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views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. The countries listed in this paper do not imply any view on ADB's part as to sovereignty or independent status or necessarily conform to ADB's terminology.

ADBs Support for Emerging Microinsurance in Vietnam - The Constraints and the Way Forward
6th Asia Conference on Microinsurance, 24-25 July 2012 Manila, Philippines Hiroyuki Aoki Senior Financial Sector Specialist, SERD/SEPF Asian Development Bank

Outline

Introduction What is a Microinsurance?

Past ADBs Supports for Microfinance in Vietnam

Microfinance Development Strategy Current Regulatory Environment for Microinsurance in Vietnam

RETA 6142: Gender and Development Cooperation Fund Building a Capacity of a Microinsurance Institution for Women

Some Thoughts for Next Steps

Introduction What is a Microinsurance?

What is a Microinsurance?
General

Poor

Understanding: Insurance service for the

One of Financial Services for the Poor?

The Poor needs risk protection measures in addition to credit, saving, remittance and payment services.

A Tool for Social Welfare or Social Protection?

Health/medical insurance for complementary to public health system, or alternative in some countries

Agro/Crop Insurance for the Farmers?

Because the farmers are poor!

What is a Microinsurance?
Assumption:

Microinsurance is the insurance service to accommodate the cash flows of the Poor (sometimes called affordability).

Small Amount of Premium?

Small policies means many transactions with small amounts. Mobile banking, e-payment or Paperless Policies, etc Typical for Agro/Crop Products

New Technology to Reduce the Costs?

Government Subsidy?

What is a Microinsurance?
Challenge:

How can we manage various stakeholders under various constraints?

Policy makers Regulators/Supervisors Other Government Agencies Microinsurance Providers/Distributors

Beneficiaries
Communities/Local Governments Development Partners

We
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need some common understanding!!!

Past ADBs Supports for Microfinance in Vietnam

First Two TAs for Supporting Regulator

TA3741-VIE: Preparing the Framework for Microfinance Development in 2001 TA4638-VIE: Implementing the Regulatory and Supervisory Framework for Microfinance in 2005

Key Objectives of TAs

Supporting the governments initiative to establish the formal microfinance sector Supporting the preparation of the microfinance regal framework. Decree No. 28 in March 2005 on the organization and operation of microfinance. Followed by Decree No. 165 in November 2007 to supplement Decree No.28.

Key Outputs of TAs

JFPR9140-VIE: Formalizing Microfinance Institutions in 2009

Key Objectives of TA

The government focusing on creating an enabling environment to support private sector development in microfinance (rather than being directly involved in microfinance operations) Assisting the transformation of semiformal microfinance programs into formal regulated microfinance institutions with provision of matching funds
The Credit Institutions Law promulgated in 2010 recognized microfinance as formal financial service. Formalized Microfinance Institutions (As of 2011, two institutions have been licensed, namely TYM Fund and M3.)
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Key Outputs of TA

Microfinance Development Program, Subprogram 1 in 2012

First ADB Loan for VIE focusing on Microfinance Sector

USD40million policy based loan with PATA Approved on 5 July 2012 Creating a policy and regulatory environment conducive to an inclusive, sustainable, and market oriented microfinance sector Strengthening the supervisory and regulatory capacities of microfinance sector regulators Strengthening credit institutions involved in microfinance to provide affordable and sustainable services to the poor Supporting development of the infrastructure for the microfinance sector
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Key Outputs of Program Loan

Microfinance Development Strategy

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Microfinance Development Strategy

Microfinance Development Strategy (MDS) was adopted by the Government in December 2011

ADB supported this initiative through the PPTA for Microfinance Development Program

Government Commitment for Microfinance Sector Reform

Gradual Sector Transformation From Domination by the Social Protection Schemes into a Robust Financial Market Vibrant Operations based on Market Principles to better cater to the Diverse Need of Clients
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Microfinance Development Strategy

Profile of Microfinance Delivery in Vietnam
Institutions Loan# (million) 6.8 Mkt Share Loan Mkt Share Outstanding (US$ million) 3,000 40%

VBSP

57%

VBARD PCFs
MFIs/NGOs

3.2 1.3
0.6

27% 11%
5%

3,500 1,000
75

46% 13%
1%

Sources: VBSP Annual Report 2008, VBARD Report, as of October 2009, Central Credit Fund Annual Report 2008, For MFIs/NGOs, Data as of end 2008 Vietnam Microfinance Bulletin, No.13, July 2009

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Microfinance Development Strategy

Why important to Microinsurance?

Reference to Microinsurance Development

MDS covers Microinsurance Development. During the Stage 1 (from 2011 to 2015), MOF is tasked to carry out the following; Researching and proposing relevant regulations for microinsurance activities. No reference in the Stage 2 (from 2016 to 2020)!!
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Current Regulatory Environment for Microinsurance in Vietnam

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Current Regulatory Environment

Insurance Market in General

The Law on Insurance Business Decree No. 45 (2007): Decree Providing Guidelines for the Implementation of a Number of Articles of the Law on Insurance Business; and Decree No. 46 (2007): Decree on Financial Regime for Insurers and Insurance Brokers Ministry of Finance is the supervisory authority and regulator for (formal) insurance industry On the other hand, there is no provisions that prohibit microinsurance or informal insurance schemes, so there is no supervision
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Current Regulatory Environment

Microinsurance Related (1)

Decree No. 28 (2005): Regulating the Organization and Operation of Small-sized Financial Institutions; and

MFIs are allowed to work as agents or distributors of licensed insurance providers.

Decree No. 18 (2005): Regulating the Establishment, Organization and Operation of Mutual Insurance Organization (MIO) Operating in the Insurance Business Domain with the implementing guidelines, Circular No. 52 (2005).

This Decree provides a legal framework for informal insurance entities to transform into regulated MIO.

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Current Regulatory Environment

Microinsurance Related (2)

What is a MIO?

A MIO is a legal entity for doing insurance business for the purpose of self-support/help among members. The members should be Vietnamese organizations, individuals working/living in the same geographic area, having the same profession. The members are policy holders as well as owners of the organization.

A MIO is a member based organization and a window/opportunity of formalization, but not specifically intended for microinsurance business

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Current Regulatory Environment

Microinsurance Related (3)

There is no MIO licensed to date after the two Decrees in 2005

Why? The gap between the conservative prudential requirements and the development stage of informal microinsurance providers

Corporate Governance

Financial Requirement

Members Congress, Board of Directors and Supervisory Board, etc.

Legal Capital of not less than VND10B (US$500K) under Decree No. 18 and VND20B under Circular No. 52. 5% minimum return after tax and initial requirement of reserve equivalent to 10% of capital.
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RETA 6142: Gender and Development Cooperation Fund Building a Capacity of a Microinsurance Institution for Women

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Building a Capacity of a Microinsurance Institution for Women

General Description of TA

A pilot Project working for TYM/MAF The Project will provide the capacity building inputs to fill the gap between the current requirements for formalization and the current operation status. The Project amount is US$250K (ADB funding is US$100) and co-financed by the Swiss Agency for Development and Cooperation, the Microinsurance Innovation Facility under ILO, and the RIMANSI in the Philippines, Inc. The implementation period is 18 months, from May 2012 to November 2013.
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Building a Capacity of a Microinsurance Institution for Women

General Description of TYM/MAF

TYM set up the Mutual Assistance Fund (MAF) to provide members with mutual assistance support for life crisis in 1996 and started with the coverage of funeral expenses. Upon Decree No. 28 (2005), VWU decided to separate MAF from TYM in 2008 and aimed the transformation of MAF to MIO. As of 2011, TYM/MAF provided the cover to 72,000 members. Total number of insured was 230,000 including members family. TYM/MAF has four product lines; (i) Life, (ii) Credit Life, (iii) Medical/Health and (iv) Pension over 60.
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Building a Capacity of a Microinsurance Institution for Women

Key Outputs of TA

Improvement of Organizational Structure

Appropriate Governance

Improvement of Management Capacity of TYM/MAF staff

Business Planning/Product Development Independent Infrastructure

Establishment of Data and Management System

Development of a replicable gender performance benchmarking system

Support from Vietnam Womens Union

Sharing the Lessons Learnt in the form of Knowledge Products

Sector Development Support from a Pilot Project

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Building a Capacity of a Microinsurance Institution for Women

Why TYM/MAF?

Good track record/Leadership of VWU and TYM

In reality, the only candidate for formalization in the market

Why Now?

Microfinance Development Strategy

Needs for Dialogue with MOF

ADB Microfinance Development Program (Review of current regulation on MIO to facilitate the development of microinsurance) including PATA support for MOF

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Some Thoughts for Next Steps

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THANK YOU!
Hiroyuki Aoki Senior Financial Sector Specialist, SERD/SEPF haoki@adb.org