MICROCAPITAL STORY: Vietnamese Microfinance Sector Crippled by Government Lending Programs

In a speech given at the 2008 Global Summit of Women in Ha Noi, Vietnam, US Treasurer Anna Escobedo Cabral emphasized the need for more opportunities for women in Vietnam to access microfinance, citing the importance of microcredit in poverty reduction in Asian countries. The US Treasurer stated that since Vietnamese women played an important role in the household economy, credit would help women to be more active players.

According to the 2006 MIX Benchmarking Asian Microfinance report, microfinance institutions in Vietnam struggle to attain profitability because of competition from government lending programs. Government lending programs, in an effort to improve household economies, offer highly subsidized loans to microfinance clients pushing the market’s interest rates below 20 percent, thus thwarting the feasible expansion of private institutions and the microfinance sector in general.

The World Bank reports that 20 percent of Vietnam’s population lives in poverty. According to the United Nation’s International Fund for Agricultural Development (IFAD), more than three quarters of the population and 90 percent of the region’s poor live in rural areas with nearly 80 percent of the total population dependant on agriculture for their livelihood. Women in poor rural areas are especially affected, having little or no education and few opportunities for financial services, where poor infrastructure including limited transportation prevents effective outreach.

Before microfinance services can be made available to the country’s rural poor, basic infrastructure improvements need to take place.

IFAD is currently working to provide opportunities for income diversification in rural areas. The development of agro-processing industries and other micro-enterprise projects to boost Vietnam’s local rural economy are currently underway.

The International Fund for Agricultural Development (IFAD) is a specialized agency of the United Nations established as an international financial institution in 1977 in response to the food crisis in Africa that took place during the 1970s. Their mission is to eradicate rural poverty in developing countries. The IFAD works with local people, governments, donors, NGOs and many other partners focusing on country-specific sustainable solutions involving increased access to financial services, markets, technology, land, and other resources.

By Melissa Duscha

Additional Resources:

CLARA Working Paper No. 4: The Economic Position of Women in Asia, by Dr. Xin Meng

The United Nation’s International Fund for Agricultural Development (IFAD) Rural Poverty Portal: Vietnam

Vietnam News: Asian Women Need More Access to Micro-Loans

The Word Bank: Vietnam: Laying the Foundation for Steady Growth

Similar Posts: