VLIR Policy Preparing Research Project

1. Operational and Institutional Obstacles for the Efficacy of Micro-Credit Programs for Poverty Reduction in Vietnam MIET MAERTENS VLIR Policy Preparing Research Project Thanks to: BTC Vietnam, Hanoi (Mr. Smis, Mrs. Tan and others) Vietnamese Belgian Credit Project & Women’s Union (Mr. Bartsoen, Mrs. And others) Micro-finance Resource Centre, Hanoi (Prof. Dao van Hung & Ms. Tran Bin Minh) Vietnam National University of HCMC – Economics Faculty (Dr. Tran Viet Hoang and others)

2. Overview • The Research Approach • Conceptual framework • Empirical approach • The Rural Credit Market in Vietnam • The outreach of

3. The Research Approach Some Considerations • Micro-Finance = powerful instrument to alleviate poverty • Micro-Finance = pro-poor financial services • The poor need credit & financial services • The poor lack access to credit & financial services • Underdeveloped credit markets in developing countries • Credit not affordable for the poor ??? • The poor are not creditworthy ??? • Economies of scale: lending to the poor associated with high transaction costs !!! • Asymmetric information: the poor have no possibilities to signal their creditworthiness !!!

4. The Research Approach Some Considerations • Pro-poor lending technologies: innovative approaches that reduce transaction costs and replace the need for physical collateral as screening and signalling method • Group-lending with joint liability (Grameen Bank) • Reduced transaction costs: group-leader or regular meetings • Social collateral: borrowers screened by other group members by accepting responsibility for debt repayment • Stepwise loans • Standardized products

5. SUSTAINABILITY OUTREACH IMPACT • Synergies / Trade-offs & constraints ? Long run Short run The Research Approach Theoretical Framework • Critical Triangle of Micro - Finance: Based on Zeller and Meyer, 2002

6. The Research Approach Empirical Approach • 2 Case-study areas: • Low poverty rates but high incidence of poverty • Major rice growing areas • Variety of credit schemes

7. The Research Approach Empirical Approach • Data collection: • 1st phase: qualitative data – group discussions & interviews 2 case-study areas: central, province, district & local level • 2nd phase: quantitative data – survey of 301 households Southern case-study area • Socio-economic description of the case-study areas

8. The Rural Credit Market in Vietnam The Formal Sector • Institutions: • VBARD (Vietnam Bank for Agriculture and Rural Development) • SPB (Social Policy Bank)  Law on Credit and Financial Institutions State-owned banks • CCF/PCF: Central/People’s Credit Fund  Law on Cooperatives • Interest rate policy: • all ceilings removed since June 2002 but still i = 1% / month • SPB: subsidized interest rates  much criticism The Semi-formal Sector The Informal Sector

9. The Rural Credit Market in Vietnam The Formal Sector • Institutions: • VBARD (Vietnam Bank for Agriculture and Rural Development) • SPB (Social Policy Bank)  Law on Credit and Financial Institutions State-owned banks • CCF/PCF: Central/People’s Credit Fund  Law on Cooperatives • Interest rate policy: • all ceilings removed since June 2002 but still i = 1% / month • SPB: subsidized interest rates  much criticism The Semi-formal Sector The Informal Sector