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Microfinance in Vietnam - A Survey of Schemes and Issues

  • Adam McCarty

    (Institute of Social Studies, The Hague)

Registered author(s):

    This report follows up on a 1996 UNDP survey of microfinance activity in Vietnam. The need was not simply because of the five-year time lapse, but also because the larger multilateral donors were showing interest in funding microfinance activity, and it was therefore a good time to survey the sector and identify strategic issues and "lessons learned" for their benefit. This report had highlighted a number of problems concerning microfinance in Vietnam. These concerns, however, should not cloud the general picture of substantial progress during the past decade. The move by the government to allocate significant funds for the rural banking system is the most notable achievement. The government has also been active in developing experiments with new forms of credit cooperatives, and it is now seeking to mobilise savings through post offices. The missing element is the lack of a clear legal status and a prudential regulatory framework to encourage development of the non-state sector to provide microfinance services. The lack of institutional support has frustrated the NGO community. The conditions of “social capital” in Vietnam are ripe for the rapid expansion of microfinance schemes along the lines of those in Indonesia and Bangladesh . But the NGO schemes have also constrained themselves. NGO activity in microfinance may be characterised as “variations around a theme”, that theme being an acquiescence to government interest rate policies and a subsequent neglect of savings mobilisation. There are exceptions, but they are few, and there are many more schemes that are just “door opening” subsidies for other project objectives. There is a need for some schemes to aggressively strive for financial sustainability based upon mobilising savings. The donor community in general has relatively neglected Microfinance. The multi-lateral and some bilateral donors are showing renewed interest, but only in recent years. There is great scope for expansion into Vietnam’s segmented and inefficient rural financial markets. A detailed understanding of these markets, and in particular the role of the government banks, is needed to guide scheme designs and to enable targeting of the poor. A pro-active Microfinance Forum could play a central role in the whole process, both as a source of information and research, and as a focal point for policy advocacy.

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    Paper provided by EconWPA in its series Finance with number 0110001.

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    Length: 39 pages
    Date of creation: 11 Oct 2001
    Date of revision:
    Handle: RePEc:wpa:wuwpfi:0110001
    Note: Type of Document - ; pages: 39; figures: included. Survey commissioned by the British Department of International Development (DFID) and the State Bank of Vietnam (SBV).
    Contact details of provider: Web page: http://128.118.178.162

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    1. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    2. Fry, Maxwell J., 1982. "Models of financially repressed developing economies," World Development, Elsevier, vol. 10(9), pages 731-750, September.
    3. Dailami, Mansoor & Giugale, Marcelo, 1991. "Reflections on credit policy in developing countries: its effect on private investment," Policy Research Working Paper Series 654, The World Bank.
    4. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
    5. Reinhart, Carmen & Ostry, Jonathan, 1995. "Saving and real interest rates in developing countries," MPRA Paper 13352, University Library of Munich, Germany.
    6. Balassa, Bela, 1989. "Financial liberalization in developing countries," Policy Research Working Paper Series 55, The World Bank.
    7. Seibel, Hans Dieter & Kunkel, Carmen R., 1997. "National Consultation-Workshop on Alternative Mechanisms for the Promotion of Microfinance in Vietnam," Working Papers 1997,3, University of Cologne, Development Research Center.
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