IMPROVING THE EFFECTIVENESS OF ODA MANAGEMENT IN VIETNAM CASE OF RURAL FINANCE PROJECT FUNDED BY WORLD BANK AT TRANSACTION CENTER III BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM

MASTER 2 IN FINANCIAL MANAGEMENT

IMPROVING THE EFFECTIVENESS OF
ODA MANAGEMENT IN VIETNAM:
CASE OF RURAL FINANCE PROJECT
FUNDED BY WORLD BANK AT TRANSACTION
CENTER III BANK FOR INVESTMENT AND
DEVELOPMENT OF VIETNAM

Tutor

: Ms. Céline Barrédy

Student

: Nguyen Thu Huong

Intake 3

: 2012- 2013

Hanoi, October 2013


LIST OF TABLES AND FIGURES


TABLE OF CONTENT
1.4.1. Philippines..........................................................................................................14
1.4.2. China...................................................................................................................15
1.4.4. The lesson towards Vietnam...............................................................................16

3.1. Solution for attracting ODA capital of WB into Vietnam...................................42
3.2. Improve quality of management to main contents of rural finance project......44
3.3. Building strategy of whole sales of Rural Finance at Transaction Office III....47
3.4. Building finance project in accordance with the real situation of Vietnam......49
INTRODUCTION
1. The thesis necessity
In 2012, Vietnamese economy has continued to grow at an average rate of 5.25%, the
macro economy has improved especially public debt which, at about 55.4% of GDP, is at
safety level. Facing with the demand of making use of different resources to boost socioeconomic development in whole country, Vietnam has broadened international
relationship, focusing on attracting, receiving and managing well Official Development
Assistant (ODA) projects funded by international financial organizations such as World
Bank (WB), Asia Development Bank (ADB), European Investment Bank (EIB), ect.
Actually, WB is the earliest donor; the World Bank’s funded projects are by far the largest
capital projects with high degree of influence and thus are most extensive in typical field of
management of ODA projects in Vietnam.
Thanks to many open and incentive policies by the Government recent time, this growing
economy with steady increasing GDP is acquiring a great amount of investment capital. In
response to this demand, besides capital accumulated internally, an increasing flow of
official development assistance capital (from US$ 1,810 million and US$410 million of
committed and disbursed amount respectively in 1993 to more than US$ 6,486 million and
US$ 3.9 million in 2012) has been pumped into various aspects of Vietnamese economy by
international

donors

and

non-governmental

organizations

through

Development

Agreements with the Government of Vietnam.
ODA capital played a positive role for Vietnam’s socioeconomic development,
transforming Vietnam from a poor country with GDP per capita per year of only US$140
in1992 to a middle-income country with GDP per capita per year of US$1,600 in 2012.
Vietnam has disbursed more than US$37 billion worth in ODA. However, this figure has


not satisfied international donors and the Vietnamese Government. Vietnam is still in the
first period of the middle-income country and faces difficulties due to weakness in
infrastructure, low national competitiveness, unsustainable poverty reduction and the risk
of severe consequences from global climate change. Therefore, improving ODA
disbursement and increasing ODA effectiveness are the Vietnam’s goals in the near future.
The Rural Finance Projects under Development Credit Agreements in 2003 and 2009 for
Credit NO. 3648-VN (US$ mil. 200 equivalent) and 3884-VN (US$ mil.200 equivalent)
respectively entered into the Government of Socialist Republic of Vietnam (SRV) and
International Development Association (IDA) with objective of assisting Vietnam in its
effort to improve living conditions in the rural areas are three of the most biggest projects
of the same kind in Vietnam. The two projects have been implemented in the form of
wholesale banking operation (WBO). They have introduced the concept of WBO for the
first time Vietnam. Because of this new nature, the project management has become a very
essential activity to a successful project performance. It is project management unit (PMU)
nominated by Bank for Investment and Development of Vietnam (BIDV) called
Transaction Center III (TCIII) responsible for managing both Rural Finance Project II
(RFPII) and Rural Finance Project III (RFPIII).
RFP II is one project that has unsatisfactory performance at completion with 21 months

delay although it was assessed satisfactory in terms of achieving all its objectives. The
similar RFPIII came into effect in April 2009 and has been in it ending phase. The
project’s management now faces the challenge of implementing this project satisfactory
and on schedule.
For the above existing reasons, a research on ODA management is very important to a
successful performance of not only Rural Finance Projects funded by World Bank but also
for the alike, which have been getting increased in numbers recently.
2. Objective of the thesis
This study aims at reviewing, analyzing Management method of RFPII to find out its
problems that have affected adversely to project performance and drawing lessons for
improvement of the system contributing to better performance of RFP III and the alike.
These objectives will be achieved by performing the following tasks:
- Making clear the concept of ODA management.
- Analyzing RFPII management to find out its obstacles and problems in project
-

implementation.
Proposing suggestions for improving ODA projects management efficiency

2


3. Scope of thesis
This study focuses on examining RFP II management method mainly at project
management unit in terms of its process, impact factors, standard criteria in project
implementation stage to identify its problems.
4. Research methodology and approaches
ODA management is discussed in general and then applied to analyze current status of
management efficiency and problems occurred during implementation of the Rural
Financial Projects and after that, recommendations will be made upon findings. Secondary

data and primary data are used to conduct this study.
Secondary data is gathered from external resources like textbooks, government documents
and internal resources like progress reports, project documents. Primary data is collected
by conduct qualitative research. The qualitative research objective is to obtain information
on the obstacles of RFP II management and requirements for RFP III from interviewing
PMU’s staff and managers. Managers and staff of PMU have been interviewed on how
they used information for making decision in project implementation, what obstacles they
encountered, what they can do to improve management effectiveness for better project
performance.
5. Data sources
The literature review and collection of secondary data has been performed by research
books, reports, newspapers and internet sources; by exchange information with managers
and staff form WBO, PMU in project PFIs.
6. Significance
By reviewing the issues on project management and understanding, findings the common
problems through case study analysis, the thesis benefits the implementing agency and
PFIs in providing appropriate recommendations to improve project management of RFD
III as well as applies in other cases in Vietnam. Thank to the weakness found from RFP
II’s performance, author will propose practical solutions and recommendations to help
improve management of other similar projects.
7. Expected result
The result of this thesis is to improve project management for further development of
BIDV and PFIs who involving in WB projects; to be expected effectively applied in the
case study of other projects funded by different donors.
8. The thesis structure
The thesis started with the introduction part, following by three chapters and the
conclusion part:
Chapter 1 will introduce general theoretical framework for ODA management.

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Chapter 2 provides an overview and performance of RFP II that is one of ODA projects in
Vietnam funded by WB in finance field and implemented by BIDV through project
documents. Basing on this overview, framework discussed in chapter 1 is applied to this
specific case to find out obstacles during project management process and the possible
causes leading to the unsatisfactory project performance.
Chapter 3 will address some recommendation to improve the effectiveness of ODA
project management in TC III and in Vietnam in general.

CHAPTER 1: THE EFFECTIVENESS OF ODA MANAGEMENT – GENERAL
THEORETICAL ISSUES
1.1. The overview of Official Development Assistance (ODA)
1.1.1. Official Development Assistance Definition
ODA stands for Official Development Assistance.

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According to Decree No. 131/2006/ND-CP issued by the Government on 9 th Nov 2006
about Regulation on Management and Utilization of Official Development Assistance, the
definition of ODA is:
“Official Development Assistance (ODA) in this Regulation is construed as the
development cooperation activities between the State or the Government of the Socialist
Republic of Vietnam and the donors, which are foreign governments; bilateral donors and
multilateral or inter-state organizations.
Notion of ODA refers to (i) the relationship in development cooperation between countries
that aims at the promotion of the socio-economic development (ii) in the form of official
financing aid between the State or the Government level and the Foreign Governments
level, bilateral donor and multilateral or inter-state organizations. This (ODA) relationship

has formed and developed in the form of non-refundable concessional loan that included in
annual ODA that one country pledge to assist other. The grant element should reach at
least 25% for untied loans.
1.1.2. The duality of ODA
Analyzing the duality of ODA is essential in order to have appropriate managing strategy
for ODA. It is necessary to not only policy-making body, but also individual/ people who
reuse this assistance. By understanding its duality, the process of ODA management meets
the requirement: quick and accurate ODA disbursement, increase grant element, efficient
use and constantly improve the repayment capacity.
a. Strengths of ODA
- Supplement medium and long-term to the development investments
The terms of ODA loans are usually from 30 to 40 years repayment period including 8 –
10 years grace period. There is no interest rate, but commitment fees and service fees are
applied and they add up to around 0.75% to 2% per annum. Because of these advantageous
characters, the grant element in the form of non-refundable loan is at least 25% to 100%,
and it becomes important, stable and long-term capital that supplement to development and
investment in developing countries. Especially at developing countries where commercial
banking system performs poorly, and is incompetent to mobilize the large amount of
medium to long term capital for economic and social infrastructure development;
Government bonds are not attractive to investors in the international capital markets and
the weakness of the stock market in mobilizing development and investment resources.
- Promote and attract Foreign Direct Investment (FDI)

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When the system of economic and social infrastructures are solid improved, ODA plays an
important role in appealing individual investment in business in that country. To countries
who commit to embark on its economic reforms with open-door policies by receiving
ODA the reform contributes to strengthen its belief and encourage individual investment

(FDI).
- Support strengthening institutional capacity and promote economic policy reform
In each ODA, recipient countries are always required to conducting strengthening
institutional capacity activities and economic policy reform. Their purpose is to facilitate
the funds and technology transfer from developed countries to developing countries by
training, experiment and applying new technologies. These activities will help ODA
recipient countries to improve their strategic planning capacity, program and plan
economic development policy that help foreign investment in general and ODA in
particular to be distributed more efficiently.
- ODA is one of the important sources of foreign currency supplements and to
compensate for the balance of payment deficit.
Developing countries have huge demand for foreign currency in order to push up their
process of industrialization and modernization, while their interior foreign currency
sources are insufficient because of the weak financial system and the Government’s
unprogressive foreign currency mobilization tools. Therefore, ODA is one of the important
foreign currency sources that help to compensate those deficits.
Besides, goods and services, modern equipments and high technologies will be imported
into developing countries in order to support for the implementation of industrialization
and modernization, social and economic infrastructure development.
- ODA plays a part in guarantee for the Government essential expenditure without
causing inflation.
Government spending is limited by ability of budget reimbursement, especially in the
Government of developing countries. Hence, they have to print more money to compensate
the deficit. Yet the amount of money that has been issued do not based on the volume
growth of products and services, it leads to the currency depreciation, then inflation. The
more money supply, the higher inflation rate and it finally end up with financial crisis. This
action will be denominated as a violation to circulation currency. In short, the cash outflow
from foreign investment will satisfy Government spending without printing more money,
or causing inflation.

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-

ODA is the linkage of cooperation and exchanges in political, cultural, economic and

other fields between donors and recipients.
Through ODA, recipient countries establish and expand their bilateral and multilateral
relationship in development cooperation with donors. Besides exploiting the strength of
capital, technology and management experience that included in ODA program, funds
transfer activities also play a role in encouraging cultural and social exchange through
training program, conference, investigation tour and research. Furthermore, donors by
committing to provide a part of ODA to developing countries per annum have consented to
socio economic development policy of those developing countries.
b. Weaknesses of ODA
- In some case, ODA associated with political elements rather than economic elements.
To avoid the political constraint by receiving ODA, The Government issued Decree No.20CP on 15th March 1994 and affirmed that: “The Government of the Socialist Republic of
Vietnam welcomes all foreign governments and organizations to support Vietnam by
providing Official Development Aids on the principles of respecting its independence and
sovereignty.”
- ODA associates with economic benefits of donor countries.
Nowadays, the trend of ODA donors is to reduce non-refundable aid and increase ODA
loan with conditions that constrain recipient countries to purchase their goods and services.
That is a spotlight in actual state of foreign aid in the world, however the level of constraint
are different from countries.
- Foreign exchange risk
Most of the ODA have been received in strong foreign currency that might cause exchange
risks such as: US dollar, pound, euro… while the escalation of domestic currency (e.g.
Vietnam dong) happens over time. So the longer time of the loan is, the higher the variance

of exchange rate between foreign currency and domestic currency are. This variance will
be borne and compensated by the State budget. Thus, recipient countries should have an
appropriate loan management policy if no they will face insolvency.
- ODA can become debt burden of recipient countries in the future
The Government often uses these loans to build up social and economic infrastructure and
its short-term profitability is extremely low, even zero. Therefore, if the infrastructure are
invested and used but work inefficiently, it will become a latent debt burden in the future.
1.1.3. Forms of ODA provision:
a. ODA in the form of a non-refundable grant

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Is form of ODA provision which is not refundable to the donor (or the grant element for a
grand is 100%). Non-refundable ODA which is denominated as technical assistance is an
inseparable part of ODA. This fund is used mainly to develop human resource, institution,
knowledge and technology transfer that recipient countries cannot implement by
themselves.
b. ODA in the form of concessional loan
Is form of ODA provision which is assistance through a loan with concessional conditions
in interest rate, grace period and debt-payment term. The grant element should be at least
35% for tied loans and 25% for untied loans.
c. Mixed ODA loan
Is assistance that includes a grant or a concessional loan provided simultaneously with
other commercial loans, but as a whole, its “grant element” should reach at least 35% for
tied loans, and 25% for untied loans.
1.1.4. Key modalities of ODA delivery:
a. Program support
Program support is a term that is used to describe the grant to investment in balance of
payment and State budget. It comes with the conditions of how the Government uses the

aid and conditions that related to the policy reform.
Support for program includes: balance of payments support, budget support, sector budget
support and reducing debt.
b. Project support
Project support is the grant that aim at specific purpose. Activities and expenses of the
project will be elaborated and frequently do not have additional condition. A develop
project includes a series of separate activities with its definite goal, budget and result, as
well as thorough project management. There are three modes:
- Aid project managed by the Government
Aid project that managed by the Government is a project where the Government of
recipient countries are responsible for managing the project and control the fund usage. In
this case, the fund will be disbursed directly to government’s account and the Government
of recipients has to record their usage explicitly. Besides, donors also provide suggestion
of how to use the fund.
- Aid project managed by the donor
Is a project where the donor will take the control and manage operation and finance of the
project. In this case, the donor establishes management board responsible for project
implementation and fund management. Fund will be disbursed and recorded by the donor.
This project is not a part of program and regular budget of government. This funding

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method is often seen at the bilateral donors and its clearly example is non-refundable grant
in term of technical assistance.
- Aid project managed by NGOs
This is one of the popular grant methods that donors can assist NGOs by proposing
appropriate project. The donor will sign a contract with NGO that list all activities,
conditions of using the fund, as well as finance and accounting requirements.
1.2. Content of ODA management

1.2.1. The need for ODA management
a. From the standpoint of the providers of ODA (donors)
Derived from funding, including ODA grant and ODA for concessional lending, both of
which are extracted a portion from the gross national product - GNP of donor countries to
implement “obligations" with regard to poor countries through the way of official
development assistance ODA. Meanwhile, the countries’ GNP are primarily formed from
taxes, charges and fees ..., which are contributed by their people. So, activities of providing
ODA to the poor countries by the rich ones are, in essence, that they are making long-term
“investment” in the poor countries in order to benefits in many different forms, whether in
likely economic or in political way to strengthen alliances ... Therefore, to manage the
investments, the donors often offer forms or modes of providing ODA provided as
described above in order to manage their investments. Together with the forms and
methods of providing ODA, donors also put forth a copy of the legal norms to closely
manage the turnover of capital flows. One of the highest legal documents that multilateral
and bilateral providing institutions of ODA applied to manage such credit funds is "Loan
Agreement" (Loan agreement).
b. From the standpoint of the countries approaching ODA (recipient countries)
Starting from the specific characteristics of ODA, which is outside elements of assisting
the poor countries in capital for their economic development, ODA is also tied to political
factors in the borrowing-loaning relationships. Therefore, only a minute change in the
political relationship between the two political parties, which would immediately has effect
over trends to increase or decrease in reducing ODA funding. Even if the borrowers fail to
return a part of principal or interest as committed, also it will immediately affect the trends
of increasing or decreasing in ODA, and donors even can stop providing ODA in a given
time. In particular, this relationship not only has a direct impact on the bilateral
relationship between donor countries to recipient countries, but also affect the community

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of donors. Therefore, setting out requirements for strict management with respect to these
funds of the recipient countries are urgently needed.
Moreover, ODA as a source of foreign borrowings of borrowing country’s government to
aim at support the balance of payments, interim budget deficits of government, especially
to support for investment and development activities, policy reforms ... Accordingly, to
maintain the liquidity of a country in each period, such government itself should bring
forward managerial regulations in order to closely manage these aid loans, thereby
contribute to improve capital efficiency and national liquidity.
1.2.2. Content of ODA management
Derived from nature and specificities of ODA compared to other conventional sources that
is the ODA loan-borrowing relationships which only arise between the State and the State
levels i.e between the governments of borrowing countries and those of the lending
countries, or with multilateral financial institutions. So to ensure compliance with the loanpay principles, the recipient countries also provide a series of strict regulations for each
stage, each segment of loaning. The whole management contents of ODA programs,
projects are mainly based on "Project cycle" (Project circle). The Project cycle consisting
of 6 stages can be described in the following figure:

Fig 1.1. Project cycle

a. Project identification

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Project identification is the identification of design ideas of loaning projects in the future.
This is the first stage of the project cycle, therefore, the management content for this period
often focus on orientations of project construction based on planning or strategy of
socioeconomic development of each locality or nation in each 5-year or 10-year period.
b. Project preparation
On the basis of the idea of project design, annually, Vietnam carries out to develop the list

of feasible projects scheduled to loan ODA sources for targets of investment and economic
development. The list of projects proposed by ministries, branches and localities should be
approved by the Government. Next, the projects will be presented for loaning mobilization
in the Consultative Group meeting of donors, which is held annually in December, for the
borrowing country. The role of state management for this stage is to review and approve
(pre-appraise) the list of highly feasible projects on technical aspect as well as the financial
capacity to for loaning mobilization.
c . Appraisal and approval of project content
After the project preparation, the subsequent stage is appraisal and approval of projects’
content. Subject to the scope, scale and nature of the project, the Government may
authorize Ministries , branches and localities to conduct appraisal and present assessment
results to the Government for consideration and approval .
Management content with respect to this phase is a comprehensive management process
for the evaluation and approval of the project content , including technical, economic,
financial organizational and performance evaluation of the project. If the evaluation results
of the borrowing country are consistent with those of the donors, the project will be
approved by the parties as planned . Besides, if such results are good, of high quality and
technical, financial, economic and organizational accuracy ... Upon being kicked off, the
project will bring high economic efficiency while ensuring the repayment capacity of the
project in the future .
d . Negotiation , conclusion , approval or ratification of international conventions
Depending on the content of the project, the Government may authorize the competent
authorities on behalf of the Government to carry out negotiations , sign the Loan

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Agreement with the donor and submit the International Convention on ODA to the
government for approval after it has been signed by the parties .
Management content for this stage is to manage all the contents related to the loan put forth

to negotiate with donors and decision-making process to establish negotiation missions.
Results greatly depend on the preparation of the contents which will be negotiated and as
well on the capacity and qualifications , negotiating skills , knowledge of laws , practices
and conventions on ODA ... of the members of the negotiating mission.
e. Development and implementation of the project
After the loan is concluded and the Loan Agreement is declared effective by the World
Bank, the Vietnam enters a period of organization and implementation of the project.
Mnagement content of this phase is the management of (i) the process of disbursement of
loans, (ii) the use of loans, (iii) procurement of goods and consulting services in the
framework of the project, (iv ) bidding for work items, (v) auditing, (vi) reporting, (vii)
development of organizational models of project management ... accordance with the
provisions of the two parties.
f. Project evaluation and completion
Evaluation and completion of project are the end of the disbursement period of the last
capital amount from loan account to project one. After the World Bank declares to close
books with regard to loans, it is time the parties make declaration on the completion of the
project and enter the evaluation stage of management effectiveness and use efficiency of
the Vietnam’s loans in over time.
Management content for this stage is the process of implementation, investigation, survey,
statistical data analysis, comprehensive evaluation of aspects of the project through a set of
identifiable quantitative and qualitative indicators according to the regulations of the two
parties. Assessments should be regular, irregular or periodic depending on the decision of
the parties, in order to clarify the achieved results and cause obstacling to the stages of the
project. Through assessment, the drawing lessons of success and failure will be disclosed
in public to use as a lesson for the subsequent phases of the project or for the other
projects.
1.3. Efficiency of ODA management
1.3.1. The concept of ODA management efficiency

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Efficiency of ODA management is effective in all operations of activities related to
processes of planning, project design, appraisal, loan approval, negotiation, signing and
approval of international conventions, implementation, and evaluation and completion of
the project ends .. with the policies of state management of ODA such as Laws,
Ordinances, Decrees, Circulars and Guidelines, Resolutions and Directives ...; and system
of such management policy mechanisms are always getting the interest of the public of
both the donor countries and recipient countries. It is the goal of efficiency of ODA
management.
1.3.2. The basic criteria for evaluating the efficiency of ODA management:
a. The quantitative criteria
• The quantitative criteria with nature macro:
Management of external debts in general and ODA source in particular in any other
country in the world, especially in developing countries such as Vietnam, the purpose with
regard to foreign debt management aims at 2 basic goals as follows: (i) Improving
efficiency of using loans, (ii) Maintaining external debt at a rate equivalent to the national
liquidity (safety margin).
Starting from practice of aid loaning of countries, a number of international financial
institutions such as the International Monetary (IMF), World Bank (WB) ... have
summarized and given some basically quantitative indicators with consistent and macro
nature to evaluate the effectiveness of foreign debt management of a number of countries
in certain periods, as follows:
In addition to the general criteria above, managers have given a number of other
quantitative indicators such as: the repayment ability of the budget, investment / GDP,
export growth, gross national reserves ratio in comparison with long-term liabilites plus total
short-term debt during the year, the ratio between short-term debt compared to total debt, total
domestic investment / GDP, total national savings / GDP, budget deficit / GDP ..
• The specific quantitative indicators (micro) in each ODA program, project:
Subject to the nature and content of each ODA program, project, donors may give different

management objectives, as measured by the quantitative indicators set out in the Loan
Agreements, in particular as follows:
- ODA contribution to GDP growth
- The increase in GDP per capita

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- Improvement of environmental conditions through a number of indicators of reducing
pollution of water resources, air and land...
- The social indicators: the poverty rate, number of jobs created, ...
- The ability to absorb the ODA subject to sectors, fields ...
For example: for the Rural Finance Project funded by the World Bank, the criteria often
focus on specific and basic indicators as follows: The rate of disbursement of the project,
number of banks participating whether or not assure quality according to international
standards set out jobs created, the income rate of the borrower ...
b. The qualitative criteria:
Some requirements may be considered as the qualitative basic criteria for assessment of
State management effeciency of foreign aid loans as follows:
- Implementation of economic policies brought echoes and effective use of aid loans;
- With sense of responsibility to the public and without corruption;
- Compliance with the rule of law and human rights;
- Call for participation in large, in public with regard to all classes in society, including the
poor and disadvantaged people in the process of developing the policies.
1.4. Experience of some countries on managing ODA project and the lesson towards
Vietnam
1.4.1. Philippines
In August 1985, Philippines Central Bank deployed the implementation of Agriculture loan
fund (ALF) sponsored by WB. In the framework of this project, WB sponsored 100 million
USD, United States Agency for Internatiol Development (USAID) made a non-refundable

aid of 20 million USD; and the Project was deployed according to the mechanism that the
Central bank received the capital and carried out lending 102 PFIs of partiicaption finance
(before the financial crisis of the area), it was only 64 PFIs after the financial crisis of the
area. In 1991, after nearly 5 years of implementation, the Central bank transfered the
Project to LandBank due to WB’s request; activity of the Project must follow the
mechanism of making profit. From 1989, Philippines Central Bank started implementing
the reorganization, accordingly the Central bank must cut down its role as well as function
in allocating credit directly and manage credit programs. When transfering, the Project was
still not disbursed the capital resources but it had the biggest advantage of the high safe
rate of capital; the report information was timely and accurate; and if there was the arising
in problems, inspector of the Central bank would take part in dealing with immediately.
Receiving the Project from 1991 to 1999, LandBank recieved 990,1 million USD of the

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financing for projects and relending credit programs. During the implementation process,
the bank was supported by Government as well as the Central bank. The capital resources
disbursed were closely managed from the phase of receiving till taking the capital back
from borrower and the refunding to organizations. Becuase of having the management
coordination between functional agencies and the bank, caiptal resources which Landbank
received from the international financial institutios sponsoring Philippines were reasonably
used, reached the financing target; in which, Country loan fund I, II, III of Landbank
(CLF) with the value of 400 million USD was regarded as one of the most effectively
implemented finance investment and support programs of foreign country in the country.
1.4.2. China
As well as other ODA capital resources, China has implemented the management of capital
resources sponsored by international financial institutions according to the method “Focus
management, non-focus implemenation”.
Summarizing the reason for the success of managing and using the sponsored capital

resources in China, there have been some outstanding points such as: good cooperation
strategy, good establishment of projects, good implemenation and allocation mechanism,
close monitoring and supervision mechanism. China has specially dignified the role of
management and supervision. The received capital resources have been given to the banks
for carrying out the disbursement to the end borrower, projects but still managed by two
central management agencies of China named Ministry of Finance (MoF) and National
Development and Reform Commission (NDRA). MoF could ask Local departments of
finance to take the regular check towards project’s activities, coordinate with the bank to
receive the capital and coordinate with WB to evaluate each project. Local governing
ministries and departments have also played the important role in the implementation and
coordination with the bank for supervising the captal usage. Refunding capital in China is
according to the way “who enjoys the profits will pay the debts”. This regulation has
forced the borrower and user to pay attention to finding out the solution to make profits for
paying the bank, and the bank has looked after the capital resources borrowed from
international financial institutions.
1.4.3. Malaysia

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Malaysia has the viewpoint: “coordinate closely with sponsors to inspect and evaluate”. In
Malaysia, financing capital resources are concentratively managed in a clue point named
Economic and Planning Office. This is the agency making the plan at central level, taking
in charge of approving project program and deciding to distribute the budget for serving
the national development target.
organizations have been

All capital resources financed by international

spent on implementing projects of eliminating hunger and

reducing poverty by this country. Malaysia has highly appreciated the technical support
from sponsors. The biggest purpose of Malaysia is receiving the technical suport in order
to strengthen the human’s capacity via the training classes. Malaysia recognizes that they
have not had the standard supervision method yet, but the Governmnet has paid much
attention to the monitoring and evaluating work. The monitoring and evaluating plan has
established from making the plan of project to the deployment at lending bank to borrower,
projects. Malaysia expecially pays attention to the sponsoring unit in activities of
inspection and supervision. Evaluation method of this country is encouraging the
evaluation coordiaation between sponsors and the country receiving the aid (the bank and
the agency in charge of) by making the evaluation system of both sides harmonious. The
evaluation contents focus on the efficiency of the project in comparison to the policy and
strategy, raising the implementation work and paying attention to the result. Monitoring
and evaluating activities are regularly carried out not only at the banks serving the
disbursement of capital resources but also borrower. Malaysia believes that the monitoring
and evaluating work does not obstruct the project, it will help enhance the transparency as
well as reduce the waste by contrast.
1.4.4. The lesson towards Vietnam
Each country has each different management way, no matter how it is, the biggest target
which they set up and gain is protecting the capital resources in maximum and serving the
best to the society as well as the people’s welfare. Some expereinces drawn in order to
manage the project’s capital are:
Firtsly, the management of ODA projetc must focus on a clue “Focus management, nonfocus implemenation”. This is different from Vietnam where activity of managing ODA
projects is still very scattered at present.

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Project’s capital resources must be closely managed from the phase of receiving to taking
the capital back from borrowers and refunding to the sponsor, must have the cooridnation

and bear the management responsibility between the functional agencies and the project
management board itseft, the project’s capital resources can be reasonably used, reaching
the financing target.
Besides, the world’s expereicne shows that when the financial capacity of the lending bank
and PFIs of partiicaption finance is weakness and shortcoming, it will impact the
sustainablity of the project. Therefore, another important factor is trainging a cadre line-up
with qualifications and ability to appraise, enhance the capacity for the bank, unify the
viewpoint; projects are only approved with the condition that the financial capacity of the
bank is wholesome, and only choose PFIs with real financial capacity.
These lessons are high valuable experiences which Vietnam can learn from in the process
of managing and using capital resources of ODA project.
Above are only the theoritical issues of management activity of ODA project. In Chapter I
of the disseration, the following issues are mentioned: (i) what is ODA? Strong points and
weak points of ODA capital resources, supply forms and modes of ODA aid; (ii)
Management contents of ODA project; (iii) Make the evaluation criterions on qualitative
and quantitative for analysis, evaluation of the process of managing and using ODA capital
resources; (iii) Finally is the experence of some countries and lessons for Vietnam.
How this activity is in the reality, we will find out about the real situation of financial
project management at Transaction Center III BIDV.

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CHAPTER 2: CASE STUDY AND FINDINGS – THE ACTUAL SITUATION OF
MANAGING WB’S CAPITAL FUNDING FOR RURAL FINANCE PROJECT II
AT TCIII BIDV
2.1. Overview of Rural Finance Project funded by WB
2.1.1. Brief of ideas and objective of RFP II and RFP III
Aiming at support key components of the IDA’s Country Assistance Strategy (1995) of (i)
assist transition to a market economy; (ii) strengthen the rural finance system through

finance targeted to agriculture and small and medium enterprises in rural areas,
accompanied by technical assistance; and (iii) reduction of poverty through promoting
growth and enabling the poor to respond to opportunities to improve their welfare with
premises that the financial sector of Vietnam is too underdeveloped and market conditions
are still too imperfect to allow an adequate flow of credit to the rural sector, after RFP I in
1997, RFP II was designed and then came into effect in 2002 with two wholesale funds
named Rural Development Fund (RDF) and Micro-finance Loan Fund (MFL) objecting to
assist SRV in its effort to improve living conditions in the rural areas though following
goals which in line with those of Government: (a) encouraging private sector investments
especially farm household and private rural entrepreneurs; (b) strengthening the banking
system’s capacity to finance private sector investments; (c) increasing access of the rural
poor to financial services.
• RDF III with a credit of USD 200 million equivalent was negotiated on 9 th Sept.
2007 between IDA and SRV. It was effective on 14 th Feb. 2009 and expected to be
implemented for 5 years aiming at supporting Vietnamese Government in promoting

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development of rural economy and improving living condition in rural area through the
same objectives as those of the RFP II.
These objectives would be achieved through the provision of:
- Further assistance to the Rural Development Fund by extending additional medium
and long term financial resources, through the banking system, for the financing of private
investments in rural areas
- Further support to the government in its effort to alleviate rural poverty through the
extension of financial and institutional support to the Micro-finance Loan Fund (MLF) and
its implementation agency (MFIs)
- Institutional support to strengthen the BIDV (the project Apex bank) as a wholesale
financial institution serving the rural areas

- Help to enforce financial discipline on the project’s Participating Financial
Institutions (PFIs)
2.1.2. Some main information and elements of RFP II and RFP III
Information
Credit amount
Lender:
Borrower:
Years to maturity:
Grace period:
Effective date:
Closing date:
Planned
Implementing
period
Organization in charge:
Implementing agency
PFIs:
Credit components

RDFII
Credit No.3648-VN
SDR mil. 160.2 (USD

RDF III
Credit No.3884-VN
SDR mil. 127.7 (USD

mil.200)
IDA
SRV

40
10
14 Apr.,2003
30 Sep.,2009
5 years
SBV
TCIII of BIDV
25
(a) RDF II: USD mil. 167.4

mil.200)
IDA
SRV
40
10
14 Feb.,2009
13 Dec.,2013
5 years
SBV
TCIII of BIDV
(d) RDF III: USD mil. 175

on- lent by BIDV to PFIs to on- lent by BIDV to PFIs to
re-lend to end borrowers re-lend to end borrowers
whose

sub-project

are whose

sub-project

are

eligible as stipulated
eligible as stipulated
(b) MLF: USD mil.28 on- (e) MLF: USD mil.10 onInstitution Building

lending to MFIs to relend to lending to MFIs to relend to
end borrowers whose sub- end borrowers whose subprojects

are

eligible

stipulated under this fund

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as projects

are

eligible

stipulated under this fund

as

(c) Institution Building for (f) Institution Building for
BIDV and PFIs/MFIs: USD BIDV and PFIs/MFIs: USD
Project Scopes

mil. 4.6
mil. 15
The project would finance The project would finance
eligible sub-project all over eligible sub-project all over
VN except in the urban areas VN except in the urban areas
of Hanoi, HCMC, Haiphong, of Hanoi (include Hatay),

Danang.
HCMC, Haiphong, Danang.
All Key Performance Indicators (KPIs) of RFP III:
- Supporting rural development through financing of viable investments (number of
sub-loans, total sub-project investments, and estimated incremental jobs created)
- Strengthen BIDV’s capacity to manage wholesale banking operations and finance
private sector investment (real increase in equity, private deposit mobilization, upgrading
lending quality, and improving information and control system)
- Upgrading the operational capacity of MFIs/PFIs to provide financial services o the
rural poor (number of participating MFIs/PFIs, cumulative amount lent through them to the
rural poor, and cumulative numbers of rural poor borrowers
- Accomplishment International Development Plans by MFIs/PFIs.
2.1.3. Modus operand of RDF under RFP II and RFP III
The two projects are rather similar to each other. Actually, the second project can be seen
as next phase of the first one.

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Fig 2.1. : Participating partners under Rural Finance Project
Project activities coordinators and influencers
(Professional associations, sociopolitical unions: Women Union, Farmer Union)

Local Project result influencers
(Local authorities, Natural Resource and Environment Departments)
The RDF/MLF is implemented as a Wholesale Banking Operation (WBO). There have
been three main participants: the wholesaler (an Apex bank) which is TC III (BIDV) who
has been assigned to manage RDFII and RDFIII as a part of its normal operation agreed by
IDA and Vietnamese Government under RFPII and RFPIII respectively, PFIs- who have
signed a Subsidiary Loan Agreement with BIDV acceptable to IDA and carried out retail
activity on their regular commercial basis, and the end-borrowers (PFI’s client) who singed
sub-contracts with PFIs to borrow project funds which has no allocation made by crop or
type of investment to finance their own sub-project investments.
Under the scheme, BIDV has disbursed the proceeds of the IDA credit to accredited PFIs
(against their eligible expenditures) for approved sub-loans to sub-borrowers. The
PFIs/MFIs then add their financing share of at least 10% of total sub-project cost, and the
final borrowers contributed at least 15% of total sub-project cost in cash or in kinds
including labor, but excluding land. The rest has been financed by IDA but limited to 75%
of the cost of any RDF and MLF sub-project.
With regard to the associated risk, BIDV bore the credit risk at the level of the PFIs/MFIs;
the PFIs/MFIs undertook the credit risk associated with their sub-loans, and the
government assumed the foreign exchange risk associated with SDR/dollars disbursement.
The PFIs/MFIs are free to: (i) select their eligible en-borrowers; (ii) set out their lending

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rate along the lines of Government/SBV rules and regulations. Maturity of PFIs/MFIs
loans were conformed to the composite maturity of related sub-loans.

IDA funds were on lent by BIDV to the PFIs/MFIs at a variable interest rate, adjustable
quarterly and equal to the latest quarterly weighted average cost of loan able funds in the
banking system and equivalent to the price that PFIs/MFIs would pay if funds were
mobilized in the market.
Proceeds accrued from the repayment of the principal of the subsidiary loans by PFIs/MFIs
would be used to establish and maintain a revolving fund for on lending for the same
purposed and under the same terms and conditions as those for on-lending under the IDA
credit. The sum of the proceeds of the IDA Credit and of the revolving fund would be
known as the RDFII, RDFIII and MLF.

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Refer Fig.2.2 for the implementation structure and stakeholders of RFPII.

2.1.4. Criteria and baselines for RFP management.

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