Vietnam had to struggle through vicious wars, the loss of financial support from the Soviet block and the after effects of a rigid centrally planed economy. The heavily populated country has recently shown some economic growth and the Vietnamese government has spoken of their commitment towards economic liberalization and international integration. With a 1.9 percent unemployment rate and 28.9 percent of its 83,535,576 people living beneath the poverty line, microfinance can have an important impact on Vietnam's poor.
Microfinance is a relatively new innovation in Vietnam. It was introduced into the country during the renovating process in 1997, with the aim to provide the poor with financial services, to better their lives. CEP Fund, or the Capital Aid Fund for the Employment of the Poor, is a Grameen style microfinance institution which has striven to alleviate poverty through microfinance. During a recent microfinance conference in Vietnam, CEP Fund Managing Director, Van Nguyen Thi Hoang spoke of CEP Fund's progress and the recent microfinance decree introduced in the country.
CEP Fund, with the hard work and dedication of its staff, has now become the leading microfinance institution in the country. CEP Fund has a wide reach; it not only has developed in Ho Chi Minh City, but in neighboring provinces as well. Assessment of CEP Fund shows that it has made a significant impact on their clients' well-being and in poverty alleviation. It is an empowerment 0tool: one which allows the poor themselves to determine how to best improve their lives.
CEP Fund provides credit and saving services to over 55,000 clients in Ho Chi Minh City. Of these clients, 79 percent are classified as poor or the poorest. Uses of loans vary, as CEP Fund does not require that loans are used only for income generation. However, 90 percent of the loans are indeed used for income generation. CEP Fund believes that it would be counterproductive to restrict clients from using the money to fund pressing needs and force them to use it for solely income generating purposes. Some clients use loans for more pressing purposes such as repairing housing, addressing immediate consumption needs and paying for health care or education. This flexibility ensures that there is a greater trust between CEP Fund and its clients.
microfinance does not always succeed in reducing poverty for all clients and that loan size and terms should be tailored to each individual client's needs. She added that microfinance should not be seen as a short-term solution to poverty. It is a longterm process in which many loan cycles gradually help clients better their lives.
In 2003, CEP Fund introduced a formal system to monitor and assess its own impact on client well-being. During the conference, a brief overview of the results of CEP Fund's April 2005 impact assessment was given. CEP Fund surveyed 480 clients, half of whom were from a rural area and half were from an urban area. In each area, three client groups were sampled. They included new clients, clients who had just completed two loan cycles and clients that had just completed five loan cycles. CEP Fund also used information taken from the baseline survey, which had socioeconomic information on clients at the time of their joining CEP Fund. The impact assessment concluded that clients who participated in CEP Fund program saw increased well-being and poverty reduction. In addition, the assessment found that clients who remained in the program for a greater number of loan cycles had higher levels of well-being CEP Fund assesses client poverty levels and client poverty movement through composite indicators made up of client household income, household assets, housing condition and dependency level. Clients are categorized as poorest, poor and moderately poor. The impact assessment found that the longer a client remains in the program, the greater the benefit in terms of their overall poverty status. Sixty-five percent of clients that had been in the program for five
loan cycles have moved into the moderately poor category. Upon entry, only 11 percent were moderately poor. Forty-two percent of clients that have completed two loan cycles have moved into the moderately poor range, as compared to the 10 percent that were moderately poor upon entry into the program. This data suggest that the access to credit has helped clients improve their well being and that this increase in well being is magnified for those clients who have been the recipients of credit for a longer period of time.
One of CEP Fund's main goals is to empower women. In order to attain this goal, it provides loans to mainly women, which allows them to generate income that flows from their hands into the household. CEP Fund also encourages women to participate in social organisations such as women's groups and trade unions.
Additionally, CEP Fund provides capital to clients to invest in secondary small enterprises to offset the risk of underperfor- mance of their principal income generating activity. This is delineated by the diverse income generating activities taken on by clients who take on multiple loans.
In March 2005, the Government of Vietnam issued a decree on the organization and operation of microfinance institutions (MFIs) in Vietnam. The decree regulates the establishment and operation management of MFIs as limited liability companies. MFIs must operate professionally like the formal finance institutions and must operate under State Bank administration. Capable institutions will operate more professionally and safely. Moreover, the decree protects donor funds from being misused, protects the operation of MFIs, and provides a foundation for them to expand their market. Under the decree, MFIs have access to commercial funds and modern microfinance technologies and can participate in joint ventures with outsiders. Furthermore, the decree allows MFIs to expand and provide other financial services, such as savings and insurance. It also requires MFIs to comply with common accounting standards.
Each MFI in Vietnam will prepare themselves for regulatory compliance over the next two years. With the introduction of the decree, these institutions will need to become autonomous. While the decree will enhance the impact of microfinance in Vietnam, perhaps the most significant result will be the implicit recognition by the Vietnamese government of the importance of microfinance in poverty reduction. The regulation brought on by the decree will also lead to greater credibility for the industry and facilitate its expansion.
The new decree will usher in a new era for microfinance in Vietnam and promises financial sustainability and commitment to the poor.
Report by Narmeen Azad