The Role of NGOs in developing Micronance in Vietnam

Chung ECON 462

(Consultative Group to Assist the Poor, 2004)

Key principles of micronance

!Government enables, not provide directly NO !Pay for itself (sustainable) NO !Build permanent local institutions NO !Integrated into the mainstream financial sector NO

Overview
!Vietnam: market-based reforms, 1980s !Poverty rate from 58.1% (1993) to19.5% (2004) !1980s: Microfinance introduced by NGOs !1990s: State banks
" Vietnam Bank for Agriculture and Rural Development (VBARD) " Vietnam Bank for the Poor (VBP)

MF environment
!2005: Decree 28 !International NGOs not allowed to set up financial institutions !Can only contribute capital jointly with legal domestic organizations !57 international NGOs !With socio-political organizations, Women Union (WU)

Market share

My paper
! 1) 2) 3) Economic problems Unhealthy competition Institutional Conflict No integrated network

! Role of NGOs

Unhealthy Competition
Microfinance: Government supported social welfare program Policy lending Bank: VBP # crowd out current NGOs

Economic Problem 1:

Evidence
Interest rate (as of December 2004)
" VBP: 0.5% " Oxfam: 1.5% " Save the Children: 1.5-1.7%

#Only credit-worthy households can benefit #NGO: no financial sustainability

Eg: Save the Children/ UK (SC/UK) 5-year Poverty Alleviation Program but didnt sustain

Role of NGOs:

Face competition

Improve schemes: best practices # serve no-collateral clients Grameen Bank Village Bank Solidarity Group Vietnam Plus, Action Aid SC/Japan, Plan International, WVI SC/US

Role of NGOs:

Face competition

!Lobby for changes

Eg: 2002, when VBP was established " 7 NGOs against subsidized interest rates: FAILED

!Improve public information about different schemes

Eg: SC/UK program: shown at least 3 times on Vietnamese National Television

Institutional conict
!Women Union (WU): oversees programs funded by international NGOs # headquarter-subsidiary conflict " HQ: financial sustainability " Subsidiary-Local: poverty reduction #Hard to go from infant to mature state #Mean technical EFFICIENCY: 69%-78%

Economic problem 2:

Evidence
WU staff: knew nothing about microfinance management Mission-Market tension " HQ: high IR " Subsidiary: follow state banks

Role of NGOs:

Resolve Conict

!Expatriate management !Training/ Building capacity Bottom-up influence

No Integrated sector
!Lack of networking " NGO: multi-purpose
Eg: global SC/UK strategy: microfinance is not top priority

Economic Problem 3:

" WU: same

SEGMENTED MARKET

Role of NGOs:

Improve Network

2004, Microfinance Working Group (MFWG) formed

email list serve, regular meetings, semi-annual microfinance newsletters

#Representative voice #Should turn into a formal association National Strategy: Integration into overall financial system

Conclusion
!Paradox of sustainability: rests more on social and political considerations than on economic ones (Devine, 2003) !Role of NGOs: crucial