International dissemination workshop “Pro-Poor Rural and Agricultural Finance Best Practices: Experiences of Vietnam”

VBSP News - Finance for agriculture and rural areas in Vietnam has been always a focus of the Government and banking sector. Especially, since 2006, credit programs of the banking sector dedicated to agriculture, rural areas and the poor have been one of the "pillars" of Vietnam's poverty reduction policy system. This is the statement of Deputy Governor of the State Bank of Vietnam (SBV) Dao Minh Tu at the workshop “Pro-Poor Rural and Agricultural Finance Best Practices: Experiences of Vietnam” which was co-hosted by VBSP, Asia-Pacific Rural Agricultural Credit Association (APRACA), International Fund for Agricultural Development (IFAD) held on 5th September in Hanoi.

Mr. Dao Minh Tu, PhD - Deputy Governor of the State Bank of Vietnam addressed the workshop

With the topic “Pro-Poor Rural and Agricultural Finance Best Practices: Experiences of Vietnam”, the Workshop has 2 sessions. This is an important forum for policy makers, financial institutions, creditors, researchers at VBSP and abroad to share practical experiences on rural and agricultural finance for the poor.

 The event was attended by Mr. Dao Minh Tu, PhD - Deputy Governor of SBV; Mr. Duong Quyet Thang, PhD - General Director of VBSP; Mr. Prasun Kumar Das, PhD - Secretary General of APRACA; Mr. Thomas Rath - Head of Representative Office of IFAD in Vietnam and more than 100 participants from 14 microfinance institutions, 23 international financial organizations, 9 embassies in Vietnam .

Others attending the workshop were representatives of SBV, Government Office, MPI, Ministry of Finance, MARD, MOLISA, Banking Association, VBSP, mass organizations and commercial banks operate in the field of agricultural and rural credit.

Mr. Duong Quyet Thang, PhD - General Director of VBSP delivered opening speech

Expressing his delight as the International Workshop on Agricultural and Rural Finance for the Poor in Asia and the Pacific was organized in Vietnam, Mr. Duong Quyet Thang, General Director of VBSP, said: "In Vietnam, VBSP is a Government bank established to provide policy credit and other services to poor people and social policy beneficiaries nationwide. Policy credit of the bank has been invested to 100% of communes, wards and towns across the country. With more than 20 credit programs for the poor and policy beneficiaries, total outstanding loans of VBSP reached VND 182.988 trillion, with over 6.7 million active poor household, near poor household and other policy beneficiary borrowers; credit for agriculture and rural areas accounted for nearly 94% of VBSP’s total outstanding loans. "

Credit activities of VBSP have promptly and efficiently met demand for capital of poor people and rural policy beneficiaries, contributing to poverty reduction, raising living standards of farmers, gradually narrowing income gap between regions and prevent usury in rural areas. Policy credit has also contributed to a fundamental change in the perceptions of the poor about saving, creating and accumulating capital for the future. VBSP activities have contributed to accomplishment of national target program on sustainable poverty alleviation through various periods. Results of banking credit in rural agriculture in general and policy credit in particular have been considered by the Party, National Assembly and Government of Vietnam as one of the important "pillars" to achieve the goal of sustainable poverty reduction.

Bank credit inflows have contributed significantly to other investment flows by the state, businesses and people to help Vietnam achieve the Millennium Development Goals on eliminating extreme poverty and hunger in 2002, 13 years earlier than the target; bringing Vietnam from a low-middle income economy to a middle-income country since 2010 with an economic size of over USD 220 billion, per capita income reached USD 2,385 in 2017.

According to the Deputy Governor of SBV, credits to agriculture, rural areas and the poor are highlighted by a number of outstanding results: the system of mechanisms and policies on credit has been continuously improved towards expanding target customers, loan amount and loan procedures to meet investment needs in the agricultural and rural areas; the network of credit institutions involved in providing banking services for agriculture and rural areas has been continuously expanded in terms of scale, network and diversification of activities; modern banking products and services are targets for investment, innovation to create favorable conditions for customers to access low transaction costs such as Internet banking, mobile banking ...

Thanks to the development of the system of credit institutions, credit for agricultural, rural areas and the poor increased dramatically: agricultural and rural outstanding loans increased nearly 20% per year on average, policy credit increased by 13% per year an average, fully and promptly meeting the capital needs for comprehensive development of agriculture and rural areas, contributing to poverty reduction and raising people's living standard.

Vietnam has been actively involved in the development of rural and agricultural finance to bring about nationwide comprehensive development and adherence to principles of the United Nations' sustainable development goals. APRACA is supporting two banks (VBSP and Agribank) to build capacity to achieve these goals through exchange of experiences with other organizations, visits to most successful models and staff training.

Mr. Prasun Kumar Das, PhD - Secretary General of APRACA affirms the role of VBSP in poverty alleviation and efforts of the Government of Vietnam's overall Poverty Reduction Program

Mr. Prasun Kumar Das, Secretary General of APRACA, said that with 6.7 million regular savings depositors, VBSP is the most capable organization to mobilize savings among key providers of microfinance services with 70% market share. This is due to the bank's unique customer approach. VBSP has created an effective credit and debt collection system that reduces transaction costs for customers and the bank itself, while achieving impressive coverage to commune level.

"It must be stated that the role of VBSP in poverty alleviation is significant, but also efforts of the overall poverty reduction program of the Government of Vietnam. The Government of Vietnam has consistently pursued this program, which is also the main reason for one of the region's fastest poverty alleviation achievements, "APRACA's Secretary General said.

 Participants at the Workshop

At the beginning of the first meeting, Mr. Nguyen Thanh Tung - expert of IFAD shared IFAD's experience in rural finance for the poor in Vietnam, according to IFAD "Investment for development of gender, specifically equipping women funds with technical assistance, thereby creating a variety of products".

According to him, previously there have been projects to eradicate hunger and reduce poverty but not sustainable. Therefore, IFAD has directed its borrowing funds to move towards sustainable poverty alleviation. By the end of 4/2018, IFAD has assisted in setting up fully operational Women Development Funds in 11 provinces. All women development funds have registered as microfinance projects in accordance with Circular 20/2017 of the SBV.

Mr. Nguyen Thanh Tung - expert of IFAD shared IFAD's experience in rural finance for the poor in Vietnam

Mr. Nguyen Thanh Tung recommends: "It is better to integrate credit programs of VBSP, Agribank and some commercial banks with other microfinance programs to improve the effectiveness of microfinance programs".

Deputy General Director of Agribank Nguyen Thi Phuong shared information at the Workshop

Deputy General Director of Agribank Nguyen Thi Phuong shared experiences of Agribank. Agribank has implemented many solutions to reform agricultural finance such as: Proactively propose and implement policies for agricultural and rural loans, actively implement the Government's programs; renovating the mode of serving farmer households to be more and more convenient, reducing costs through setting up mobile banks; building safe agriculture and hi-tech agriculture. Agribank is also active in facing and giving timely solutions to natural disasters, climate change and deploying agricultural insurance packages.

Representatives of Agribank also said that investment in rural agriculture is still limited, accounting for a low share, not meeting demand. Private investment is small; number of enterprises operating in the agricultural sector accounts for a small proportion (less than 2%), mainly small and medium enterprises. In addition, agricultural production is often affected by natural disasters, epidemics, environmental pollution, climate change and the possibility of major risks.

Agribank proposes to increase investment in agriculture and rural areas, especially investment from state budget for infrastructure, science and technology, inputs and subsidies. Along with that, it is necessary to consider extending investment projects for a number of donor projects to accelerate disbursement process, raise efficiency of capital use and increase the number of customers to access preferential capital.

Mr. Tran Huu Y, PhD - Director of the VBSP Training Center said that VBSP closely linked with the poor through products matching.

Mr. Tran Huu Y, PhD - Director of the VBSP Training Center analyzed loan outstanding of VBSP is high but the ratio of overdue debts is low, about 0.42% of total outstanding loans. And, there are three main points that make up success of VBSP. First of all, VBSP is closely tied to the poor through appropriate products. These products served clients from poor to near poor, newly escaped from poverty households, ethnic minority people, labor export, job creation ... through 20 credit programs.

Remarkably, VBSP also helps  the poor to gradually adapt to market interest rates. For example, interest rate for poor households is 6.6% per annum, near poor households is 7.92% per annum and newly escaped from poverty households is 8.25% per annum.

Secondly, it is the model of commune transaction point with many utilities, compliant with the principle of protecting customers, providing responsible financial services.

"At the commune transaction points, we publicly announce preferential credit policies of the State to the beneficiaries; lending rate, loan interest rate for each program; transaction rules, loan portfolio list, debt balance, debt repayment schedule of each borrower, "said Tran Huu Y.

Accordingly, in transaction sessions, the transaction team conducted disbursement, debt collection to each borrower; collection of interest, savings deposits of members through Savings and Credit groups, collection and payment of deposits to local people; pay commissions to SCGs management board, receive loan applications, handle debts, meeting with mass organizations, Savings and Credit groups.

Also through commune transaction points, each month the bank has saved around VND 350 billion travel transaction costs for customers.

Third, VBSP also sets targets of digitalized banking operation. "We do not let the industrial revolution 4.0 abandon the poor," said Tran Huu Y. From 2017, VBSP has implemented digital technology in banking, starting with SMS service to remind 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.

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 will also strive 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.

Director of the Ben Tre province Capital Aid Fund for Women's Economic Development Nguyen Thu Ba at the workshop

On behalf of Funds assisted by IFAD Foundation, the director of Capital Aid Fund for Women's Economic Development (FWED) Nguyen Thu Ba shared experiences on dealing with bad debt, adding that of VND 85 billion loan outstanding of the fund, bad debt ratio is only 0.02%. "To manage bad debt at that level, we maintain group pressure, if this person cannot pay, the other should. In addition, we classify the age and cause of debt. If due to unforeseen natural disasters, we always write off debt, we set a goal not to let overdue exceed 0.02%”.

Opening the second session with the theme "Strategies for scaling up pro-poor and innovative financial products and services in Vietnam ", Pham Viet Dan, Head of Risk Management, SHB Commercial Joint Stock Bank suggests rural finance to: "Prioritize green credit development, demonstrating accountability to the community, in which rural agriculture is part of green credit, in addition to renewable energy. The initiative is to support suppliers, distributors (supermarket chains, mini mart, convenience stores, etc.) in the supply chain of agricultural products, thereby better supporting the farmers”.

Mr. Pham Viet Dan, Head of Risk Management, SHB Commercial Joint Stock Bank at the workshop

Nguyen Tuan Anh, deputy head of the State Policy Credit Department under the Credit Department of the State Bank of Vietnam, asserted that agricultural production always has potential risks of natural disasters, epidemics and market changes but still in lack of preventive measures to limit risks. Therefore,  investment of the banking sector in rural areas is still very risky.

In the coming time, SBV continues to identify rural agriculture as a priority area.  SBV will also continue to implement monetary policy instruments to support credit institutions to promote agricultural and rural loans.

SBV will also instruct credit institutions to accelerate administrative reform, simplify lending procedures, and diversify banking products and services in line with characteristics of agriculture and rural areas in order to improve for agricultural and rural customers’ capabilities to access funding.

Chief Executive Board of the Central Farmers Fund, Vietnam Farmer's Association Nguyen Xuan Thang at the Workshop

According to head of the Central Farmer Fund - Vietnam Farmers' Association, Nguyen Xuan Thang, the model of entrusted lending is a positive leverage in the strategy of expanding agricultural and rural finance for poor households in Vietnam.

Mr. Nguyen Xuan Thang said that the credit policy is closely linked with the majority of people, especially the rural households. Thanks to the timely capital, guidance on how to do business, poor households have conditions to develop production and business to improve life, actively contribute to reduce the rate of poor households to less than 10% in 2017.

"Through the model of entrusted lending, Farmer Associations at all levels and mass organizations are the bridge to bring financial services to agriculture, farmers and rural areas; At the same time, it helps the bank well implement preferential policies of the Party and Government for poor households and policy beneficiaries. Capital has reached the most disadvantaged cusomers, most remote areas but the quality of credit is also the best, "said Nguyen Xuan Thang.

In line with the presentations presented at the workshop, the speakers discussed support strategies to improve access to agricultural finance services for the poor in Vietnam in the context of the 4.0 revolution, or agricultural products export under high technology value chain.

Mr. Nguyen Quoc Hung, PhD - Director of Credit Department of SBV concludes the workshop

At the seminar, Dr. Nguyen Quoc Hung - Director of Credit Department of the State Bank of Vietnam concluded 5 main issues: First, Vietnam needs to improve policies and legal framework to diversify financial products and services to help target customers better access financial and banking services. Secondly, take the initiative in timely solutions to natural disaster risks and climate change to increase financial resources and encourage credit institutions to increase market share in lending to agricultural and rural areas. Thirdly, to improve the capacity of rural financial service organizations to ensure safe, efficient and responsible operation in order to diversify distribution channels and provide traditional to modern financial services for agriculture rural areas to the target groups (including the poor) in the rural areas. Fourthly, VBSP, as a useful tool in implementing multi-dimensional and rapid poverty reduction, should modernize its operations, integrate with the banking system in the region and help poor households, near poor households and other policy beneficiaries have access to modern products and services. Fifthly, it is necessary to build and promote the effectiveness of the mechanism of close coordination and mobilization of resources from state management agencies, credit institutions, mass organizations and private sectors to implement agricultural and rural finance effectively.

Luong Xuan - Tran Giap