CASE STUDY FROM VBSP: EXPERIENCE SHARING ON PRO-POOR RURAL AND AGRICULTURAL FINANCE IN VIETNAM

1. Overview

VBSP is a State-owned non-profit credit institution that is currently in charge of providing policy credit to the poor and other policy beneficiaries. VBSP has officially started its operations since March 11th, 2003 to provide loans for production development and livelihood improvement, contributing to the achievement of hunger poverty reduction goals.

VBSP set up a nation-wide unified management and administration apparatus. VBSP is a legal entity with its financial autonomy and operation sustainability. VBSP has its own seal, legal assets and nationwide transaction network from central to local level. VBSP implements such basic operations of a bank as: capital mobilization (from international and domestic individuals and organizations; receiving capitals from the government and People’s Committee, etc.); extending loans to the poor and other policy beneficiaries and payment services.

VBSP has a nation-wide network from Head Office to communes:

•      A Head Office;
•      A Transaction center;
•      One IT center;
•      One Training center
•      Seven Training Facilities
•      63 provincial and municipal branches;
•      630 district transaction offices;
•      10,962 mobile transaction points at communes/wards;
•      183,332 Savings & Credit Groups at communes/wards nationwide.
•       6,724,183 million active borrowers(households)

Currently, VBSP is providing more than 20 credit products under various programs such as lending to the poor; the near poor; the just escaped from poverty; disadvantaged students; rural safe water and sanitation; business households in difficult areas; job creation etc,. As of 30^th June 2018, total capital of VBSP reached VND 189.1 trillion, outstanding loans of VBSP was VND 181.7 trillion, of which outstanding loans to agriculture and rural areas reached over VND 170.7 trillion, accounting for approximately 94%. Overdue and frozen debts accounted for only 0.81% of total outstanding loans, of which overdue debt accounted for 0.42% of total outstanding loans, frozen debt was 0.39%.

2. Contribution of VBSP to poverty reduction in Vietnam

The activities of VBSP have been highly appreciated by the Party, National Assembly, Government, authorities at various level and people of Vietnam. It is a creative solution, deeply human and suitable with context of Vietnam. It is one of the bright spots in poverty reduction policies that have direct impacts and practical effects for poor households, near poor households and policy beneficiaries, contributing to effective implementation of national targets on poverty reduction, job creation, human resource development, new rural areas construction, social security and economic development.

Over the past 15 years, VBSP policy has been growing in quality and quantity. Policy credit has been channeled to 100% of communes, wards and towns across the country; particularly communes in ethnic minority areas, extremely disadvantaged communes, remote and border areas. Loans have been provided to over 31.8 million poor, near poor households and policy beneficiaries with total amount of over VND 433 trillion. Policy credit helps more than 4.5 million households to cross the poverty line, attracts and  create new jobs for over 3.4 million laborers; more than 3.5 million disadvantaged get loans for study; build 9.9 million clean water supply and sanitation works in rural areas, over 11 thousand flood shelters for poor households in central provinces, more than 105 thousand houses over flood for households the Mekong River Delta and nearly 528 thousand houses for poor households and policy households with no housing in the country; over 112,000 laborers go to work overseas for a certain period of time etc,.

3. Successful factors of VBSP

3.1. To accompany the poor with diverse products which are suitable for the poor, environmentally friendly and adaptable to climate change.

VBSP provides a range of credit products to serve the poor in their development process, assisting people not only to escape from poverty, but to escape poverty sustainably. VBSP has credit programs for the poor, near poor, just escaped from poverty, disadvantaged students, job creation, housing etc. In addition, there are urgent loan programs such as housing support the poor in climate change prevention such as the housing loan program for preventing floods in the Central region, housing in floodplains of Mekong Delta... VBSP also has green credit programs that reduce effect of greenhouse gases and reduce environmental pollution such as loans for afforestation and rural safe water and sanitation program. Interest rates on loan programs are also gradually increased by the level of development of households. For poor households, lending interest rate is 6.6% per annum, near poor households 7.92%, just escaped from poverty households is 8.25% etc.

Besides lending programs for poor households to escape poverty sustainably, VBSP also provides services of receiving small deposits, even half a dollar, from households through Savings and Credit groups (SCGs) helping the poor to reduce burden of repayment at debt maturity. Besides, VBSP also provides savings products for communities right at the commune where they live, works closely with local authorities, mass organizations to provide regular business training to borrowers to use loans effectively.

3.2. The multi-functional Commune Transaction Point model complies with the principle of customer protection and responsible financial services.

The model of "VBSP’s Commune transaction points at Commune People's Committees" is considered as a constructive step, facilitating the poor and other beneficiaries to have access to preferential capital resources of the State and to build a system of services which is close to the people, friendly and responsible, saving transaction costs and travel costs for the people.

The operation of communal transaction points contributes to exercise democracy, publicize the implementation of policy credit and enhancing the direction of the local government and mass organization in the inspection, supervision and assistance to borrowers for effectively using the loan.

At present, VBSP has total 10,962 transaction points among 11,162 communes all over the country. Nearly 90% of professional activities of VBSP have been implemented in communes, wards and townships through activities of the commune transaction points. The remaining communes, wards and towns without commune transaction points are where VBSP offices located and transactions are done at the offices.

One mobile transaction team consists of two or three officers who are one credit officer as group leader, one accountant and one cashier as assigned by the manager of the VBSP district transaction office. Mobile transaction normally takes place at least once per month on a fixed date at commune (regardless of weekends or holidays). 

At each communal mobile transaction point, all information is publicized, as follows: the information of government policies and guidelines on preferential credits for the poor and other policy beneficiaries; the interest rate of each loan program; transaction timesheet; list of active borrowers, loan amount, loan maturity, debt amount to be repaid to the bank and deposit of savings and credit group.

The activities of the mobile transaction team at communes include loan applications gathering, disbursement, loan collection, saving mobilization through savings and credit groups, commission payment to savings and credit groups and allowance to communal authorities in charge. Additionally, an official meeting will be organized with representatives from communal mass organizations and savings and credit groups in order to control the lending process, debt status, operation of savings and credit groups and credit risks etc,

3.3. The model of cooperation with mass organizations reflects the role and voice of customers in banking management. Ensure mainstreaming poverty reduction missions into administration of VBSP.

Mass organizations in Vietnam are organizations representing interests of various social communities involved in the political system according to the principles, purposes and nature of each organization. Mass organizations are a form of mobilizing and deploying human resources for the purposes of building and protecting Vietnam. Mass organizations that have their representatives in VBSP Board of Directors contributed to ensuring the right of disadvantaged people to access credit policy and to raise voice in banking administration decisions; ensuring development of VBSP is balanced between economic efficiency and social efficiency.

Besides, VBSP entrusts 04 mass organizations, Women’s Union, War Veteran Association, Farmers’ Association, Youth Union to carry out some tasks in the lending process to poor households and other policy beneficiaries including propaganda and mobilization of SCGs to help each other, share experience in using the loan for the right purpose, effectively contributing to improve living standard, make debt and interest repayment on time as committed to VBSP.

Coordination with mass organizations helps publicize and socialize the activities of VBSP; To bring into full play the combined strengths of the entire political system and mass organizations so as to help people access preferential credit of the Government, creating an effective credit channel; bringing VBSP closer to the poor and other policy beneficiaries, giving them access to VBSP's financial services in a quick, convenient, safe and effective manner, saving time and cost of borrowing; and through choosing borrowers publicly and democratically, promoting the role of mass organisations, ensuring transfer of capital to the right beneficiaries.

3.4. Savings and Credit group - the lengthen arm of VBSP to every residential area nationwide ensures VBSP's services to be deployed broadly, connecting financial services to financial education for clients. .

To be the lengthen arm of VBSP, Savings and credit groups is a gathering of poor households, near poor households and other policy beneficiaries in need of loans. for business, job creation, livelihood improvement; commit for mutual assistance in production, business and life; supervise each other in borrowing, using loans and repaying debts to VBSP.

All groups are established and operate in villages, hamlets and living quarters, with at least 5 members and a maximum of 60 members. Each group has a convention and operates according to the convention of the Group, periodically by month or by quarter. SCGs responsible for reviewing, selecting borrowers, urging borrowers to use loans for the right purpose, effectively, to pay loan interest and principal on time; collecting monthly interest and savings deposits.

SCGs - the lengthen arm of VBSP has assisted the bank in capturing interests, aspirations of borrowers to ensure that the capital reaches the right beneficiaries, used for the right purposes to repay debt, interest to the bank and gain economic benefits to escape poverty, improve the quality of life.

3.5. Proceed to digital banking, for the industrial revolution 4.0 to avoid abandoning the poor

The world is entering the industrial revolution era 4.0. Digital technology is penetrating into all areas of society, especially banking sector which is being digitized very quickly, leading to many fundamental changes in the way of providing service. Customers are better and faster served, with lower cost, flexible time and place. Poor people without access to new technology will be marginalized by the 4.0 revolution and the progress of society. From the beginning of 2017, VBSP has been gradually deploy digital technology into banking operations, starting with SMS service. This is the first step to help poor people get acquainted with digital technology and to help VBSP to diversify its products and services, improve the efficiency of banking operations in order to serve customers better and better, bringing services not only to customer's home but also can serve 24/7.

At present, VBSP SMS reminds about payment schedule, debt and monthly account balance. Thus, VBSP can enhances transparency and efficiency, gives customers access to comprehensive financial services, improves credit quality and increases cost effectiveness for both customers and VBSP. At the same time, it has impacted on customers with recognition of liability repayment, savings deposit and also helps saving a lot of time, saving printing costs ...

4. Prospect of VBSP

At present, there is a question for policy makers and financial service providers for the poor, i.e how to be financially sustainable while serving the poor.

Many financial institutions choose to sustain themselves first and set high interest rates for the poor with explanations that  immediate operational costs should be ensured so that poor people can only afford small loans with high interest rates. Thus, it is difficult for them to improve their production capacity, resulting in many years of access to microfinance services, but not yet get over the poverty line.

The development strategy of VBSP up to 2020 approved by the Prime Minister has shown orientation towards sustainability of customers first. After customers achieve financial sustainability, the bank will achieve long term durability. Services of VBSP must help customers get acquainted with the market economy, have courage to borrow capital to improve production capacity, learn how to do business more effectively, to be able to bear interest rates which are getting closer to the market rate. Gradually, VBSP will replace preferential interest rates with other appropriate incentives.

In the coming time, VBSP will continue to work with the poor and bring poor people more convenient services. VBSP will improve and expand savings services of the poor and those who have needs or services as payment, remittance, overseas remittance;

VBSP also strives to modernize its operations, integrate with banking system in the region and around the world, and help poor, near-poor households, other policy beneficiaries and low-income people to access modern products and services.

In addition, in order to improve efficiency of loan utilization, VBSP will continue to promote the coordination and effective integration of policy credit activities with technical assistance, technology transfer, promotion of agriculture, forestry, fishery extension and activities of mass organizations in order to reduce poverty quickly and sustainably and ensure social security./.