1. Operational and Institutional Obstacles for the Efficacy of Micro-Credit Programs for Poverty Reduction in Vietnam VLIR Policy Preparing Research Project MIET MAERTENS Thanks to: BTC Vietnam, Hanoi (Mr. Smis, Mrs. Tan and others) Vietnamese Belgian Credit Project & Womens Union (Mr. Bartsoen, Mrs. And others) Micro-finance Resource Centre, Hanoi (Prof. Dao van Hung & Ms. Tran Bin Minh) Vietnam National University of HCMC – Economics Faculty (Dr. Tran Viet Hoang and others)

2. Overview The Research Approach –Conceptual framework –Empirical approach The Rural Credit Market in Vietnam The outreach of

3. The Research Approach Some Considerations Micro-Finance = powerful instrument to alleviate poverty Micro-Finance = pro-poor financial services –The poor need credit & financial services –The poor lack access to credit & financial services Underdeveloped credit markets in developing countries Credit not affordable for the poor ??? The poor are not creditworthy ??? Economies of scale: lending to the poor associated with high transaction costs !!! Asymmetric information: the poor have no possibilities to signal their creditworthiness !!!

4. The Research Approach Some Considerations Pro-poor lending technologies: innovative approaches that reduce transaction costs and replace the need for physical collateral as screening and signalling method –Group-lending with joint liability (Grameen Bank) Reduced transaction costs: group-leader or regular meetings Social collateral: borrowers screened by other group members by accepting responsibility for debt repayment –Stepwise loans –Standardized products

5. The Research Approach Theoretical Framework Critical Triangle of Micro - Finance: SUSTAINABILITY OUTREACHIMPACT Based on Zeller and Meyer, 2002 Synergies / Trade-offs & constraints ? Long run Short run

6. The Research Approach Empirical Approach 2 Case-study areas: –Low poverty rates but high incidence of poverty –Major rice growing areas –Variety of credit schemes

7. The Research Approach Empirical Approach Data collection: –1 st phase: qualitative data – group discussions & interviews 2 case-study areas: central, province, district & local level –2 nd phase: quantitative data – survey of 301 households Southern case-study area Socio-economic description of the case-study areas

8. The Rural Credit Market in Vietnam The Formal Sector Institutions: –VBARD (Vietnam Bank for Agriculture and Rural Development) –SPB (Social Policy Bank) Law on Credit and Financial Institutions State-owned banks –CCF/PCF: Central/Peoples Credit Fund Law on Cooperatives Interest rate policy: –all ceilings removed since June 2002 but still i = 1% / month –SPB: subsidized interest rates much criticism The Semi-formal Sector The Informal Sector

9. The Rural Credit Market in Vietnam The Formal Sector Institutions: –VBARD (Vietnam Bank for Agriculture and Rural Development) –SPB (Social Policy Bank) Law on Credit and Financial Institutions State-owned banks –CCF/PCF: Central/Peoples Credit Fund Law on Cooperatives Interest rate policy: –all ceilings removed since June 2002 but still i = 1% / month –SPB: subsidized interest rates much criticism The Semi-formal Sector The Informal Sector