05-09-2012, 01:28 PM
Microfinance in Vietnam: A Survey of Schemes and Issues
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The What and Why of Microfinance
What is microfinance? Why are sustainable microfinance schemes needed? And what does
microfinance in Vietnam need – more funds, a better legal framework, coordination,
sustainability?
Microfinance is small-scale lending to, and saving from households, and for this report the
focus is on rural households. But the edges of this definition are far from precise. What is
“small scale”? Why does excluding urban households seem reasonable? The answer is
because “microfinance” is a concept that defines a type of lending which is different from
“normal” commercial lending. The difference to many people is in its nature of helping poor
households (which are mostly rural), and thus it gets mixed with opinions about social
policies and income distribution. Many people argue that microfinance should therefore be
available at less-than-market interest rates. This is a mistake. Mixing access to finance with
charity leads to problems of credit rationing, corruption, and unsustainability. Better to keep
them apart. Give charity, conduct business.
The Main Arguments & Findings of the Study
Microfinance as a donor activity is different. Most notably because a successful project never
closes, despite the earnest desire of some donors to do so and move on with disbursements! A
financially sustainable scheme could even grow of its own accord in line with demand.
Others, close to sustainability, can maintain their real level of activity through modest
ongoing subsidies (e.g. to administration and training). Most, however, slowly wind down.
But it can take many years. For many donors, a microfinance project “closes” by “handing
over to local authorities” the job of managing a steadily diminishing fund, where lending
costs and defaults always outweigh revenues.
The “success” and impact of a scheme should be judged upon the welfare impact (household
living standards) of donor spending over a long time period2. A scheme that maintains itself
or even grows over the period is going to score much better than one that fades away, even if
the interest rate had been lower for the short-run scheme. Although at a higher “price of
funds”, the sustainable scheme would have created vastly more lending. One problem,
however, is that most donor microfinance schemes are integrated with other activities, which
makes their evaluation more complex and arguments for subsidised microfinance schemes
often more reasonable.
Microfinance in Vietnam
Who owes who, 1992-1998
Data from the 1992-93 Vietnam Livings Standards Survey (VLSS1), showed that 47 percent
of rural households and 38 percent of urban households were in debt. Poor households were
slightly more likely to be in debt in rural areas, and much more likely to be in urban areas: 50
percent of rural and urban households in the lowest expenditure quintile were in debt. By
1997-98, the percentage of households in debt had risen to 50 percent (54 percent of rural
households).
In 1992-93, private moneylenders and individuals provided 73 percent of loan funds in rural
areas, and government banks 23 percent. By 1997-98, the share of government banks had
increased to 40 percent (Table 1), and the share of money-lenders had fallen from 33 percent
in 1992-93 to 10 percent in 1997-98. This reflected the rapid growth of VBARD lending and
a “crowding out” of the informal sector.