Sustainable poverty reduction by microfinance

The journey of providing inclusive finance for the poor

As an important component of Vietnam's National Target Programme for Sustainable Poverty Reduction, the system of policy credit is continuously being improved, enabling the poor and policy beneficiaries to access the State's preferential loans.

In 2004, the family of Dinh Thi Dinh, an ethnic Tay female, residing in Trang Tranh hamlet (Tan Loi commune, Dong Phu, Binh Phuoc), was recognised as poor household and provided with preferential loans worth VND12 million to invest in growing 100 piles of pepper, generating an annual income of VND22 million. As a result, in 2007 her family managed to escape from poverty. However, due to her husband falling ill, the whole estate was used to fund his treatment, so in 2013, her family fell into poverty again.

Once again, Dinh’s family was provided with access to preferential loans from the Vietnam Bank for Social Policy (VBSP) for poor households, with the amount of VND30 million being provided to cultivate pepper and rubber. Thanks to that, Dinh's family has more than 1 ha of rubber and cashews, along with 200 piles of pepper. Dinh said that by the end of 2015, her family officially escaped from poverty, with an average income, after deducting the relevant costs, at approximately VND200 million per year. Not only that, Dinh's family has also deposited monthly savings to create capital in order to repay their due debts to the bank.

Another the case can be referred to is Ha Thi Dao, in Hoi 3 hamlet (Chau Hoi commune, Quy Chau, Nghe An). In early 2007, Dao was admitted to the Savings Group to be eligible to borrow money in her village and was given the opportunity to receive loans from VBSP, in Quy Chau district for poor households, amounting to VND10 million.

Up until now, Dao's family has managed to escape from poverty, becoming an above-average household in the commune. Her existing assets include 15 buffaloes and cows worth more than VND200 million; a small truck worth roughly VND200 million; a rice mill and a cement brick machine, each valued at VND20 million; and a fish pond, as well as additional facilities serving local weddings for people in the commune. Her average income is from VND170-190 million per year, after deducting costs.

With the household of Bui Van Quy, residing in Hung Giao hamlet (Tam Hung commune, Thanh Oai district, Hanoi), the total amount of preferential loans, paid by the VBSP Thanh Oai district branch, for his three children to study, is at VND183.1 million. Currently, Quy's two older children have graduated from school and have begun working to earn money to cover their daily expenses and repay their loans.

Bui Thi Quynh, Quy’s second daughter, said that her parents and siblings had agreed on a plan to repay the due loans and interest in accordance with the Government's regulations on offering credit to students. The family is always aware of saving money each month to pay back VBSP, so now they only owe the loan of the third brother with the amount of VND16.5 million.

Sparing no efforts towards the community

According to the VBSP, as of September 30, 2017, its total capital reached over VND179.1 trillion, an increase of VND172 trillion, 25 times higher than that at its inception. In which, the State budget, in providing for its charter capital and the implementation of credit programmes, reached VND27.8 trillion. Total outstanding debt under credit capital programmes reached VND169 trillion, 24 times higher than at its establishment. The average annual growth rate is at 19.2%, with over 6.7 million poor households and policy beneficiaries who are debtors. There are nearly 31.9 million poor households and policy beneficiaries that have been offered preferential loans, with the total amount of loans reaching VND433.3 trillion and debt repayment reaching VND272.3 trillion.

Funding from the VBSP has helped over 4.5 million households to cross the poverty line; creating jobs for nearly 3.4 million people; while more than 3.5 million disadvantaged students have been provided with loans to follow their study; 9.9 million clean water and environmental sanitation facilities have been built in rural areas; and nearly 105,000 houses for flood victims in the Mekong Delta have been constructed, as well as nearly 528,000 houses for poor households and households of policy beneficiaries, and more than 11,000 houses that are resistant to storms and floods have been built in the central region.

Funding from the Vietnam Bank for Social Policies has helped more than 4.5 million households to cross the poverty line. (Credit: NDO)

Head of the Credit Department under the State Bank of Vietnam (SBV) Nguyen Quoc Hung said that policy credit has helped the poor and policy beneficiaries to access State preferential funds, contributing to curbing bad loans in rural areas. Familiarising themselves with borrowing and repaying bank loans, as well as improving their awareness and using capital effectively, has also helped to improve their quality of life, contributing to reducing the rate of poor households in the 2011-2015 period from 14.2% to 4.25%. Currently, policy credit has been invested in 100% of the communes, wards and towns across the country. In particular, priority has been given to communes in ethnic minority areas, especially difficult, deep-lying, remote and border areas.

According to the Deputy Chairman of the NA Committee for Social Affairs Bui Sy Loi, the banking sector in general, and the VBSP in particular, have implemented effective programmes in order to help poor people and policy beneficiaries to access preferential loans, thereby contributing to realising the socio-economic development objectives, facilitating sustainable poverty reduction, ensuring social security and gradually improving the standard of living for local people. Notably, along with credit growth, the quality of policy credit programmes has been continuously improved. With the results achieved, many NA deputies have recognised policy credit as a "bright spot" and one of the "pillars" of Vietnam's poverty reduction policy.

Maintaining sustainable policy credit programmes

According to Finn Tarp, Director of the United Nations University - World Institute for Development Economics Research, the poverty rate in Vietnam in 2016 increased to 16.2% from 12.9%. However, the cause for the rise is not rooted in the increased poverty rate in rural areas but rather as a result of the Government of Vietnam adopting a new poverty line, with higher standards of assessment. In fact, the living standards of rural people have improved significantly coupled with the enhanced quality of health services and sanitation.

In reality, resources for the implementation of the policy credit programmes, according to the VBSP, remain limited in comparison to the needs of the poor and policy beneficiaries, as the State budget’s allocations to supplement the charter capital and funding for such programmes are not timely ensured. In addition, several localities have not yet allocated adequate resources from the State budget to lend to local disadvantaged people or policy beneficiaries.

In particular, certain policy credit programmes with long loan terms have not received resources yet. State resources are limited, while a range of socio-economic development targets must be implemented at the same time, leading to the level of State capital investment under the set plans and capital requirements for targeted poverty reduction programmes in general, and credit programmes in particular, not meeting the actual needs. This is the reason leading to the passive and un-timely arrangement of capital for policy credit programmes at times.

According to the Deputy Director of the SBV’s Banking Strategy Institute Nguyen Thi Hoa, the existence of credit mechanisms for the poor is inevitable. With the recent results achieved, the VBSP has become an important tool in the implementation of the National Target Programme for Sustainable Poverty Reduction, ensuring the social security and progress of the modern rural area construction campaign. However, the most important task is to increase the capability of meeting the demand for capital, as well as ensuring the sustainability of the special credit mechanism for the poor.

VBSP still has many problems to solve and must continue adjusting and further improving its specific model. In order to further promote the achieved results, it is necessary to strengthen the organic link between savings and credit packages, with the interest rates set in line with the market interest rates, in order to build and maintain policy credit programmes in a sustainable manner.

Head of the National Office for Poverty Reduction (under the Ministry of Labour, Invalids and Social Affairs) Ngo Truong Thi stressed that in the near future, the improvement of the poverty reduction policy system should aim to gradually reduce the 100% support policies but increase the policies that provide conditional support and repayments, while expanding policy credit to reach near-poor and newly-escaped poor households.

Alongside this, policy credit needs to be more closely linked to production support, job creation and income generation for the disadvantaged, on the basis of promoting the role of the community, taking the poor as the core subject and integrating it with aid from the State budget and other programmes, projects, and counterpart funds of poor households to create a strong support package, helping disadvantaged households to escape from poverty in a sustainable manner.

Nhan dan online