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.