Microfinance in Vietnam

by George Chen

This campaign seeks to support the larger initiative outlined below:

• Project location: Tien Lu, Vietnam
• Project Goal: Improve the social and economic status of poor and near poor families in Tien Lu district through increasing access to sustainable microfinance services
  • Improve access to microfinance services to increase agricultural productivity
  • Provide financial literacy training to borrowers
• Targeted beneficiaries
  • Direct
    • 1,059 borrowers/needy households (equivalent to 3,928 local people, including 1,376 children) 
    • 90% female borrowers
  • Indirect
    • 3,390 households (equivalent to 12,574 people including 2,775 children)
• Estimated project duration: 5 years (Oct 2016 – Sep 2021)
• Total funds needed: SGD 503,175
• Gap to go: SGD 146,370

Project Background

Tien Lu district, located in the North of Hung Yen province, is the poorest district of the 10 districts in the province where 30-40% of the population fall under categories of poor, very poor, near poor. Their average monthly incomes are below 500,000 VND (30 SGD) and the main source of income (90%) of the people in Tien Lu district is from agricultural production, with 40% of them unable to find alternative sources of income. Total natural area of Tien Lu district is 9,270 hectares, of which 67% (6,276 hectares) is for rice cultivation. Tien Lu is one among three districts (Tien Lu, Phu Cu and An Thi) focusing mainly on farming and planting wet rice under the direction of Hung Yen provincial government in order to supply enough rice to ensure food security for the whole province. With natural characteristics, geographical location, together with the support from the government, Tien Lu has opportunities to develop agricultural products such as rice and maize plantation, animal husbandry and other farm products following a market-based approach.

Tien Lu Area Development Program (ADP), funded by World Vision Singapore, has set up operation in October 2008 targeting four communes. The ADP has introduced some successful development models (nutrition clubs, chicken/cow raising groups, mushroom group, etc.) to the local community, which are promising and highly regarded by communities.

Lack of capital inhibiting income generation and leading to high rates of malnutrition

However, despite the successes of Tien Lu ADP in alleviating multidimensional poverty, lack of capital has been recognized as one of the main issues limiting income generation where local people lack sufficient capital to take full advantage of the aforementioned business models. Agricultural production capacity of households are limited as they do not have the capital required to purchase the inputs required. This income insufficiency has negative effects on child wellbeing, particularly in the areas of education and health care as parents are poor and do not have sufficient nutritious food to feed children.

Inadequate access to finance and financial knowledge

While there are different government loan schemes available in the district, including Vietnam Bank for Social Policies (VBSP) and Vietnam Bank for Agriculture and Rural Development (AgriBank), people have difficulties accessing funds when needed due to complicated loan application procedures as well as long delay in loan approval processing from local authorities. Furthermore, none of those providers supplies necessary training on business development skills and/or budget management to the borrowers. On top of these challenges, borrowers are not able to settle balloon loans (lump sum payments at the end of loan cycles) since their incomes barely cover daily expenses.

Project Implementation

The Microfinance Unit (MFU) of World Vision has been operating in Tien Lu ADP since December 2013. This project aims to increase access to appropriate micro-financial services in a sustainable manner for poor and near poor interest group/clubs members and extend service provision to low income households in Tien Lu. Through this project, families could invest in applying the business models of the livelihood project, to improve their living conditions, and create brighter futures for their children.

By fostering sustainable livelihood development through job creation and increased incomes, MFU will contribute to improve children wellbeing, especially in terms of nutrition and health as parents will be able to provide more food that is nutritious to their children. Moreover, MFU will help borrowers be more resilient when it comes to disasters while they are able to respond, withstand and recover from shocks far more quickly. Furthermore, MFU specifically targets women clients, empowering them with access to capital, financial literacy and management skills, and elevated status as financial decision makers in the household. In the long run, such investments in small business development and income generation will help to create jobs and stimulate further economic development in the Tien Lu community.