bank, ADA Organization and
Cordaid Organization.
In 2012, VMFWG published the first “Microfinance Institutions in Vietnam” and received
many positive feedbacks from investors as
well as Government agencies. In order to
keep moving on promoting the transparency
of Micro-finance sector in Vietnam, VMFWG
has been continuously co-operating with The
Mix Market Organization, along with financial
support from ADA Organization and Cordaid
Organization to collect data information of
34 institutions and programs being active in
Vietnam in December 31, 2013 and complete the second “Microfinance Institutions in
Vietnam”.
The publication of these profiles is an important achievement of the VMFWG and aligns
with our goals to enhance information sharing and create opportunities for collaboration and cooperation between microfinance
institutions in Vietnam. The document provides an overview of the number of operating MFIs and their location, the size and area
of operations, outstanding loans, productivity, quality, sustainability and the vision and
mission of MFIs in Vietnam. At the same time,
it allows MFIs to compare and assess the operational status of their organization compared to other organizations in Vietnam and
Asia.
2. The Research Report on “Climate
Change impacts on microfinance: Case
study The Mekong delta in Vietnam” :
To raise the awareness of different microfinance stakeholders on the impacts of climate change to MFIs and livelihoods of their
clients, the Vietnam Microfinance Working
Group has commissioned this rapid qualitative study in the Mekong Delta to provide insights into the issue. The study looked at a
40 - VIETNAM MICROFINANCE WORKING GROUP
3. Complete and publish research report
on "The sustainable level of MFIs in Vietnam: Current situation and some recommendations":
Studying systematically the basic problems
of microfinance institutions’ sustainability, the
international experiences, and the real sustainable status of Vietnam microfinance institutions and recommendations. This
research is completed by consultant group
including Prof. PhD Nguyen Kim Anh, PhD Le
Thanh Tam, MA. Quach Tuong Vy, MA.
Nguyen Hong Hanh, BA. Nguyen Hai Duong,
and MA. Nguyen Thi Tuyet Mai, with financial
support of Citi Foundation-Citibank, ADA organization and Cordaid organization.
BUILDING A SUSTAINABLE
FUNDRAISING: THE ROLE OF VMFWG
STEFANO BATTAGGIA
ADA VOLUNTEER AT VMFWG
Fundraising is the process of soliciting and gathering contributions as money or in kind (products or services), by requesting donations from individuals, businesses, charitable foundations,
or governmental agencies. Some examples of grants include student scholarships, merit
awards, humanitarian or medical concerns, disaster relief, human rights, research, and other
social issues.
VMFWG is actively pursuing the goal of maximizing the inflow of resources in the Vietnamese
microfinance market by monitoring the calls for proposals of agencies from all over the world.
We believe that a close cooperation with our members can help in winning the commitment
of international agencies. We therefore call for a united effort in monitoring the ongoing and
future projects in Vietnam, employing all members' connections.
Below is a list of international agencies and NGOs who actively support projects in Vietnam.
Please note: in some sites there is no specific page on grants, as they are distributed according to different action fields, so please search the entire site writing 'grant Vietnam' or the like
in the search box.
Country
Austria
Non-goverGoverment
ment OrganiOrganization
zation (NGO)
ADA
http://www.entwicklung.at/funding/en/
Jugend Eine
Welt
Austria
WEB
http://www.jugendeinewelt.at/
Australia
AUSAID
http://www.ausaid.gov.au/business/Pages/default.aspx
Belgium
BTC
http://www.btcctb.org/en/tenders?country=89&type=All
DGDC
http://diplomatie.belgium.be/en/policy/development_cooperation/grants/
Brazil
ABC
http://www.abc.gov.br/projetos/pesquisa?intIdTipCooperacao=1&intIdPais=330
Canada
CIDA
www.cida.gc.ca
Canada
HOPE International
http://www.hope-international.com/index.php
Canada
Street Kids International
http://www.streetkids.org/
Canada
World Accord
http://www.worldaccord.org/
Chile
AGCI
www.agci.cl/
Denmark
DANIDA
http://um.dk/en/danida-en/
European
Union
Europaid
Finland
FINIDA
http://formin.finland.fi/public/default.aspx?nodeid=15316&contentlan=2&culture=en-US
France
AFD
http://www.afd.fr/lang/en/home/pays/asie/geo-asie/afd-vietnam/strategie-vietnam
Germany
GIZ
http://www.giz.de/
Ireland
Irish Aid
http://www.irishaid.gov.ie/grants.html
Israel
MASHAV
mashav.mfa.gov.il
Italy
Cooperazione
Italiana
http://www.cooperazioneallosviluppo.esteri.it/pdgcs/inglese/intro.html
http://ec.europa.eu/europeaid/work/funding/index_en.htm
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 41
Country
Goverment
Organization
Non-goverment
Organization (NGO)
WEB
Japan
JICA
http://www.jica.go.jp/vietnam/english/
Korea S.
KOICA
http://www.koica.go.kr/english/board/new/index.html
Liechtenstein
LED
http://www.led.li/en/home.html
Luxembourg
LUXDEV
luxdev.lu/en
Netherlands
Dutch Aid
www.dutchaid.net
Centre for Safety and Dev.
Netherlands
http://www.centreforsafety.org/
Netherlands
Cordaid
http://www.cordaid.org/en/
Netherlands
SNV World
http://www.snvworld.org/
New Zealand
NZAid
http://www.aid.govt.nz/funding-and-contracts
Norway
NORAD
http://www.norad.no/en/front-page
Poland
Polish Aid
www.¬polishaid.¬gov.¬pl
Portugal
IPAD
ns1.¬ipad.¬mne.¬gov.¬pt
Saudi Arabia
SFD
http://www.sfd.gov.sa/
Slovakia
Slovak Aid
http://www.slovakaid.sk/
Spain
AECID
http://www.aecid.es/en/
Sweden
SIDA
http://www.sida.se/english/
Switzerland
SDC
http://www.sdc.admin.ch/
Switzerland
Agha Khan
Development Network
http://www.akdn.org/akf_grantees.asp
Switzerland
International Red Cross
www.icrc.org
Switzerland
Medecins sans Frontieres
www.msf.org
Taiwan
ICDF
http://www.icdf.org.tw
UK
DFID
https://www.gov.uk/vietnam-business-challenge-fund
UK
Christian Aid
www.christianaid.org.uk
UK
Helpage
International
http://www.helpage.org/
UK
Oxfam
http://www.oxfam.org/
USA
USA
USA
USAID
http://www.usaid.gov/work-usaid/get-grant-or-contract
Adventist Dev. and Relief
Agency
Business Council for Peace
http://www.adra.org/site/PageServer
http://www.bpeace.org/
USA
CARE
http://www.care.org/
USA
Five Talents
http://www.fivetalents.org/
USA
Giving Children Hope
http://gchope.org/
USA
Mennonite
Central Committee
http://www.mcc.org/
USA
Save the Children
www.savethechildren.org
Trickle Up
www.trickleup.org
Vietnam
International
Development Ent.
http://ide-vietnam.org/default.asp
Vietnam
World Vision
International
http://www.worldvision.org.vn/worldvision/index.php
42 - VIETNAM MICROFINANCE WORKING GROUP
2013 VMFWG
MEMBER REGISTRATION
In order to encourage policy dialogue between the relevant organizations to facilitate
the development of a favorable environment for microfinance operations, and to
promote sustainable microfinance by disseminating information, sharing experiences
and achieving consensus on the important
issues of Microfinance activities in Vietnam,
VMFWG Board Members announces 2013
membership fee as below:
I. Objectives
• Enhanced the commitment of VMFWG
members
• Increase operational sustainability of
VMFWG
• Build trust and make commitment of
VMFWG to donors.
II. Criteria
1. Full member (FM)
• Member code: FM2013_”No.”
• Eligibility criteria:
- The credit institutions are primarily performed some banking activities in order to
meet the needs of individuals, low income
households and Enterprise (according to
the Law on deposit insurance)
- Whose core activity is microfinance defined to include the provision of financial
services (credit, savings, insurance, and
money transfers) in a sustainable manner
tailored to the needs of poor households;
- Whose vision and mission statements include a commitment to server an ever increasing number of poor (grow and
outreach) in a sustainable and efficient
manner;
- Willing to sign the VAMFI Code of Ethics,
and contribute membership fees and
time to join efforts;
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 43
- Willing to be independently audited and
report data to VAMFI database.
- Contribute ideas and suggestions for
VMFWG meeting topics
• Benefits:
- Participate in monthly microfinance
newsletter development and bulletin by
providing data and articles
- Have chance to connect, introduce to
the donors, investors;
- Join in research and survey implemented
by VMFWG
- Receive 01 Bulletin per year; annual report, Outreach map and Industry Profile;
access to technical literature on website
and library;
- Notice by official correspondences about
any changes in the organization (name,
structure, title, etc...)
- Eligible to vote at GA and nominate candidates for Council
- Invited to all meetings, events and activities of VAMFI (training for a discounted
fee);
- Receive feedback on performance and
benchmarking reports, access to MIX, eligible for Performance Award and VAMFI
Certification when established
- Pay the membership fees in time
• Fee per year: 6,000,000 VND (six million
dongs)
2. Observer member (OM)
• Member code: OM2013_”No.”
• Eligibility criteria:
-
Institutions/organizations/programs registered in Vietnam that provide microfinance services
-
Whose core activity, vision, or mission
statement differ from microfinance as defined by VAMFI
-
Willing to be independently audited and
report data to VAMFI database.
- BDS/CB provider Directory
- Support to access funds for capital and
TA/CB
- Annual research report, Social performance, Social audit.
• Responsible:
44 - VIETNAM MICROFINANCE WORKING GROUP
- Supportive of microfinance as defined by
VAMFI and wishing to contribute to the
development of sustainable microfinance
in Vietnam
• Benefits:
- Have chance to connect, introduce to
the donors, investors;
- Receive 01 Bulletin per year; annual report, Outreach map and Industry Profile;
access to technical literature on website
and library;
- Invited to GA, but no vote
- Invited meetings, events and activities
(training for fees)
- Training Center-Support organization
• Benefits:
-
Have chance to connect, introduce to
the donors, investors;
-
Receive 01 Bulletin per year; annual report, Outreach map and Industry Profile;
access to technical literature on website
and library;
-
Invited to GA, but no vote
-
Invited meetings, events and activities
(training for fees)
-
Access to publications, e.g BDS provider
Directory, Training needs a s s e s s m e n t
etc…at discount rates
- Support to complete reporting to database and feedback on performance
- Support to adopt Code of Ethics
• Responsible
-
Contribute ideas and suggestions for
VMFWG meeting topics
-
Participate in monthly microfinance
newsletter development and bulletin by
providing data and articles
-
Join in research and survey implemented
by VMFWG
-
Notice by official correspondences about
any changes in the organization (name,
structure, title, etc...)
-
• Responsible
- Contribute ideas and suggestions for
VMFWG meeting topics
- Participate in monthly microfinance
newsletter development and bulletin by
providing data and articles
Pay the membership fees in time
• Fee per year: 4,000,000 VND (Four million
dongs)
- Join in research and survey implemented
by VMFWG
• Member code: AM2013_”No.”
- Notice by official correspondences about
any changes in the organization (name,
structure, title, etc...)
• Eligibility criteria:
- Pay the membership fees in time
3. Associate members (AM)
- Capacity building providers, INGOs,
donor programs, apex funds, insurance
companies, software companies, private,
public and state agencies, institutions and
individuals that do not offer microfinance
directly to clients;
• Fee per year: 12,000,000 VND for Institution
(Twelve million dongs)
1,500,000 VND for Individual (One million
and five hundred thousand dongs)
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 45
III. Principles of VMFWG members fee
management
• VMFWG will open a separate account to
manage the membership fee;
• VMFWG members will transfer the membership fee to the account;
• VMFWG membership fee account details
will be published quarterly to fee paying
members via email;
• The use and allocation of membership
fees will be published in the audited
VMFWG annual financial report.
VMFWG is looking forward to the participation of organizations and individuals interested in microfinance activities, through the
membership registration by filling information
on the registration form and send to VMFWG
via e-mail, postal mail or fax. VMFWG will
study the information of your organization/individual and inform the results to you within
14 days.
For more information please visit our website:
www.microfinance.vn
46 - VIETNAM MICROFINANCE WORKING GROUP
THE UNIVERSAL
STANDARDS FOR SOCIAL
PERFORMANCE MANAGEMENT
is a comprehensive manual of best practices created by and for people in microfinance as a
resource to help financial institutions achieve their social goals. The Universal Standards can
unite the industry behind a common approach to social performance management and enhance its reputation for responsibly serving people's financial needs
“
There are almost as many tools and processes as
there are stakeholders. The Universal Standards
are the first and only achieved project that
draws on the many processes in the field to
create a unified structure and language for
social performance management
Jürgen Hammer, Grameen Crédit Agricole
”
DEFINE AND
MONITOR SOCIAL
GOALS
ENSURE BOARD,
MANAGEMENT,
AND EMPLOYEE
COMMITMENTTO
SOCIAL GOALS
BALANCE FINANCIAL AND SOCIAL
PERFORMANCE
UNIVERSAL
STANDARDS
FOR SOCIAL
PERFORMANCE
MANAGEMENT
TREAT
EMPLOYEES
RESPONSIBLY
TREAT CLIENTS
RESPONSIBLY
DESIGN PRODUCTS,
SERVICES, DELIVERY
MODELS AND
CHANNELS THAT MEET
CLIENTS’ NEEDS AND
PREFERENCES
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 47
1. Define and Monitor Social
Goals
2. Ensure Board, Management,
and Employee Commitment
to Social Goals
3. Treat Clients Responsibly
STANDARDS:
STANDARDS:
STANDARDS:
A. The institution has a strategy
to achieve its social goals.
A. Members of the board of directors are committed to the institution’s social mission.
A. The institution determines that
clients have the capacity to
repay without becoming overindebted and will participate in
efforts to improve market level
credit risk management.
B. The institution collects, reports
and ensures the accuracy of
client-level data that are specific to the institution’s social
goals.
B. Members of the board of directors hold the institution accountable to its social mission
and social goals.
C. Senior management sets,
and oversees implementation
of, the institution’s strategy for
achieving its social goals.
D. Employees are recruited,
evaluated and recognized
based on both social and financial performance criteria.
B. The institution communicates
clear, sufficient and timely information in a manner and language clients can understand
so that clients can make informed decisions.
C. The institution andits agents
treat their clients fairly andrespectfully and without discrimination. The institution has
safeguards to detect and correct corruption as wellas aggressive orabusive treatment by
their employees and agents,
particularly during the loan sales
and debt collection processes.
D. The institution respects the privacy of individual client data in
accordance with the laws and
regulations of individual jurisdictions and only uses client data
for the purposes specified at the
time the information is collected
or as permitted by law, unless
otherwise agreedwith the client.
E. The institution has timely andresponsive mechanisms for
complaints and problem resolution for their clients and uses
these mechanisms both to resolve problems and to improveproducts and services.
48 - VIETNAM MICROFINANCE WORKING GROUP
4. Design Products, Services, Delivery Models and Channels That
Meet Clients’ Needs and Preferences
5. Treat Employees Responsibly
6. Balance Financial and Social
Performance
STANDARDS:
STANDARDS:
STANDARDS:
A. The institution understands
the needs and preferences of
different types of clients.
A. The institution follows a written Human Resources policy
that protects employees and
creates a supportive working
environment.
A. Growth rates are sustainable
and appropriate for market
conditions, allowing for high
service quality.
B. The institution designs products, services, and delivery
channels in such a way that
they do not cause clients harm.
C. The institution’s products,
services, delivery models and
channels are designed to benefit clients, in line with the institution’s social goals.
B. The institution communicates to all employees the
terms of their employment and
provides training for essential job
functions.
C. The institution monitors employee satisfaction and turnover.
B. The insitution’s financing structure is appropriate to a double
bottom line institution in its mix of
sources, terms and desired returns.
C. Pursuit of profits does not undermine the long-term sustainability of the institution or client
well-being.
D. The institution offers compensation to senior managers that is
appropriate to a double bottom
line institution.
NOVEMBER /2013 - MICROFINANCE REGULATIONS IN VIETNAM - 49
2013 VIETNAM CITI
MICROENTREPRENEURSHIP AWARDAS
(CMA 2013)
2013 Vietnam Citi - Vietnam Microentrepreneurship Awards 2013
(CMA 2013) is an annual global
activity, funded by Citi Foundation/ Citi Bank Vietnam to recognize
and
honor
the
microentrepreneurs with initiatives in using loans effectively, the
outstanding credit officers and
the typical microfinance institutions that have significantly contributed to the implementation of
the Construction and Development of sustainable microfinance
system Project in Vietnam until the
year 2020, contribute to the reduction of poverty in the country.
The CMA program has been held annually since 2007 by Vietnam Microfinance Working
Group Vietnam (VMFWG) in coordination with Citi Foundation/ CitiBank Vietnam, Vietnam
Small and Medium Enterprises Association (VINASME), and with the support of State Bank of
Vietnam and Banking Academy. The CMA has recognized the contributions of 310 typical microentrepreneurs, 109 excellent credit staffs, and more than 40 typical microfinance institutions
in Vietnam.
Structure and value of the CMA 2013 Awards is as below:
(The value of award includes taxes and charges in accordance with the State legislation)
No.
Award
Quantity
Value (VND)
1
The Excellent Micro-entrepreneur
1
15,000,000
2
Typical Micro-entrepreneur
29
10,000,000
3
Outstanding Credit Office
5
6,000,000
4
The most Excellent Microfinance Institution
1
100,000,000
5
The Second Excellent Microfinance Institution
1
50,000,000
6
Typical Microfinance Institution
9
10,000,000
7
The Small Microfinance Project Providing
creative products and services
1
5,000,000
The list of winners is posted into the VMFWG’s website in November 11th 2013. The CMA 2013
is scheduled to be held on12/12/2013 in Hanoi.
For more information, please contact us by:
Website: www.microfinance.vn
Tel: (84-4) 6269 1825
Email: [email protected]
50 - VIETNAM MICROFINANCE WORKING GROUP
The Vietnam Microfinance Working Group was established in 2004, with 87 members,
as a forum for microfinance practitioners to share experiences, debate relevant issues
and speak to policy makers with a unified voice. The VMFWG and its members share
a vision to create “A large and dynamic microfinance industry of professional, sustainable and efficient institutions that offer unsubsidized, high-quality, and demand-responsive financial services to a growing portion of the poor and low-income
population of Vietnam”.
Vietnam Microfinance Working Group
4th floor, No,70, Alley 34, Hoang Cau Street
Dong Da District, Hanoi City, Vietnam
T: +84 4 6269 1825
F:+84 4 6282 2462
E:[email protected]
Website: www.microfinance.vn
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