Accountings - Commercial Banks in Vietnam Essay

Commercialization of Microfinance – Commercial Banks in Vietnam

1. Abstraction:

This paper focused on using commercialisation in microfinance of commercial Bankss, a new tendency in Vietnam. In recent old ages, commercialisation, the new construct of microfinance, has received a batch of attendings of research workers but still a new one with commercial Bankss in developing states. The poorness relief advancement was carried out from the 1990s, but the gait is really slow, and Vietnam is belonged to the poorest states. Microfinance is presently a top precedence ; nevertheless, microfinance plans have been about recognized by the authorities as regulator and active participant via state-owned Bankss. Commercial Bankss are unattractive and complete ignorance of using microfinance. This paper provides a model for Bankss on casting battle the barriers and solutions to make microfinance as a moneymaking concern.

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Microfinance is one of the most of import solutions for cut downing and anti-poverty in developing states, and accordingly has attracted involvement from international professionals and organisations. However, microfinance is in the beginning phase and has long distance to carry through the fiscal demand of the hapless. Microfinance is still a immature field in most underdeveloped states and non yet truly a net income industry ( Elizabeth Rhyne, 2001 ) . In recent old ages, commercialisation of microfinance, a new emerged phenomenon, is described as a new attack to acquire sustainable growing in microfinance. Commercialization, refering conveying microfinance to commercial kingdom, harmonizing to Stephanie Charitonenko and Rahman ( 2002 ) , means the application of market-based rules or the enlargement of profit-driven in microfinance. Merriam Webster besides defines making commercial finance as establishing and developing commercialism theoretical account. This is one of necessary invention stairss to actuate microfinance suppliers in developing states to supply best quality fiscal merchandises and services to the hapless.

Commercialization ensures the best fiscal services delivered to the hapless and fiscal suppliers can gain net incomes with market involvement rates and high refund harmonizing to Jean-Philippe De Schrevel ( 2005, p.8 ) . The involvement rate of loans should be at market, and recognition operations should be on feasible concern program.

Microfinance becomes more commercial based on the great attempt to accomplish fiscal self-sustainability and high competition in traditional fiscal market ( Christen & A ; Drake, 2002 ) . Mary Laraia, senior frailty president of civic and community development at LaSalle Bank provinces spread outing microfinance activities will necessitate to develop new theoretical accounts more profitable than they did antecedently and presently back up the hapless. Indeed, supplying microfinance will be broadened expeditiously and productively. Microfinance will go an emerging concern in fiscal markets around the universe.

Commercialization is a publicised enterprise increasing the entree to microfinance of the hapless on commercial footing. In Latin America, and South Asia, the commercialisation has been embraced by some microfinance innovators and, so, sought after as a premier aim. At standard degree, the procedure of commercialisation has been operated by the success of innovators in making a market for microfinance, and they set up a significant portfolio of loans given to the hapless, with high refund rates, and do their plans on a sustainable footing. The hapless, go oning to be served by authorities, can borrow money at sensible involvement rates that fiscal suppliers can cover their disbursals and earn net income. Microfinance plans are every bit good societal and commercial every bit good ( Christen & A ; Drake, 2002 ) . Among fiscal suppliers, commercial Bankss have competitory advantages ( broad web, diversified services, experience and cognition in fiscal market ) in supplying services to the hapless. In add-on, the demands of the hapless are like anyone else, and supplying microfinance services to them is non merely a normal banking, but besides can make new possible clients market ( The Banker, Feb 2005, p.6 ) .

Commercialization of microfinance research has been conducted rather extensively for microfinance suppliers or NGOs in Europe, Central and South Asia, and to a lesser extent, in Latin America. There is a comparatively small research in look intoing commercial microfinance of commercial Bankss. Harmonizing to the recent surveies of research workers in microfinance and ADB, commercial Bankss are non in their microfinance system. In add-on, there is besides a widen spread between the ways in which commercialisation is researched and the ways empirical research workers think about, and applied in pattern in developing states. Furthermore, there is really small paper and research on commercialisation of microfinance among South East Asia, particularly in Vietnam. Microfinance is still a new construct in pattern in this state, and has some distinguishable features with other states. It is transporting out as non-profit-making plan by authorities and NGOs. The authorities has been unsuccessful in driving private sectors and commercial Bankss to take part in poorness relief country. Government becomes exhausted with limit national budget. Much empirical research focuses on the hapless ‘s abilities to entree fiscal services or the functions of authorities, NGOs, mass organisations as microfinance suppliers. Commercial Bankss are non mentioned as chief fiscal suppliers while they play the cardinal functions in the fiscal market where microfinance market is an of import constituent with legion possible clients. Therefore, supplying a model for commercial Bankss making microfinance as a moneymaking concern is a necessary.


Vietnam is an emerging state in South East Asia. The turning velocity is belonged to the fastest turning developing states. However, Vietnam is still a low-income state in the cardinal passage procedure from centrally-planned to diversified and market-orientated. The poorness was cut from 58 % in 1993 to 29 % in 2002, and was about 19.5 % of 83 million people in 2004 based on the reformation more market-orientated. However, poverty relief gait went slow and one tierce of the population is estimated in hapless state of affairs in rural countries. Microfinance presently seems to be the best powerful instruments and a top precedence in cutting poorness. However, the construct of microfinance is still a new construct after deriving a batch of attending from the international twelvemonth of microcredit and the Nobel Peace Prize of Professor Muhammad Yunus for his microfinance undertakings in Bangladesh. The poorness relief plans are non-profit and about recognized by the authorities as regulator and active participant via state-owned Bankss. The private sectors have a hapless path record in microfinance. Harmonizing to international organisations, the microfinance suppliers in Vietnam are besides divided into three systems: formal, semiformal and informal. However, commercial Bankss were non mentioned as one of formal microfinance suppliers while their functions go more and more of import in fiscal market.

Table 1: Microfinance suppliers and the entree of the hapless


% of hapless accessed to recognition

Microfinance Suppliers



Other Bankss

Job Creation Programs


Social Organizations

Private Lenders

Relatives and friends





















Beginning: Vietnam General Statistic Office ( 2005 ) .

( 3.1 ) Formal System:

The microfinance activities in this system are regulated by the Credit Institutions Law ( No. 20/2004/QH11 of June 15Thursday, 2004 ) . Government normally is chief microfinance supplier via two state-owned Bankss: ( 3.1.1 ) Bank for Agriculture and Rural Development, ( 3.1.2 ) Bank for Social Policies. Following state-owned Bankss, ( 3.1.2 ) People ‘s Credit Fund and ( 3.1.4 ) rural shareholding Bankss ( commercial Bankss in rural country ) are supplying microfinance to the hapless. This system is criticized for unsatisfying the demand of the targeted hapless communes.

3.1.1. Vietnam Bank for Agriculture and Rural Development ( VBARD or Agribank ) : VBARD is the biggest bank with 2200 subdivisions and sub-branches in the 64/64 states. VBARD provides subsidised rural recognition to single and group loaning by utilizing traditional banking methods through mass organisations. Although VBARD does non aim the hapless straight and operates based on net income with market loaning rate and loan collateral, it is estimated that 50 % of clients are the hapless. Their subdivisions and sub-branches are merely in territory degree, so that it is hard to make the hapless in communes.

3.1.2. Vietnam Bank for Social Policies ( VBSP ) : VBSP was established from 1995 to supply microfinance to the hapless who do n’t hold assets and collateral to borrow money from VBARD, under the name The Vietnam Bank for the Poor. In the beginning, this bank virtually operated as a fund or division straight under VBARD. It was separated wholly from VBARD and renamed VBSP from March 2003. VBSP takes over the poverty-targeting plans run by VBARD and consolidates all governmental plans and other vulnerable societal groups. VBSP has head office in Hanoi, 61 subdivisions, 600 offices throughout all 64 states, and nomadic offices in some communes to make the hapless.

VBSP provides microcredit with subsidised involvement rate and no collateral based on authorities ‘s poorness decrease plans. In theory, the borrowers must be in low income family lists, in pattern ; borrowers are nominated by local commissions. VBSP uses financess transferred yearly from the national budget to cover the spreads between the market and subsidised involvement rate. VBSP was making 3.3 million clients in 9 months after withdrawal, among them 1,000,000 were considered hapless.

3.1.3. People ‘s Credit Funds ( PCFs ) : PCFs were established in 1993 based on the theoretical account of ‘Caisses Popularizes ‘ recognition brotherhood system in Canada. There were about 938 local PCFs in the 55/64 states as of December 2006 with 1 caput office and 24 subdivisions, making merely around 1,100,000 members. Their web is organized with the cardinal fund as the apex establishment, and the single financess working at retail degree operating at commune degree. PCFs are as member-owned organisations runing like shareholding Bankss. Those who are non a member must pay an extra fee per loan. They do non aim straight to the hapless, but 55 % of borrowers were low-income families in 2006. PCFs rely on internal accumulated fund by mobilized nest eggs of members ( 66 % of their resources ) . Harmonizing to the economic rules of cost covering, no easy loans or no easy money to the hapless will be available.

3.1.4. Rural Shareholding Banks ( RSHBs ) : Most RSHBs resulted from the reform, amalgamation, and acquisition of former rural recognition co-ops. They operate as normal commercial Bankss but have head office in rural country with simple loaning processs ( but their bulks are non for the hapless ) , and had good refund rates. They have really limited engagement in nest eggs mobilisation. There were about 20 rural shareholding Bankss in 2001. However, the force per unit areas of amalgamation and acquisition tendency for naming their stocks in Securities Markets in 2006 brand RSHBs transform to Urban Shareholding Banks. There is no RSHB harmonizing to the studies of cardinal bank of Vietnam at the terminal of twelvemonth 2007.

3.2. Semiformal System:

The semiformal system has assorted constructions of decentralized funding which offer microfinance and seek to make the hapless apart from the formal system. This system is comparatively little recognition and additions from 5 % to 10 % of the rural recognition market, and includes: ( 3.2.1 ) Government ministries and plans ; ( 3.2.2 ) Mass organisations ; ( 3.2.3 ) Specialized Microfinance Funds ; ( 3.2.4 ) International Organizations.

3.2.1 Government ministries and plans: Microcredit is normally one constituent of a big public plan, and is provided with extremely subsidised involvement rate, or free of involvement under the Ministries ‘ plans. Since the creative activity of the VBSP in twelvemonth 2003, these plans have been transferred from authorities to VBSP.

3.2.2 Mass Organizations: Mass organisations normally play important functions in the execution of giver supported microfinance plans. They operate as the span between major socio-economics groups and the authorities such as adult females, husbandmans, provincials, young person, war veterans brotherhood, etc. They have administrative offices to make 1000s of people from national to commune degree. They provide recognition to their members, run recognition plans for international NGOs, or organize credits and nest eggs groups for VBARD, and VBSP, as they can entree straight to communities and have long experience in societal mobilisation. The chief organisations are the Vietnamese Women ‘s Union ( VWU ) , the Farmers ‘ Union ( FU ) , the Vietnam Youth ‘s Union ( VYU ) , and the War Veterans ‘ Union ( WVU ) .

Among aggregate organisations, VWU normally receives financess of most microfinance plans from international NGOs and mobilize members through credits and nest eggs groups. VWU besides has particular microcredit undertaking in Ha Tinh Province making a batch of the hapless adult females. However, VWU is still a societal organisation instead than a microfinance supplier by utilizing parttime staff to mange micro plans without experience and preparation in recognition and finance.

3.2.3 Specialized Microfinance Fundss: There are merely two financess exist in Vietnam focused on microfinance as follows: Capital fund for Employment ( CEP ) and TYM Fund. CEP is the most successful microfinance fund operating in urban countries relative liberty from the local Labor Confederation with operational autonomy. TYM Fund is replicated from Grameen theoretical account but adapted to the specific context of Vietnam, managed by VWU with operating to increase the life quality of adult females in rural countries. TYM Fund is seeking to upgrade and transforming to MFI conformity with the recent Government Decree No. 28/2005 and licensed by SBV.

3.2.4 International Organizations: ( NGOs, Bilateral Donors, World Bank. ADB ) : There are more than 50 NGOs ( NGOs ) and some of them have microfinance plans. Most of them are international and concentrate on recognition due to the legal limitations on mobilising voluntary nest eggs, and implement microfinance undertakings through mass organisations. They use external financess through international undertakings and supply support to spouses ( mass organisations ) . Based on the international experience and cognition of microfinance such as using assorted international loaning theoretical accounts such as small town banking, Grameen Bank, or solidarity groups, to aim largely adult females, some plans have first-class consequences, with 99 % refund rates on mean with sensible involvement rates. Some of them seek to put up significant microfinance plans or collaborate with mass organisations to back up nest eggs groups. Others transformed their microfinance plans into societal independent financess managed by local communities or are in the advancement of transforming to MFIs harmonizing to the Government Decree No. 28/2005 on microfinance.

3.3. Informal System:

This system comprises informal fiscal aid from household, friends, usurers, and through traditional rotating nest eggs and recognition associations ( ROSCAs ) . They are created for particular intents from little nest eggs. ROSCAs have existed for coevalss but ne’er recognized officially. Informal microfinance used to be the chief beginnings of rural recognition. Loans from relations have zero or low involvement rates, while informal loaners charge about 5-15 % per month ( five or ten times the market involvement rate charged by commercial Bankss that charge 1 % -1.5 % per month ) . Hence, the hapless families borrow money for ingestion particularly before crops. Most usurers base on traditional ways to impart money on common assurance with simple processs without written loans contracts typically short-run loaning in hard currency and roll uping hard currency back day-to-day or hebdomadal. Because of no collateral, usurers normally have rich information about the hapless and base on the members of local underworld to roll up money if the loaners do n’t pay the debt on clip. Recently, rapid enlargement of formal system with constitution of VBSP and urban commercial Bankss ‘ subdivisions in states has structurally changed the rural recognition markets.

Most fiscal suppliers ( particularly commercial Bankss ) have been failed to supply microfinance because they are trapped in a microfinance-as-charity vision, a really little per centum of the hapless acquire recognition from formal system, while the balances deal with informal system. Microfinance demands and deserves great aid but no demand for charity but flexible in making with the hapless. More realistically, the microfinance is new metameric market for commercial Bankss with a new back uping legal model and regulative environment from the authorities. However, it is more hard making microfinance as a concern than puting up and running a subsidised strategy.


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