Microfinance in Vietnam: the Struggle
As of 2009, it is estimated that only 40% of the demands for microfinance services are being met in Vietnam – 60% (or 12 million poor/low income people) still do not have access to microcredit services.
The legal framework in Vietnam did not have any concrete or established laws nor regulations that supported the microfinance industry, thus limiting the development of the industry. Most organizations providing microfinancing services in Vietnam operate as NGOs or NBFIs (non-banking financial institutions), these institutions are not licensed as banks and are not considered to be financial entities in Vietnam; even though many organizations have their own structure, governance, and staffing similar to that of an Microfinance Institution (MFI).
For example the Thanh Hoa Fund for Poor Women (FPW), the organization where I am currently working as a Kiva fellow, was founded under a service company model in which a partnership was created between with an NGO (Save the Children, US), a commercial bank, and a service company. Each entity plays a role in the partnership:
- The NGO provides expertise, technical assistance, and institutional development support.
- The commercial bank provides funds for lending.
- The service company provides the microfinancing services such as promotion of loan products, client assessments and trainings, facilitating the loan process, and providing financial reports. The service company is registered as a LLC and functions independently with a social mission, managing board, and a managing director.
The main advantage to this model is that the service company is not required to have a banking license in Vietnam to operate. A service company can develop its program to facilitate microfinancing services and when a legal framework is in place the service company would have the technology, expertise, and experience to spin off into an official MFI. The main disadvantage to this model is the inexperience of commercial banks with the microfinance industry and its reluctance to lend high volume loans; this require many organization to be more dependent on donor funding which has seen drastic drop in recent years. This is one of the reason many current operations in Vietnam have difficulties becoming sustainable and scalable institutions.
Similarly the service company, such as the case with FPW, can also broker loan insurance and healthcare plans through this same model.
It was not until earlier this year that the first official and fully licensed MFI was recognized by the state government in Vietnam. MFI institutions will be able to operate under the legal framework of formal financial institutions and under the State Bank’s administration rather than NGOs and non-banking financial institutions which face more financial and legal limitations. This will allow organizations to strengthen their institutional capacity to scale their operation, facilitate more loans through greater access of commercial funding from the state banks, and encourage the adoption of international microfinancing standards and practices.
Many see the government’s endorsement and support for the microfinance industry of MFIs as signs for development and growth of the microfinancing industry in Vietnam.Khiem Le KF13 – Khiem is serving as a Kiva Fellow with Thanh Hoa Fund for Poor Women (FPW) in Thanh Hoa, Vietnam
Interested in FPW? Join the Kiva the Kiva FPW team – Click Here and visit their website @ http://www.thmicrofinance.org/
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