The intention of this report is to describe and analyze the features of the lending system of the Vietnam Bank for Social Policies (VBSP), established recently. A number of problems with said system are discussed. In addition, through the analysis of the VBSP lending system, suggestions for improvements are offered.
The basic mission of the VBSP is to provide low interest and accessible financial services to the residents and rural communities that have been left behind during the steady growth of the Vietnamese economy in recent years, in an attempt to narrow the gap that has emerged and to alleviate poverty. Whilst these objectives are essentially appropriate, the financial services provided by the bank all represent so called “subsidized credit”, which inevitably gives rise to doubts concerning the sustainability of its system. In addition, the compounding of industrial policy objectives, the integration of risk alleviating measures within the lending program, and the involvement of the politics, arouse another problems. Inevitably, the characteristics of financial services provided by the VBSP are complex by nature. This report aims to clarify the issues involved and to seek specific measures that may contribute to improving the modus operandi of the VBSP.
Generally speaking, there are not so many examples of financial institutions dedicated to delivering social policy credits in low-income countries, thus an analysis of the characteristics of the lending systems involved is also considered to be of profound interest from an academic perspective.
The materials used in compiling this report were predominantly sourced from information acquired during JBIC surveys on Vietnam’s financial sector conducted in February and July 2003. The February survey was designed to explore rural finance in Vietnam in the context of the provision of ODA. The survey concentrated on reviewing the performance of the various rural financial institutions in Vietnam, with a specific focus on the newly established VBSP. However, since the VBSP had only been operating for a short period at the time, the decisions on the content of the various lending programs and the transition from the old into the new system were as yet far from completion. Accordingly, a supplementary survey was undertaken six months later in July.
Prior to the July survey, a list of questions was sent to the VBSP headquarter in Hanoi with a request for answers to the questions to be furnished in English. The survey comprised interviews based on the answers provided together with additional inquiries. The questions sent to the VBSP concerned the details of the lending programs offered, the sources of the bank’s funds, its plans for annual loan disbursement as well as outstanding loans, the profit and loss statement, and the costs for establishment of the system including branch offices network.
Contents
1. Introduction
2. Background of the establishment of the VBSP
- 2.1 Increasing necessity of social policies
2.2 Separation between policy and commercial lending
3. Establishment of the VBSP
- 3.1 Basic mission
3.2 Network
3.3 Lending programs
4. Lending plan, funding sources and annual operating expenses
- 4.1 Lending plan
4.2 Funding sources
4.3 Annual operating expenses
5. Features of the lending system
- 5.1 High costs and subsidy dependence
5.2 “Distortion” of lending interest rates
5.3 Dependence on external funds
5.4 Targeting issues
5.5 Subordination to policies and politics
5.6 Institutional capability
6. Conclusion
- 6.1 Necessity of programmed lending for social policies versus financial principles
6.2 Directions for improvements
6.3 Remaining research issues
