Internal policies and regulations on environmental, social and climate risk in VBSP

(VBSP News) Environmental, social and climate risks in VBSP include potential hazards and risks for the environment and the community caused by VBSP's customers and by the value chain serving production and business activities that customers participate in. Potential environmental and social problems may include issues similar to other credit activities related to energy consumption, pollution, land, health, safety, conservation ecosystem protection, climate change, human health, safety and security, labour relations, etc.

Internal policies and regulations on environmental, social and climate risk in VBSP

VBSP's credit activities, on the one hand, have major investment portfolios to contribute to overcoming the consequences of environmental and social risks caused by the impact of the implementation of a certain project on the environment and society to residents in the area or due to the direct influence of nature on the customers of VBSP. Therefore, the implementation of government’s credit schemes, green credit and investment portfolios has contributed to minimizing the extreme impact of environmental and social risks for customers and the local community.

VBSP's targeted customers are the poor and other vulnerable groups who borrow micro-loans for improving livelihood, may be partly impact on social and environment risk but only at much smaller scale than commercial banks' loan projects which may cause social and environmental risks for customers and community in localities.

If some green credit schemes do not follow technical requirement and social-environmental protection or conduct uncomprehensively, they will cause potential risks on the climate, society and environment for the community.

Almost all VBSP’s customers live and conduct business and production projects in vulnerable communes where are easily threatened by natural disasters as well as lacked prevention measures and infrastructure.

VBSP’s customers are the poor, low-income and other disadvantaged groups who are limited in knowledge, skills, their business and production mainly depend on external environment, resulting in meeting with many difficulties if risks or shocks happen.

Existing regulations on risk management

Decree No.78/2002/NĐ-CP dated 4/10/2002 of the Government on credit for the poor and other vulnerable groups; Decision No.50/2010/QĐ-TTg dated 28/7/2010 of the Prime Minister on issuing risked debt treatment in VBSP; Decision No.08/2021/QĐ-TTg dated 11/3/2021 of the Prime Minister on amending Decision No.50/2010/QĐ-TTg; Decision No.976/QĐ-TTg dated 01/7/2015 of the Prime Minister on debt classification in VBSP.

Differences between VBSP credit risk and other credit institutions

(1) Borrowers. If a commercial bank considers lending to customers who meet the requirements set forth by the bank, VBSP's customers belong to the target group of customers specified by the Government in all lending schemes. VBSP's customers are poor households and other policy beneficiaries who mostly live in remote areas and are weak in terms of production & business capacity and conditions as well as agriculture easily threatened by climate change and natural disasters. The risk possibility of policy credit is inherently higher than that of commercial banks.

(2) Risks due to objective and force majeure causes. Because of living and doing business mostly in disadvantaged areas, VBSP's customers are easily vulnerable by impacts on natural disasters, environment, social issues, climate change, market price change, epidemics, illnesses, etc. Therefore, social policy credit might meets with high risks due to these objective reasons. Natural disaster risks by region (Central coastal provinces, Northwest, Central Highlands) and by cycle of storm and flood seasons etc.

(3) Small loan size and loan security. Almost loans from commercial banks are required loan security while most of the VBSP's loans are small in size and not required collaterals. On the one hand, when any risk occurs, the borrower is unable to repay, VBSP will not have collateral to handle debt recovery, representing  higher risk possibility than commercial banks.

Furthermore, the risk factors due to the imbalance of supply and demand, the decrease in agricultural product prices due to the imbalance of supply and demand in the consumer market, because seasonality is also likely to occur depending on the size of the industry, the region, including VBSP customers.

The small loan amount as well as the large number of loan accounts are risk dispersion factors. Because the investment portfolio is dispersed, the scale of damage is also lower than that of commercial banks in the event of an economic crisis.

(4) Methods of lending and debt management. Commercial banks primarily extend direct lending to customers whereas VBSP primarily lends to households by entrusting some steps in the lending process to 4 mass organizations and delegating some work to the SCGs Board. Because of a large number of borrowers, small loan size and non-collateral requirement, VBSP has conducted debt management with joint coordination of the mass organization and SCGs system.

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