NEWS WIRE: Vietnam: State Dominates Microfinance Market

Source: Thanh Nien News.

Original news wire available here.

Vietnam, September 7 – In Vietnam, providing microfinance services to the poor is often considered the responsibility of the government and local and international social organizations. As a result, it is difficult to attract the participation of all economic sectors in microfinance, though Vietnam is a market with great potential for financial services for low-incomers, experts said.

With 70 percent of the country’s population living in rural areas and earning their living mainly through farming, a great need existed for microfinance services to help rural residents develop family businesses, the State Bank of Vietnam’s Truong Ngoc Anh told the Asia Microfinance Forum in Hanoi last month.

While the per capita gross domestic product (GDP) of Vietnam was now USD 900, residents in many areas have very low incomes, earning as little as USD 2 a day or USD 730 a year, Anh said. He said in Vietnam there were now three groups that provide microfinance services: formal financial institutions such as banks for social policies and people’s credit funds; semi-formal groups including social organizations and international organizations; and informal providers including moneylenders and savings collectors.

“Policy makers have long regarded microfinance as a charitable activity, instead of a part of the finance industry,” a People’s Army newspaper report quoted Le Thi Lan, director of the Community Financial Resource Center, as saying. The Vietnam Women’s Union and the Vietnam Farmers’ Union, for example, were currently the main microfinance institutions active in the country but their services were not really professional, she said.

Nguyen Thanh Binh, a financial expert from the Philippines-based Asian Development Bank (ADB), said the state-owned financial institutions account for all of the microfinance market in Vietnam, with hardly any private companies participating in the market.

Neighboring Cambodia created a legal framework for microfinance in 2002 and has allowed many commercial banks and private companies to provide microfinance services, Binh said. Cambodia now has 17 private microfinance institutions and the annual total credit supplied by all institutions has reached USD 637 million, or 8.4 percent of the country’s GDP, he added, estimating the proportion in Vietnam was 4 percent. Binh said in Vietnam businesses, state agencies and the public alike assumed financial services for the poor need to be funded by government or nongovernmental organizations.

Two decrees, passed in 2005 and 2007, stipulate that microfinance institutions in Vietnam must operate in the form of limited companies. The decrees also restrict the participation of foreign investors, he said. Such regulations would cause local and foreign investors to “have doubts about the interference of the government in microfinance institutions and about the transparency of the market,” Binh said.

Another factor that has hindered the development of microfinance services in Vietnam was the lack of data about the local microfinance market, he said. If investors want to enter the market, they needed to spend a large amount of money on market surveys, which may “discourage” them, he said.

Truong Ngoc Anh said even the State Bank of Vietnam did not know much about microfinance and the bank’s officials had only started learning about it a few years ago. “Most people and government agencies think microfinance is an unprofitable service and the duty of the state,” he said. Anh said this false impression was “the biggest challenge to the microfinance market in Vietnam.” According to Anh, there are several microfinance institutions running effectively in Vietnam such as the TYM Fund of the Vietnam Women’s Union, the Dariu Foundation of Switzerland and Binh Minh Community Development Consulting Company Ltd.

Binh said ADB is now in discussions with the State Bank of Vietnam to help the country design a program for the development of its microfinance market in 2010-2011 and provide technical assistance to the central bank. At first, ADB will assist Vietnam in solving legal issues concerning microfinance and contribute ideas to help reduce the costs of providing microfinance services to the poor, he said.

Nguyen Van Giau, governor of the central bank, was quoted by Vietnam News Agency as telling the Microfinance Forum that the long term goal of the country was to alleviate poverty and microfinance was an important tool to achieve that goal.

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