INDOCHINA RESEARCH
I-Light
Your Monthly Continental
Southeast Asia Insight
Made possible by the Rockefeller Foundation
January 2013
INDOCHINA RESEARCH
www.indochinaresearch.com
This Month:
The Impact of Microfinance on
People’s Lives and Development
Across Indochina
Picture of the month:
Women from Muong Phang commune in Dien Bien Province, Vietnam participate in an interactive game
that provides education about the financial products of Entrepreneurs du Monde. This game teaches the
women how to avoid becoming over-burdened with debt, as well as business and social issues.
PROVERB OF THE MONTH
“Tốt vay, dày nợ”
“Easy borrow, thick debt” – Means the easier to borrow the
more interest to pay.
NUMBERS OF THE MONTH
By the end of 2011, the capital aid fund for employment of the
poor issued credit to 193,238 consumers who participated in
the program. Of these, 76% of borrowers were woman.
Source: http://www.cep.org.vn/?page=view_facts&id=36
This Issue:
EDITORIAL - Paths to
Financial Inclusion
pg 2
VIETNAM - Subsidizing
individuals at the cost of the
collective?
pg 3
I-FIELD
pg 7
CAMBODIA - Is
Microfinance working for
Cambodia’s poor?
pg 10
ON THE SIDE - January
I-Lights
pg 13
1
Editorial:
Paths to Financial Inclusion
By Sarah Clarke – On behalf of Indochina Research
“If you go out into the real world, you cannot miss
seeing that the poor are poor not because they are
untrained or illiterate but because they cannot retain the returns of their labour. They have no control
over capital, and it is the ability to control capital that
gives people the power to rise out of poverty.”
Muhammad Yunus
Banker to the Poor: Micro-Lending and the Battle
Against World Poverty
W
ith just 27 dollars shared among 42 borrowers,
Muhammad Yunus sowed the seeds for what
was to become the Grameen Bank, a community
development bank that has grown to provide loans
to over seven million members in Bangladesh since
its inception in 1976. The underlying premise of the
Grameen Bank was – and remains – that impoverished people remain impoverished not though lack of
ability but through lack of opportunities due to their
financial exclusion.
It is estimated that half of the world’s population –
some three and a half billion people – do not qualify
for a loan from a bank. The fixed underlying costs
of administering loans are substantial and do not
vary greatly whether the loan is small or large. The
revenue for the lending institution, however, enjoys
a commensurate increase as the size of the loan increases. As such, lending institutions understandably
favour those seeking larger loans. Many people seeking smaller loans find that their loan will fall below
the bank’s “break-even” point, the point at which the
cost of administering the loan outweighs any revenue
that may be made off the loan. Lacking the collateral
to qualify for larger loans, these people are excluded
from access to credit and the opportunities that access to credit affords.
While Professor Yunus did not invent the concept of
microfinance or microcredit, the success of the Nobel Prize winning Grameen Bank (despite attracting
its fair share of criticisms), has proved a catalyst for
a multitude of formal and informal microfinance organizations around the world. Comprehensive statistics on the reach of microfinance are difficult to ob-
tain. The MicroBanking Bulletin, however, estimated
that by 2009, some 74 million borrowers who would
be considered ineligible for loans through commercial banks had been granted loans through selected
microfinance organisations. As a tool for financial
inclusion, then, microfinance appears to be widely
effective. As a mechanism for lifting individuals and
communities out of poverty, however, the results are
more debatable.
In this month’s edition of I-Light we explore the effects of microfinance in both Viet Nam and Cambodia. Two countries with largely agrarian population
and both experiencing significant rural-urban migration, their approaches to and experiences of microfinance are nonetheless quite different. Focusing
on Viet Nam, we discuss whether the largely stateowned and operated microfinance institutions are
providing financial inclusion for individuals at the
cost of public works that could benefit all citizens
and, ultimately, reduce the number of people requiring microloans. In Cambodia, the proliferation of organizations offering microfinance across the nation
has led to widespread access to loans for most. The
loans, however, are frequently accompanied by high
interest rates and, with a large number of borrowers
lacking the ability to assess the risks and weigh them
against possible rewards, many are finding themselves worse off than before.
As microfinance becomes de-coupled from its social
mission of lifting people out of poverty through financial inclusion it becomes merely another profitmaking tool for financial institutions and the benefit
to the poor is lost. The underlying premise – that
poor people are able to make substantial positive
change to their lives with access to relatively small
amounts of capital remains sound. Developing a system that is effective, sustainable, and appropriate to
the local context, however, is challenging. Guidance
on how to manage money effectively and to build up
assets in order to protect against future vulnerabilities are important pillars in ensuring that access to
microfinance allows borrowers to break the cycle of
debt and improve their lives in a meaningful and lasting manner.
2
Microloans: Subsidizing individuals
at the cost of the collective?
By Sarah Clarke – On behalf of Indochina Research
V
iet Nam’s rapid and sustained economic
growth over the past quarter century has been
accompanied by a commensurate increase in income disparity. As the rich get richer and the poor
remain impoverished, access to power and opportunities to improve one’s economic standing become increasingly concentrated among the already
wealthy, or at least, even further out of the reach of
the poor. Ever greater numbers of people migrate
towards the large urban centres in search of employment opportunities and the chance to forge a
better life for themselves and their families. However, most find themselves with part time and/or
informal employment or in the unenviable position
of trying to establish their own small business with
limited financial resources and without the necessary contacts and social networks. Rapid inflation,
crippling interest rates and exclusion from regulated loan institutions create further hurdles for disadvantaged families wishing to invest in their own
futures. For many, the ability to access microloans
through either the state-owned Vietnam Bank for
Social Policies (VBSP) or the small but growing
number of licensed private lending services can
seem like a silver bullet, ending their reliance on
loan sharks and the vicious circle of sky-high interest repayment.
Short term solutions, long term costs
As Helene Keraudren of Entrepreneurs du Monde
points out, microfinance was originally conceived as a tool to fight poverty. In Vietnam, as in
many other countries, however, microfinance has
evolved into a tool that provides financial inclusion
for many but continues to exclude the most vulnerable; those most in need. The ramifications of
microloans are complex and can be far-reaching.
In Viet Nam, where the leading provider of microloans is state owned and underpinned by government monies, the situation becomes even more
complex as the balance between individual and
collective benefits are weighed.
THE WAY THEY SAY IT
Tran Hoang Thang, 30 years old and he is
selling noodles on the street. He lives in Go
Vap District, Ho Chi Minh City.
When asked if he would like to borrow money to expand his
small business, Tran Hoang Thang, a 30 year old noodle seller,
replied “I would like to expand my mobile noodle shop so I
want to borrow money to rent a space to open a big noodle
restaurant which would give me more profit. Also, selling on
the street is very complicated and difficult”. When we asked if
Mr. Thang is currently borrowing any money, he revealed that
“I am borrowing money from my brother to treat my defective leg. It is more convenient when borrow from my brother
because I can pay when I have the money or pay gradually. If
I borrow from other sources, they want to collect their repayment, even if I do not have money to pay yet.”
Hoang Thi Hao, 33 years old. She sells tea
and soft drink on the street (not mobile),
and lives in Thanh Xuan District, Ha Noi.
“I do not need much money to expand my business because it
does not require much capital and currently, I do not borrow
money from any source. My children are still young, so there
is not much money needed. For me, I think that friends and
relatives are easiest to borrow from because they understand
me and I do not need to prove any documents or procedures.
There will be no or low interests so it is safer for me.”
3
Viet Nam’s leading provider of microloans, the
state-owned Viet Nam Bank for Social Policies
(VBSP), currently has over 7 million outstanding
borrowers.While the benefits in allowing the poor
to access low-interest loans and thus broaden their
economic base, interest rates for these loans range
between 0% and 10%, depending on the client.
With standard loans attracting interest rates in excess of 25%, VBSP loans require significant subsidies. As a state-owned entity, such subsidies are ultimately paid for by the tax payers, diverting funds
that could be invested into services such as education and healthcare. For many families, these two
services are major expenses; for poor families, they
are expenses for which they are frequently forced
to borrow money to cover. Health care, in particular, can form a catastrophic expense for poor families when, unable to access health insurance, they
are forced to pay incapacitating out-of-pocket fees
whenever they need to access these services.
DID YOU KNOW?
In 2001, 52% of borrowed funds were used for small business
operation, 11% was used to improve houses and build toilets,
13% was used for breeding, agriculture and fishery. The remaining 24% was utilized for other purposes such as products
and services of small scale business; purchase of work tools;
payment of school fees; and payment of debts when borrowed
at illegally high interest rates.
Source: http://www.cep.org.vn/?page=view_facts&id=36
Similarly, while education is widely viewed as a path
out of poverty, school fees and additional expenses
– often arbitrary and unregulated – can throw families ever deeper into debt. There are strong arguments to be made that the subsidies underpinning
state run microloan schemes may be better utilized
in covering some of the costs currently borne by
individual families. These costs may include improving and maintaining school infrastructures;
providing ongoing training for teachers to ensure
that the education offered is keeping pace with the
changing needs of students and their future employers; or ensuring that schools are able to provide at least one nutritious meal a day – a simple
and relatively cost effective measure that has been
shown to make significant improvements in educational outcomes among poor communities. Similarly, channelling funds towards the creation of a
robust and universal health insurance scheme may
provide greater ongoing benefit to more families
than the ability to access microloans.
THE EXPERT WORD
Helene Keraudren
Country coordinator Cambodia, Laos; Vietnam at Entrepreneurs du Monde
www.entrepreneursdumonde.org
From your perspective, what are the key differences between provision of microfinance for urban borrowers and
rural borrowers? Are the challenges for providing for urban people and rural people different? Please explain.
In my view, the key differences are not so much between rural and
urban, they are between social and “commercial” microfinance.
This is one of the ‘hot’ issues in microfinance today. That and all the
related issues such as over-indebtedness, lack of transparency …
While microfinance was indeed initially designed as a tool to fight
poverty, it has, in many cases, become a tool for financial inclusion
that leaves out the most vulnerable and aims at making profits to
attract large investors and build important capital.
This drift from its social mission often results in the emergence of
harmful practices such as over-indebtedness as microfinance institutions (MFI) hand out credits, without taking into account the existing offers and the families’ real needs – several examples of crises
(e.g. in India) show this.
Promoting and practicing microfinance with a strong social mission
and effective social performance is essential. Social mission meaning
that it is targeting very poor to help them improve their living conditions; and social performance is the way we measure on an on-going
basis how we effectively target the very poor, and serve them with appropriate products and services, in a responsible and transparent way.
At Entrepreneurs du Monde, we apply this by offering a range of socio-economic services (including training, counselling, and referral
services) alongside the financial services. And the financial services
themselves are coherent with our social objective: no joint financial
liability between members, no financial guarantee required, no upfront deposit, flexible loan amounts and durations, regular reductions the cost of services and easy access to savings... We use social
performance management tools also to audit our practices, and to
ensure we are indeed reaching our target population.
Our experience shows that this social approach to microfinance can
also achieve sustainability. Indeed, among our partner institutions,
several have already reached breakeven, without ever compromising this very social approach. Our MFI in Cambodia, Chamroeun,
achieved sustainability 4 years after its inception, and it offers trainings and counselling to all its members. It now reaches out to more
than 40 000 very poor households.
Microfinance in rural and in urban areas is indeed different due to very
different contexts and nature of the activities that we finance. While in
urban settings we are mostly financing small trade , street side vendors, small food stalls, cafés, market vendors, services... in rural areas
we are mostly focused on subsistence farming, like small scale agriculture or husbandry activities. This calls for different loan products. In
urban settings, loans are usually on shorter terms (5 to 8 months) than
in rural setting (10 to 12 months) and principal is sometimes paid at
maturity (when the crops are harvested, or the animals sold) in rural
areas, while this does not happen for urban activities.
The risks inherent to the activity are dramatically higher in rural
4
Rural-urban bridges and barricades
Few would argue that the lived experience of rural and urban Vietnamese are very different yet
the current system of microfinance affects them
both in similar ways. Both rural and urban poor
benefit from greater government investment into
infrastructure development. Improved road and
transport services, particularly in remote and
mountainous areas, can improve market inclusion
enormously for rural families. In addition, rural
and urban economic situations are inextricably
linked. Improved financial situations in rural areas – including greater access to markets and improved understanding of the market value of their
produce – may lead to a reduction in rural-urban
migration. This, in turn, would reduce pressure on
already overburdened urban infrastructure and
services.
If all loans underpinned by the VBSP were being
used work towards the future financial stability of
the lender and his or her family, the use of tax-payer monies to subsidise such loans may be less of a
contentious issue. One key issue with the provision
of microloans, however, is the inability of loan providers to regulate to what purpose the loan is put.
Theoretically, access to microloans offers families
and individuals access to small amounts of capital.
This allows the borrowers to widen their economic base and create income possibilities for themselves through, for example, the establishment of
small and/or self-owned enterprises. However,
in a recent survey undertaken by Indochina Research Limited on microfinance in Ha Noi and Ho
Chi Minh City, more than half of all respondents
reported accessing loans to cover living expenses
such as rent and utilities. While covering such costs
is a necessity, the use of loans for this purpose does
little to contribute to future financial stability. The
links are far from straight forward, nonetheless
both evidence and common sense suggests that robust government investment in providing all citizens with access to affordable healthcare and education leaves families with greater ability to pay
their own individual living costs.
Alternative solutions
A new national strategy, supported by the State
Bank of Vietnam (SBV), is currently under development with a view to creating a more diverse range
of microfinance options. With a greater number of
private organizations able to enter the market, it is
likely that public funds will then be able to be used
for, among others, the aforementioned health, ed-
contexts than in urban: agriculture is more easily and directly impacted by external factors such as diseases or climate.
Another difference is related to the social structures: urban communities are more densely populated and more individualistic, whereas life is more scattered in rural zones, and there is a stronger tie at
village level – e.g., we convene village meetings for the provision of
our services.
Having said this, the above differences lie more in the format than
in the nature of the services we provide. And what remains constant
in urban and in rural areas is our approach that combines financial
and socio-economic services. We provide training and counselling
alongside the loans: in urban contexts, we focus on financial literacy
trainings, awareness-raising sessions on social issues, and referrals
to other structures in case of social difficulties. While in rural areas, our socio-economic services give a large emphasis to technical
trainings and individual advice, in order to help the clients improve
their cultivation and husbandry practices, prevention of diseases,
etc. Our staff includes agricultural workers who conduct home visits
to provide advice and counselling to our clients.
Relative to the global operations of Entrepreneurs du
Monde, do you think that the provision of microfinance in
Vietnam and Cambodia has been successful? Are there are
cultural issues that contribute to the success or borrowers?
Yes. Our experience in Cambodia is very good – it is undoubtedly
one of our more successful projects. We started as an NGO programme in 2006 and gradually achieved operational, financial and
institutional sustainability without having to compromise the social
approach. We are now a registered local MFI and recognised for
our strong social mission. This was achieved thanks to a favourable
local context (stability, availability of human resources, structured
microfinance sector), and to a social microfinance model that Entrepreneurs du Monde has tried and tested elsewhere (flexible loan
products, holistic approach, fine-tuned operations and processes).
Urban microfinance is also less risky than rural, and the very poor
households we serve are intent on honouring their contract.
In Vietnam the context is somewhat different: the state offers subsidised loans through the VBSP, local authorities are very active in
society and are actors with whom we’ve had to find the right balance and nature of partnership, and working in the remote Dien
Bien province is challenging because of the difficulty to mobilise adequate human resources. In some areas where we work, people had
previously access to free services through some short-term NGO
programmes which also does not foster a favourable approach to
microfinance. That said, our programme is growing stronger: our
partnership with the local authorities is good, activities are gradually increasing, our products (loans) and services (training, technical
advice) are appreciated and meet a demand that is not addressed
otherwise. Recruiting solid management (human resources) remains one of the most difficult challenges.
In Western societies and cultures, self-reliance can be
seen as an ideal. Do you think that self-reliance initiatives
among poor people and families in the developing countries have wider positive impacts for those countries?
In microfinance, we foster self-reliance: loans are mostly aimed at
financing very small-scale economic activities that make it possible
for a family to increase their income and in turn their living conditions. The importance of the informal sector in the areas where we
operate our programmes is such that self employment is often the
only alternative.
Also, lack of social security nets for the very poor makes self-reliance
a necessity and we aim for microfinance to be an appropriate lever
for families to help them secure their livelihoods, while not falling
into over-indebtedness. The knowledge, skills and social services we
make available to these families are an important key in helping
them make the best use of their loans.
5
ucation and infrastructure development sectors.
Viet Nam is in an enviable position to learn from
the experiences of nations such as India and Bangladesh who, with more than a quarter century of
experience in microloan provision, have a wealth
of best-practice examples and lessons from which
to learn. As the microfinance sector grows within
Viet Nam, the challenge will be to ensure that private lenders are sufficiently regulated to ensure
that the social support aspect of microfinance, so
critical to its success, is not subsumed in the quest
for profit.
It is vital to recognize that the concept of microloans was originally rooted not in lending poor
people money per se, but in the goal of poverty alleviation. Should it become divorced from that goal,
microfinance becomes yet another means of leaving the most vulnerable outside the system, once
again denying them access to the opportunities to
break out of poverty and forge a life of financial
stability. There are unique challenges – political,
cultural, geographical - for microfinance institutions wishing to operate within Viet Nam. Yet, for
the estimated 10.5 million people living in poverty,
these challenges must be met if all citizens of Viet
Nam are to enjoy the benefits of ongoing economic
growth.
GOING FURTHER
WEBSITE
www.microfinance.vn
The official website of Vietnam Microfinance Working
Group (MFWG) was founded to create a forum for microfinance practitioners to share experiences, to come
together to debate relevant issues, and to speak to policy makers with a unified voice. Founded in 2004 as an
informal organization under the VUFO-NGO Resource
Centre, according to the Working Group Guidelines approved by the Resource Centre Steering Committee in
April 2003, the MFWG is open to all individuals and organizations interested in microfinance in Vietnam.
http://microfinanceinstitute.org/
The Microfinance and Community Development Institute started working in 2002 with a mission to effectively
contribute to poverty reduction and sustainable development in an equal society by facilitating and empowering
the poor and vulnerable. Their effort is to help the community maintain and extend the results of development
interventions. Some successful projects previously run
by MACDI include “Sustainable livelihood for women
in Quang Binh province through business development
support” which commenced in 2010 and “Assessing impact and performance effectiveness of Capital Rotation
Fund under Component 5 – Vietnam Urban Upgrading
Project”.
ARTICLE
“Microfinance – Bring the bridge to poor people”
Most poor people in Vietnam depend on agriculture with
low labour productivity because they do not have access
to funds, land and knowledge. Therefore, developing a
financial system for sustainable rural micro-finance will
have remarkable effect to the development of economy
and reduce poverty.
Source: http://www.vietnamplus.vn/Home/Tai-chinh-vimo-Cho-nguoi-ngheo-chiec-can-cau/200911/24769.
vnplus
Source: http://business.vnmic.com/news/Lap-nghiep/Vuotkho-tu-dong-von-nho-3590/
Nguyen Thi Nhung, Duc Thang Ward, Hiep Hoa District,
Bac Giang City with her small business at home.
In 2008, Ms. Nhung borrowed VND20 million from the Social Policy Bank to invest in breeding ducks. Since then, her
family now has hundreds of ducks and provides ducks and
eggs for many households in the province. The financial situation of Ms. Nhung and her family is much improved and
they have managed to lift themselves out of their previously
precarious financial situation.
6
I-FIELD:
HOW DID WE ASK IT?
Research Summary
Objective
To understand the following among the urban poor in Vietnam:
 Awareness of and attitudes towards borrowing money
 Reasons to migrate to city
 Perception of Working in the city/Independence/Future/Borrowing Money
 Experience with borrowing money/from where/for what
Target Respondents:
Overview Of Methodology:
We surveyed 200 respondents based on the follow criteria:
 Below HIB Class D (monthly income of less than USD250 per month)
 Those who work for themselves or would like to work for themselves/ open their own
business
 Split evenly between those who live in Hanoi and HCM (50:50)
 Aged from 25 and above
To ensure that respondents would not be fatigued, we designed a questionnaire that was no longer
than 15 minutes.
Summary
Personal Situation
55% of respondents work for themselves or their family and 45% work for someone else by choice.
50.5% of respondents have moved to either HCMC or Hanoi from somewhere else. This represents
a migration shift to the largest urban areas in Vietnam.
Those who moved to these main areas have done so primarily for financial considerations and
opportunities. The reasons are as follows:
REASON TO MOVE TO HCMC OR HANOI
Better money in the city
Work opportunities
Future opportunities for my family
Have family relatives or connections in the
city
Sample: N=101 respondents
% OF THOSE WHO IDENTFIED REASON
82.2%
80.2%
74.3%
29.7%
7
Interestingly, more respondents that moved to Hanoi did so for financial reasons (89.8%) compared
to those who moved to HCMC (71.2%). However, more of those who moved to HCMC identified
future opportunities for their families (82.7%) than those who moved to Hanoi (65.3%). This may
represent a difference in long-term perspectives or cultural differences.
P erspective of Those Who Have
Moved to Hanoi or HCMC
( Sample Siz e: N=101)
I don' t feel there are any b enefits for me
or my family in the city
There is more pub lic or g overnment
support for me or my family in the city
7.9%
31.7%
I think that they opportunities to make
money ex ist in the city
100.0%
The future in b etter for me and my family
in the city
100.0%
Access to services ( education; health;
w ater and sanitation) is b etter in the city
100.0%
While those who have moved to the city saw financial opportunities and better access to services in
Hanoi or HCMC, most feel that support is missing from the public sector or wider benefits available
to them or their families.
Attitudes Towards Borrowing Money
Attitudes to Borrow Money & Future
( Top 2 b ox on 5 - point Ag reement Scale; Sample Siz e; N=200)
Borrow money is risky so w e should not
b orrow to do b usiness
There are plenty of opportunities to
b orrow money from sources other than
families or friends
I w ould personaly like to b orrow money if
I can b enefit from the money
Borrow money helps people to move
ahead w ith w ork and b usiness
The b est opportunities for the future is to
w ork independently or have my ow n
b usiness
26 .0%
5 2.5 %
6 2.0%
70.5 %
86 .0%
Note: Top 2 Box represents completely agree or somewhat agree on a 5-point Likert scale.
8
Respondents strongly agree that working independently or having one’s own business presents future opportunities. Furthermore, respondents can see how funding is a key component in driving
business, even though 27% of respondent neither agreed nor disagreed and 31%of respondents were
indifferent about whether or not they would personally borrow. However, only 7% of respondents
disagreed that they would personally borrow. And while 26% of respondents agree with the view
that borrowing money is risky, 39% of respondents were indifferent. This suggests that there is potential for these people to take a more favorable attitude if microfinance resources are more widely
distributed; education of on to access and use microfinance resources effectively; and awareness of
microfinance among people is higher.
SOU RCE OF MONEY OR L OAN
Friends or Family
Commercial Banks
Informal Money L enders
NG Os or Microfinance Org aniz ations
Women’ s Association
Cooperatives
P aw n Shops
P overty Fund of Residential G roups
Sample: N=15 3 respondents
% OF THOSE WHO BORROWED
85 .6
13.7
12.4
5 .2
2.6
1.3
0.7
0.7
76.5% of respondents have borrowed money from a range of sources, but friends or family remain
the most relied on source when borrowing (85.6%). Other sources such as informal money lenders
and commercial banks do not necessarily have the lender’s interest as a priority, particularly related
to the cost of funding.
What Respondents Borrow Money for
( Sample Siz e; N=15 3)
Doing b usiness/ trade
Transportation
Education ( school fees, etc)
To provide confort for family
Health (h opital or doctor visits)
Housing cost (i ncluding
pow er, electricity, w ater, etc)
12.4%
22.2%
22.9%
30.7%
39.2%
5 1.6 %
It can be seen that the reasons for borrowing money are largely to meet immediate living needs such
as housing, health , family and education costs. Doing business is a relatively low priority compared
to survival.
9
Is Microfinance working for
Cambodia’s poor?
By Rob Jamieson – On behalf of Indochina Research
D
avid grew up in one of the refugee camps
on the Thai-Cambodian border where
he learned to speak passable English, which
proved very useful later when ferrying foreigner expats around the capital when he worked
as a motorcycle taxi driver in Phnom Penh.
He and his wife then decided to invest in a
more comfortable tuk-tuk, which they financed through a microfinance company. This
would have been a successful strategy if David
had been one of the few to purchase a tuk-tuk,
but soon hundreds of tuk-tuks appeared on
Phnom Penh’s streets, all financed the same
way. The intense competition made it difficult
for any one tuk-tuk driver to succeed.
Several internationally funded NGOs introduced microfinance to Cambodians in 1992,
operating primarily in refugee camps along
the Thai border. Their success attracted foreign donors and investors, leading to the rapid
growth of the sector throughout the 1990s – so
much so that microfinance was incorporated
into the national financial regulatory system
in 2000. Since then, microfinance companies
have spread across the country.
However, Kalyan May, a senior advisor to Cambodia’s Supreme National Economic Council
complained in The Phnom Penh Post in January last year that high interest rates at Cambodia’s microfinance institutions, the main suppliers of financial services the rural economy,
had become “unsustainable and posed risks
for social instability among the country’s farming population.”
THE WAY THEY SAY IT
Vann Chanveasna is 49 years old and lives
in Kandal provinces Ta Khmao district. He
works as a famer, owning his own land.
“I had to settle the payment for building my house, which is
also a business for my wife. I had to choose between a bank and
a micro finance. I chose the micro finace because the process
of application was faster and more simple. The bank needed
proof of salary and alot of documents but the microfinance
only wanted evidence income. Now i use them to save money
and use their ATM. I recommended them to my brother when
he was considering fixing his house. Now he has an account
with them too.”
Ty Chhang Nalin lives in Meanchey district, Phnom Penh. She is 34 years old and
runs her own small business.
“I had been saving with them (MFI) a few years. My business
of selling cosmetics was doing well but i needed extra money to
buy new, higher quality products which my customers asked
for. I also owed some money to a money lender in my hometown. I borrowed the money from them and now my business
is selling more. My repayments arent as high as with the money lender but sometimes they are difficult to meet.”
“Most farmers can’t assess the associated risks,
and they don’t foresee the possibility of losing
the property they have mortgaged,” claimed
May. “At the end of the day, many farmers will
lose their houses and land.”
10
Failure to understand the implications of the
downside risk of default is not the only challenge. Too often, microcredit is used to facilitate consumption spending, as Cambodia’s
poor borrow money for activities such as weddings or to pay for hospital treatment. When
this happens, it is all too easy for the debt to
begin spiraling out of control.
However, the general manager at Cambodia’s market leader, Sim Senacheert of Prasac,
pointed to the industry’s very low default rates,
noting that this was only 0.14 percent across
Prasac’s entire loan portfolio. He blamed operating costs for keeping rates high (it costs
as much to administer a $100 loan as it does
a million dollar one), while pointing out that
loan sharks charging much higher rates were
usually the only alternative for most the industry’s borrowers.
However, many poor clients feel honor-bound
to repay their loans – even if they have no income – as Dowla and Barua note in The Poor
Always Pay Back. This typically means that
they have to liquidate a whole range of other
assets, such as savings accounts, buildings and
land, and divert remittance income flows into
loan repayments, or even borrow from loan
sharks, with the result being the poor become
poorer.
Microcredit can work, if people with an entrepreneurial flair access it and the money is used
productively. Even so, it has limits. To make
a lasting contribution to a country’s economic
growth, it needs to do more than simply support a trading culture. Government support
and infrastructure is needed to build up small
businesses that evolve into something that
contributes to what is being traded.
CARE International began a novel scheme in
Niger in 1991 called a village savings and loans
association – basically a credit union but without the costs of bricks and mortar and salaried staff – based on savings rather than debt,
and managed by members of the community
rather than professionals. This makes it very
low cost, but highly profitable for its memberowners while making it a comfortable place to
GOING FURTHER
REPORT
Cambodia’s Microfinance Sector Heads in New Direction, Cambodia Daily
http://www.cambodiadaily.com/news/cambodias-microfinance-sector-heads-in-new-direction-1606/
This article from the Cambodia Daily published may
2012, details the current shift in the Cambodian credit
institutions from purely development based to a greater
focus on consumer lending.
The Biggest Micro Lender of them All
http://www.economist.com/blogs/schumpeter/2013/01/
microfinance-thailand
Published in the economist January 31st 2012 the article describes Thailand’s ruling Shinawatra government’s massive national microfinance program. In 2011
the program had an outstanding loan portfolio of more
than 4 billion USD and 8.5 million borrowers. The program has been successful in providing credit opportunities to tens of thousands of villages across the country
but has drawn criticism for making competition nearly
impossible and being a tool for political patronage.
Impact of Micro-finance Services in Cambodia summary
http://cma-network.org/drupal/download/impact%20
survey/Summary%20Report%20Final.pdf
In 2011 the Cambodia Microfinance institute conducted
an extensive survey of Users, former users and potential users of microfinance services. The research was
conducted across 15 of Cambodia’s 24 provinces and
covered a total of 2,977 households. The findings summarized in this report give an insight into the real effects
of the industry on it’s users.
The Smart Campaign
http://www.smartcampaign.org
The Smart Campaign is a global effort to unite microfinance leaders around a common goal: To help the
microfinance industry remain both socially focused and
financially sound, The Smart Campaign is working with
microfinance leaders from around the world to provide
microfinance institutions with the tools and resources
they need to deliver transparent, respectful, and prudent
financial services to all clients.
Microfinance Transparency
http://www.mftransparency.org
The orginizations goal is to be the platform for the Microfinance industry to publicly demonstrate its commitment
to pricing transparency, integrity and poverty alleviation.
Their vision is a Microfinance industry operating with
healthy free market conditions where consumers and
other stakeholders can make informed decisions based
on honest information.
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save and borrow. The scheme’s strength is its
informality, combined with highly consistent
procedures and largely transparent operation.
scheme would appear to be a good fit with the
local context.
A scheme typically involves a small group (perhaps 15-30 people) pooling their savings, with
each buying a share in a fund from which they
can all borrow. All must also contribute a small
sum to a social fund, which acts as micro-insurance. If a member suffers a sudden misfortune, she will receive a payout.
People like this system because it is easy to understand, and returns on savings are extremely
high, generally 20-30 percent a year. Borrowers typically pay interest rates of 5-10 percent a
month on loans that usually have to be repaid
within three months. The rates may seem high
but the people themselves set these. They are
in effect lending to themselves, and saving the
interest that they charge.
This sounds much like the informal savings
clubs called tontine that already exist here in
Cambodia, where each member gets a turn
to use the pooled money. As a result, such a
Perhaps it is time something like this was tried
in Cambodia?
A driver shows off his new Tuk-tuk in Phnom Penh. Many motorbike taxi drivers use microcredit to upgrade their
vehicles and earning potential.
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January I-Light’s ‘’On The Side’’
Websites of the month:
Vietnam:
http://www.cep.org.vn/?&lang=en
CEP was provisionally set up in July 1991, based on the Grameen model with modifications made to suit the social and cultural context of
HCMC. Shortly afterwards a number of pilot credit programs were implemented in urban and rural districts of HCMC (District 1, Go Vap,
Cu Chi and Can Gio). These credit programs were targeted at the poor with an emphasis on sustainability, so as to be a long-term, viable
and effective partner of the poor.
Cambodia:
Cambodia Micro-finance Association - http://cma-network.org/drupal/
The Cambodian Microfinance Association is an NGO and professional association that aims to ensure the
prosperity and sustainability of the microfinance sector in Cambodia. CMA plays a vital role in creating
local and international networks promoting new technologies and overseeing conflict resolution between
microfinance operators. The website provides information on training workshops for those in the industry and general information regarding micro-finance rules, regulations and laws.
Laos:
http://www.bwtp.org/arcm/laos/I_Country_Profile/laos_country_profile.htm
‘Banking With The Poor’ network (BWTP) details the need for microfinance in Laos, in the context of
socio-economic factors, regulatory framework and the banking system in the country. In particular, the
website highlights the fact that accessing new economic opportunities in rural areas through microfinance
could have a significant impact on poverty reduction in Laos.
Conferences of the month:
Vietnam:
Conference of the month: “Sustainable microfinance and climate change of Vietnam IV”
On 12 December 2012, the conference took place in Hanoi by Vietnam State Bank with the participation of many government departments
such as Finance, Plant and Investment, experts from Asian Development Bank and other organizations. This conference has a practical
meaning with Vietnam especially the poor and vulnerable people. So the challenge is to find solution for reduce risk and enhance the ability
to adapt to climate and climate change.
Source:
http://sbv.gov.vn/wps/portal/!ut/p/c4/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gDFxNLczdTEwN_Uw9TA09_cxPDUE9_w2B3Q_2CbEdFAGrbyl8!/?WCM_
GLOBAL_CONTEXT=/wps/wcm/connect/sbv_vn/sbv_vn/vn.sbv.news/vn.sbv.news.vn/bce4cf004dca845a9d35fd3bc8c954fe
Cambodia:
The International Banking & Microfinance Cambodia Conference 2013, 01-02 June,
2013, Intercontinental Hotel, Phnom Penh
This conference is one of the largest and most prestigious events in the Cambodian banking and micro finance
sector, highlighting key trends influencing and impacting the industry. The event brings together industry leaders with international and local experts and political figures. This year’s focus will be on technological development within the industry.
Laos:
Research projects seminar, 26th December 2012, Vientiane Capital.
The session was a platform to announce Government funding of 13.8 billion kip – 0.8 percent of the total
domestic budget - towards research in Laos, aimed at identifying sustainable economic growth initiatives. The
research will inform the implementation of the National Socio-Economic plan for 2011 to 2015. Researchers
from the Ministry of Planning and Investment, Ministry of Labour and Social Welfare, Ministry of Industry
and Commerce and the Lao National Economic Research Institute attended the seminar. Discussions were
held about issues such as the country’s economic stability and structure, labour supply and trends in global
economic development.
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Readings:
Vietnam:
Rich Dad Poor Dad
Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money - that the Poor and the Middle Class Do
Not!
This is a Vietnamese version of Rich Dad Poor Dad by Robert Kiyosaki. It advocates financial independence
through investing, real estate, owning businesses, and increasing one’s financial intelligence. Vietnamese people rated this book very high and they find themselves in the book. After reading it, many people change their
perception and understand how to manage their money better.
Source: http://tiki.vn/day-con-lam-giau.html?ref=c316.c483.c593.c714.c715.c846.&q=lam+giau
Cambodia:
When There Was No Money: Building ACLEDA Bank in Cambodia’s Evolving Financial Sector Heather A Clark, November 2012
ACLEDA was built in one of the most formidable environments in the world at that time. This book tells the
story of the banks growth from Year Zero to the present, tracing the journey of a group of people as they built
and grew an employment generation project for demobilized soldiers into the largest commercial retail bank
branch network in Cambodia.
Laos:
Microfinance Industry Report, Lao PDR.
Microfinance Industry Report, Lao PDR. Published by the Foundation for Development Cooperation and
The Banking With the Poor Network 2010. Available at: http://www.bwtp.org/files/Resources/Industry_Assesment/
BWTP%20Network%20Laos%20PDR%20Microfinance%20Industry%20Report%20%28English%29.pdf
In light of the fact that rural and microfinance plays an important role in the poverty alleviation efforts of developing countries, this report has been published in order to provide a background to the economic situation
in Laos and the status of the microfinance initiatives in the country. The report also identifies the challenges
and opportunities for Lao microfinance in the future.
Arts & Culture:
Vietnam:
“Spring Exhibition 2013”
Time: From 15 January to 30 January 2013
Location: Woman House of Culture – 188 – 194 Ly Chinh Thang, District 3, Ho Chi Minh City
This picture exhibition takes place every spring from the Women’s House of Culture with 42 art works. At this
time of year, talk of spring permeates every corner of Vietnam in every daily activity. The picture of spring
reflects the hope for the developments and prospects of the new year. With the topic “Hello Spring”, female
photographers in the House of Culture want to wish everyone a happy new year in 2013.
Source: http://sukienhay.com/Trien-lam-mung-Xuan-Quy-Ty-2013-12673-2013.html
Cambodia:
Meeting of Female Entrepreurs, January 17, 2013, US embassy Office of Commercial and
Business Affairs
Special Representative Lorraine Hariton, head of the US State Department’s Office of Commercial and Business Affairs, held a roundtable discussion with members of the Cambodia Women Entrepreneurs Association (CWEA). Ms. Hariton highlighted her role in facilitating entrepreneurship around the world. The CWEA
members represented a range of business sectors, including food production, hospitality, handicrafts, and
telecommunications.
Laos:
Travel Exchange (TRAVEX), January 23rd 2013, Lao-ITECC Vientiane.
Over 1,600 delegates attended the event held in Vientiane to facilitate exchange between traders in Laos. It
is estimated that over 5,500 one-to-one talks took place to explore business opportunities. In addition, high
ranking officials including tourism ministers from countries such as China, Japan, the Republic of Korea and
India convened together during the event.
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About the I-Light
In the context of post global economic crisis, trend forecasting now appears clearly as the boat to resume’s
one journey or the compass to give directions towards safer shores: insights are the key to get the unexpected
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together the social and the economics, the development world and the business insight in order to bring the
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EDITORIAL TEAM
Vietnam:
Beth Owen / Bui Chau Giang
Cambodia:
Kim McNair / Laurent Notin
Laos:
E. Phoutsavath
INDOCHINA RESEARCH
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“The opinions expressed herein are those of the authors and do not necessarily reflect the official
positions of Indochina Research or the Rockefeller Foundation”
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