Operational and Institutional Obstacles for the Efficacy of Micro-

Credit Programs for Poverty Reduction in Vietnam

VLIR Policy Preparing Research Project

MIET MAERTENS

Thanks to: BTC Vietnam, Hanoi(Mr. Smis, Mrs. Tan and others)

Vietnamese Belgian Credit Project & Women’s Union(Mr. Bartsoen, Mrs. And others)

Micro-finance Resource Centre, Hanoi (Prof. Dao van Hung & Ms. Tran Bin Minh)

Vietnam National University of HCMC – Economics Faculty(Dr. Tran Viet Hoang and others)

Overview

• The Research Approach– Conceptual framework– Empirical approach

• The Rural Credit Market in Vietnam

• The outreach of

The Research ApproachThe Research Approach

Some Considerations• Micro-Finance = powerful instrument to

alleviate poverty• Micro-Finance = pro-poor financial services

– The poor need credit & financial services– The poor lack access to credit & financial services

Underdeveloped credit markets in developing countries Credit not affordable for the poor ??? The poor are not creditworthy ??? Economies of scale: lending to the poor associated with

high transaction costs !!! Asymmetric information: the poor have no possibilities

to signal their creditworthiness !!!

The Research ApproachThe Research Approach

Some Considerations• Pro-poor lending technologies:

innovative approaches that reduce transaction costs and replace the need for physical collateral as screening and signalling method

– Group-lending with joint liability (Grameen Bank) Reduced transaction costs: group-leader or regular

meetings Social collateral: borrowers screened by other group

members by accepting responsibility for debt repayment

– Stepwise loans

– Standardized products

The Research ApproachThe Research Approach

Theoretical Framework• Critical Triangle of Micro - Finance:

SUSTAINABILITY

OUTREACH IMPACT

Based on Zeller and Meyer, 2002

Synergies / Trade-offs & constraints ?

Long run Short run

The Research ApproachThe Research ApproachEmpirical Approach

• 2 Case-study areas:

– Low poverty rates but high incidence of poverty– Major rice growing areas– Variety of credit schemes

VBARD/SPB

PCF VBCP WVI

Doan Dao North: Red River Delta yes yes yesTam Da Hung Yen province yes yes yesPhan Sao Nam Phu Cu district yes yes yes

Tan Thanh South: Mekong Delta yes yesAn Huu Tien Giang province yes yes yesThien Tri Cai Be district yes

Micro-credit institutions & projectsCase-study areaCommune

The Research ApproachThe Research ApproachEmpirical Approach

• Data collection:– 1st phase: qualitative data – group discussions & interviews

2 case-study areas: central, province, district & local level

– 2nd phase: quantitative data – survey of 301 households

Southern case-study area

• Socio-economic description of the case-study areasCase-study area Northern Southern

Province pop. density 1,184 people / km2 678 people / km2

Average agr. area / hh 0.26 ha 0.42 haLandless hh 0% 30%Agriculture very seasonal less seasonal

The Rural Credit Market in VietnamThe Rural Credit Market in VietnamThe Formal Sector

• Institutions:– VBARD (Vietnam Bank for Agriculture and Rural Development)

– SPB (Social Policy Bank)

Law on Credit and Financial Institutions

State-owned banks

– CCF/PCF: Central/People’s Credit Fund

Law on Cooperatives

• Interest rate policy: – all ceilings removed since June 2002 but still i = 1% / month

– SPB: subsidized interest rates much criticism

The Semi-formal Sector

The Informal Sector

The Rural Credit Market in VietnamThe Rural Credit Market in VietnamThe Formal Sector

• Institutions:– VBARD (Vietnam Bank for Agriculture and Rural Development)

– SPB (Social Policy Bank)

Law on Credit and Financial Institutions

State-owned banks

– CCF/PCF: Central/People’s Credit Fund

Law on Cooperatives

• Interest rate policy: – all ceilings removed since June 2002 but still i = 1% / month

– SPB: subsidized interest rates much criticism

The Semi-formal Sector

The Informal Sector