Microfinance will
function as a powerful poverty reduction tool when, and only when,
it is capable of servicing the poor population, especially the poorest.
Showing improvement in the lives of the poorest families is a primary
objective of any microfinance institution. Fundamentally, all MFIs
should attempt to reach the poor in as great a number and as effectively
as they are able, to demonstrate improvements in the lives of all
those who receive their services, while operating within the boundaries
of financial sustainability.
CEP is an institution that continually strives to fulfil these
fundamental objectives, to the extent that its capacity permits.
Reaching the poorest while achieving long-term sustainability
are central to CEP and are inextricably intertwined with CEP’s
mission and function. Established in late 1991, as one of the
first two MFIs in Vietnam, CEP continually addresses each of these
objectives in its daily operations, in the formation of policy,
products, and in its approach to its business and clients.
CEP expanded slowly for the first 10 years of its life due to
financial constraints. AusAID support for a 5-year expansion plan,
which began in 2001, has enabled CEP to double its network from
7 to 14 branches and provide services to an additional 20,000
clients. Currently CEP expansion activities are being funded through
a combination of donor grants, equity generated from operations,
the mobilisation of client savings, and borrowings from Vietnamese
sources
The first critical element to ensure long-run support for the
poor, is to secure institutional financial sustainability, or
the ability of an MFI to cover all its costs through interest
and other income received from its clients. It should be stressed
that building a financially sustainable institution as quickly
as possible was always a priority for CEP. As a result, full financial
self-sufficiency was attained by CEP in its second full year of
operation. From 1997-2002, CEP has been operating with an average
full financial self-sufficiency rate of 126%.
Achieving financial sustainability is not a goal in its own right.
It is important because it is a necessary means of ensuring a
positive impact on the lives of clients and families. The ways
in which CEP ensures that the impact that it has on its clients
is positive are outlined below:
-
Making sure that very poor people who are eligible for its benefits,
do in fact benefit from the program. Over time, CEP reviews
its strategy of how best to do this, making sure that the poor
are given priority in the selection of new clients. Potential
clients are then prioritized; the more impoverished the individual,
the higher the priority.
-
Targeting clients with products tailored to their needs, thus
ensuring that the client takes up a loan appropriate to her
intended purpose and the client’s means of repayment.
CEP offers a range of loan products with daily, weekly and monthly
repayment intervals, designed to cater to a client’s requirements.
-
Taking on other activities as much as its capacity permits.
CEP also offers certain social services such as structuring
clients into groups for the introduction of community development
programs, scholarships for children of the poorest families
so that they can finish primary school, providing clients with
information about basic health care and AIDS prevention; and
providing loan officers with a forum where they can discuss
issues to enable CEP to respond to a broad range of client concerns.
-
Development
of risk-management financial products that can help reduce the
economic stress and other shocks that the very poor families
have to cope with. Since 1996, under a mutual group fund, CEP
has allowed group members to take interest-free loans from this
fund to add more capital to their business or to cope with emergencies.
CEP is going to introduce two more risk-management products
in 2004 - a supplementary loan and health insurance for migrants.
-
Early
warning indicators, both financial and social, that help to
identify clients at risk of loan default and encountering socio-economic
difficulties.
-
Continual
monitoring of impact in terms of selected socio-economic indicators,
to ensure that the true extent of impact is ascertained on a
comprehensive array of poverty categories.
CEP has come a long
way and has been successful in reaching and benefiting the poor
and poorest people of Ho Chi Minh City. However its coverage,
in terms of both absolute numbers and the proportion of the poorest
in its operation, is still limited. The difficulty is in accessing
sufficient capital which still hinders CEP’s capacity to
extend its outreach and expand both vertically and horizontally.
CEP will continue to maintain a focus on reaching the poorest
and the most disadvantaged with responsive financial services
while strengthening its institutional and financial sustainability.
CEP will always strive to build a market based and poverty focused
organisation, to develop an innovative, creative and responsive
microfinance institution, to provide the best possible service
to as many of the poorest clients as may be feasible.
Excerpted
from a paper by Hoang Thi Van, Managing Director of CEP fund.
CEP Fund has
been a Grameen Trust partner since 1993.
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