The year of international micro-finance 2005 has marked a possibility of developing financial services for the poor people in Vietnam. Micro-finance is an effective tool for poverty reduction with provision of sustainable financial services to the poor. However, questions remain on how to develop it in the most effective way.
A breakthrough taking place in the micro-finance sector is the launch of the Decree No. 28 issued by the government, which has created a legal framework for financial institutions to establish and operate under the best international practices.
However, after of ten years of ineffective operations, the micro-finance sector still needs a further favourable environment in order to serve millions of poor people in Vietnam.
At present, the lending activities for the sake of poverty reduction are quite weak in the operation of official and semi-official institutions. Although many financial organizations are interested in the micro-finance sector, they still have not taken part.
The problem is how the micro-finance entities can operate effectively. If there is a specific orientation, these entities can handle the issue and can actively join hands in poverty reduction in Vietnam.
The Micro-finance Working Group (MFWG) reported at the 2005 Consultative Group Meeting of Donors to Vietnam held in Hanoi last December, that Decree No.28 would enable small-scaled financial institutions to receive capital from foreign individuals as well as organizations. However, the decree does not specify the roles of investors, customers and members in the financial institutions.
At present, the micro-finance institutions are not allowed to get commercial loans, so they still depend on financial resources. This limit in assistance has lowered the development of the micro-finance sector in the country.
Decree 28 will, for the first time, likely empower the micro-finance institutions to receive commercial loans. In this context, MFWG said that, institutions must prepare for that.
According to MFWG, solving the problem requires some measures. First, channels providing capital to the micro-finance institutions should be built urgently. It is necessary to set up cooperation with commercial banks, such as the Bank for Agriculture and Rural Development of Vietnam and Bank for Social Policy, and the micro-finance institutions, in which banks will function as whole-sale partners and the micro-finance institutions as retailers.
The second solution is to access a donor and build a whole-sale entity with commercial capital, aimed at distributing capital to the eligible micro-finance institutions.
The third is to establish a guaranteed fund to ensure payment of commercial loans for the micro-finance institutions in case of defaults.
MFWG said that a specific strategy to develop the micro-finance sector is very necessary to minimize incoherence and handle key problems in the sector. The recent establishment of a board for micro-finance in the State Bank is progress on which to build a stronger management mechanism. However, the State Bank should provide assistance in building development strategy and management capacity. Thus, Vietnam will be able to mobilize capital pledged by international donors and organizations so that the country can reach the Millennium Development Goals in sustainable poverty reduction.
Lan Anh
Vietnamese
