Impact evaluation of micro credit on welfare and poverty on the vietnam rural household

UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

INSTITUTE OF SOCIAL STUDIES
THE HAGUE
THE NETHERLANDS

VIETNAM - NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACT EVALUATION OF MICROCREDIT ON
WELFARE OF THE VIETNAM RURAL
HOUSEHOLD

BY

PHAM TIEN THANH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, OCTOBER 2012


UNIVERSITY OF ECONOMICS
HO CHI MINH CITY
VIETNAM

INSTITUTE OF SOCIAL STUDIES
THE HAGUE
THE NETHERLANDS

VIETNAM - NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACT EVALUATION OF MICROCREDIT ON
WELFARE OF THE VIETNAM RURAL
HOUSEHOLD
A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

PHAM TIEN THANH

Academic Supervisor:
DR. PHAM BAO DUONG

HO CHI MINH CITY, OCTOBER 2012


DECLARATION
I certify that the contents of thesis have been carried out and written by me to the
best of my knowledge and with the support in preparing this paper from many
different sources.
I certify that this thesis has not been submitted to any other programs or journals.
HCMC, October 15th , 2012

PHAM TIEN THANH

i

ACKOWLEDGEMENTS
This thesis is impossible to be achieved without the support and assistance of the
following people:
Firstly, I would like to express my greatest gratitude to Dr. Pham Bao Duong, my
academic supervisor, who advised and instructed and supported me during the
process of this thesis. His expertise and his suggestions have provided a good basis
for the improvement of my research. His enthusiasm and encouraging is also a
motivation for me to achieve me thesis.
I would like to give my special thanks to Prof.Dr. Nguyen Trong Hoai, Dean of
Vietnam–The Netherlands Programme and Dr. Pham

Khanh Nam, Academic

Director of Vietnam –The Netherlands Programme. Their knowledge and
enthusiasm has supported me a lot during my thesis writing process.
This is also a good opportunity to express my appreciation to all the lecturers who
equipped me with valuable knowledge during my study at Vietnam –The
Netherlands Programme.
I would also like to appreciate Mr. Nguyen Khanh Duy, Lecturer at the Faculty of
Development Economics, University of Economics, Ho Chi Minh City. His support
with data as well as using econometrics software is a great contribution to the
completion of my thesis.
Lastly, I am grateful to my beloved parents who gave moral support and encouraged
me to finish my thesis during writing process.

ii

ABSTRACT
This research evaluates the impact of microcredit on the welfare of
households living in the Vietnam rural areas, especially the poor. The research is
analyzed based on a data of

the Vietnam household living standard survey

(VHLSS) in the year 2008. The difference of the research in comparison with the
previous studied about the relationship between microcredit and welfare is the
employment of propensity score matching (PSM) method, thus it reflects the impact
of microcredit on rural households’ living standard better and more precisely. The
result shows that microcredit will result in better welfare of rural households via a
greater increase in the income and consumption per capita per month of the
participating households. However, the result about the poor rural households
showed that microcredit does not result in a higher increase in income of the
participants than that of the nonparticipants, but contributes to a greater rise in the
consumption.
The research also showed the determinants on the accessibility to microcredit
programs of the households living in rural regions.
The results found out that the probability of accessing the microcredit
sources of the rural households in Vietnam is still low. Moreover, the proportionate
of accessibility to microcredit of the poor household is even less that of the nonpoor households, which means microcredit programs mistarget the poor households.
From those results, the research gives policy recommendations to improve
microcredit programs in rural areas as well as to support more poor households to
access to microcredit sources.

iii


TABLE OF CONTENT

DECLARATION ................................................................................................................ i
ACKNOWLEDMENTS ................................................................................................... ii
ABSTRACT ..................................................................................................................... iii
TABLE OF CONTENT .................................................................................................. iv
LIST OF ABBRIVIATIONS .......................................................................................... vi
LIST OF TABLES AND FIGURES ............................................................................. vii
CHAPTER I .......................................................................................................................1
INTRODUCTION ..............................................................................................................1
1.1. Problem Statement .......................................................................................................1
1.2. Objectives of the study .................................................................................................4
1.3. Research questions .......................................................................................................4
1.4. Organization of the research ........................................................................................5
CHAPTER II .....................................................................................................................6
LITERARTURE REVIEW ..............................................................................................6
2.1. Overview of Poverty ....................................................................................................6
2.1.1. Definition ..................................................................................................................6
2.1.2. Method of defining poverty ......................................................................................7
2.2. Overview of Microcredit ...............................................................................................8
2.2.1. Some definitions ........................................................................................................8
2.2.2. Characteristics of Microcredit ...................................................................................9
2.2.3. Overview of rural credit market in Vietnam ..........................................................11
2.2.4. Overview of microcredit program in Vietnam .......................................................12
2.3. Empirical Study ..........................................................................................................17
2.3.1. Impact of micro credit on welfare/ living standard of the rural households ...........17
2.3.2. Determinants of the accessibility to microcredit programs ...................................24

iv


CHAPTER III ..................................................................................................................30

RESEARCH METHODOLOGY AND DATA DESCRIPTION ...............................30
3.1. Model of determinants of access to credit .................................................................30
3.2.Impact Evaluation techniques .....................................................................................34
3.2.1. Some Definition ......................................................................................................34
3.2.2. Impact evaluation using PSM technique .................................................................34
3.2.3. Impact evaluation using DID technique...................................................................38
3.3. Data Description .........................................................................................................41
3.3.1. Survey area ..............................................................................................................41
3.3.2. Data sources ............................................................................................................41
3.3.3. Sample selection ......................................................................................................41
CHAPTER IV ..................................................................................................................44
RESULT ...........................................................................................................................44
4.1. Descriptive Statistics ..................................................................................................44
4.2. Determinants on microcredit participation ...............................................................46
4.3. Impact of microcredit on welfare of rural households using PSM .............................51
4.4. Impact of microcredit on welfare of the rural poor using PSM ..................................52
4.5. Impact of microcredit on welfare of rural households using DID with fixed
effect ...................................................................................................................................55
4.6. Comparison between the results of PSM and DID method ........................................56
4.7. Comparison with previous studies .............................................................................57
CHAPTER V ...................................................................................................................59
CONCLUSION, POLICY RECOMMENDATION AND LIMITATION ................59
5.1. Conclusion ..................................................................................................................59
5.2. Policy Recommendation ............................................................................................62
5.3. Limitation ...................................................................................................................64
REFERENCES .................................................................................................................65
APPENDIX .......................................................................................................................63

v

LIST OF ABBREVIATIONS
GSO

General Statistics Office

MOLISA

Ministry of Labor, Invalids and Social Affairs

DOLISA

Department of Labor, Invalids and Social Affairs

MFIs

Micro Finance Institutions

VBA

Vietnam Bank for Agriculture and Rural Development

VBSP

The Vietnam Bank for Social Policies

WB

World Bank

UN

The United Nations

PSM

Propensity Score Matching

VHLSS

Vietnam household living standard survey

NN

Nearest neighbor

PSM

Propensity Score Matching

DD or DID

Difference in Difference or Double Difference

vi


LIST OF TABLES AND FIGURES
List of Tables
Table 2.1:

Poverty Rate in Vietnam ................................................................................... 7

Table 2.2:

Characteristics of Microcredit Programs in Vietnam from 2005 to 2011 ......... 12

Table 2.3:

Main Characteristics of the MFIs in 2011 ....................................................... 14

Table 2.4:

Characteristics of Microcredit Programs by VBSP from 2005
to 2011 ............................................................................................................ 16

Table 2.5:

Summary of Some Main Findings about the Impact of Microcredit
Programs on Welfare/ Living Standards .......................................................... 20

Table 3.1:

Descriptions of the Determinants on Accessibility to Microcredit ................... 31

Table 3.2:

Variables in the Analysis of the Impact of Microcredit using DID ................... 40

Table 3.3:

Characteristics of Comparison Groups in 2008 ............................................... 43

Table 4.1:

Impact of Microcredit on Income/Consumption of Rural Households
using Independent Sample T-Test Methods ...................................................... 44

Table 4.2:

Impact of Microcredit on Income/Consumption of the Rural Poor
using Independent Sample T-Test Methods ...................................................... 44

Table 4.3:

Distribution of Eligibility with respect to Treatment Households ................... 45

Table 4.4:

Credit Access with respect to Eligible Households ......................................... 45

Table 4.5:

Probit Estimations of Determinants on Accessibility to Microcredit ............... 47

Table 4.6:

Probit Estimation of Model 3 with Marginal Effect ........................................ 48

Table 4.7:

Impact of Microcredit on Income of Rural Households using PSM.................. 51

Table 4.8:

Impact of Microcredit on Consumption of Rural Households using PSM ....... 52

Table 4.9:

Impact of Microcredit on Income of the Rural Poor using PSM ..................... 53

Table 4.10: Sector of Production and Business on Which the Loan was Spent ................... 53
Table 4.11: Reasons of Unchanged or Worse Living Condition .......................................... 54
Table 4.12: Impact of Microcredit on Consumption of the Rural Poor using PSM ............ 54
Table 4.13: Impact of Microcredit on Welfare of Rural households using
DID with fixed effect ....................................................................................... 55
Table 4.14: Result Comparison between PSM and DID Method ........................................ 56
Table 4.15: Results from the Previous Studies .................................................................... 57

vii


List of Figures
Figure 2.1 : Gross Loan Portfolio of microcredit in Vietnam from 2005 to 2011 ............... 13
Figure 2.2 : Characteristics of Microcredit Programs by VBSP from 2005 to 2011 ............ 15
Figure 2.3 : Determinants on Accessibility to Microcredit and Welfare Indicators ..............29
Figure 3.1 : Illustration of Impact Evaluation Using DID Method ...................................... 39

viii

CHAPTER I
INTRODUCTION
The purpose of this chapter is to present chapter introduction of microcredit program as
well as scope of the research such research methodology, research data, research
objectives, and research questions.
1.1.Problem Statement
Vietnam is considered one of the few countries

that has obtained the

remarkable achievement in poverty reduction. As annual reports by GSO showed, the
poverty rate has declined from 37.4 percent in 1998, to 18.1 percent in 2004 to 13.4
percent in 2008. In a report by GSO (2008), the poverty rate in rural areas (16.1
percent) was higher than that in urban areas (6.7 percent). A large number of farmers in
Vietnam are still living in poverty and under poor living standards. Moreover, they
have difficulties with accessing to credit sources especially, formal credit sources. As a
result, they mostly borrow from informal sources for financing their production as well
as for consumption. That results in the fact that they may fall into deeper debt and
default debt. Therefore, in order to gain the more preeminent achievement of hunger
eradication and poverty reduction as well as to help the poor escape from poverty, the
Vietnam Government have invested a great number of capital as well as provided
financial services to support the rural households, especially the poor in rural areas via
credit programs. One of the special credit programs that the Government applied the
program is microcredit.
As the definition by Microcredit Summit (1997), microcredit program is a
program which provides small loans to poor people so that they can generate income to
improve their living standard.
Many countries have applied microcredit programs as a tool of poverty
reduction as well as a channel of providing credit to rural households. Microcredit has

been popularly applied and its impact on welfare or living standard of households has

1


been studied by many authors. However, there are two mixed opinions about the
impact of microcredit as follows:
 On the bright side, Khandker, S. R. (1998), Yunus (2009) considered
microcredit as the

tool for the purpose of poverty alleviation and hunger

eradication. To reaffirm this statement, the study by Alexander (2011), Zaman
(1999), Kumar (2005), and Sarangi (2007) showed that microcredit program has
positive impacts on the household’s welfare via increasing their income and
consumption.
 On the limited side, some researchers argued that microcredit insignificantly
affects welfare of households. Coleman (1999) stated that there is no evidence
of the microcredit program impact on the living standard which is reflected via
assets and income.
However, in Vietnam, does this program actually have impacts on welfare and
poverty of the rural households, especially the poor rural households as well as target
these poor households?
In Vietnam, there have been also many researches about the impact of
microcredit program on the households, especially the households in rural areas and the
poor rural households. Cuong Nguyen (2008) proved that VBSP microcredit programs
enhance the incomes and expenditures of the rural households in Vietnam. Also in his
research, microcredit program is found to decrease the poverty-gap and povertyseverity indexes as well as contribute to poverty reduction of the participating
households positively. However, he found that among the participating households, the
proportion of the non-poor is higher than that of the poor. Tra Pham (2011)

reconfirmed that participation in microcredit programs by VBSP have positive effect
on self-employment profits of rural households. Moreover, she found that participation
in microcredit program results in the higher increase in income of the poorest
households than that of the medium-income households in Vietnam rural regions, then

2


this leads to the positive impact on poverty alleviation. In a research on the case of the
Vietnam rural households by Nadine R. & Peter P. M. (2012), microcredit program
was founded to improve the quality of water supply and the sanity system reflected via
safer removal of human waste.
The research is conducted in order to evaluate the impact of microcredit on
welfare of rural household, as well as the poor in rural areas. This research mainly
focuses on PSM method using cross-sectional data, and applies DID method with fix
effect technique using panel data to compare the results of PSM method. The
feasibility of PSM method is that there is no need pre- and post- program survey as
required in as Difference in Difference (DD) method. PSM method only requires the
post program survey, so it is very useful when there is not pre-program surveyed data.
Meanwhile, DID method with fixed effect regression can measure the difference in an
outcome pre – post attendance in the program, measure the difference in outcome
among factors at the same time (separate the impact of microcredit and other factors on
welfare), and the difference in outcome of impact of the program over time.
The analysis of this research relies on data collected by the General Statistical
Office of Vietnam (GSO), namely the Vietnam household living standard survey
(VHLSS) in the year 2006 and 2008. The microcredit loans in this research are only
derived from formal credit sources granted by VBSP, which is considered as the
greatest providers of microcredit and the most typical representative of financial
institution of the Government in anti-poverty program. In Vietnam, most of the poor
households are living in the rural areas; therefore, the research mainly focuses on

analyzing households in rural areas, as well as the poor rural households.
In addition to present the impact of microcredit on welfare or living standard of
the households, the research also presents the determinants on the accessibility to
microcredit programs of households living in the rural areas as well as the targeting of
this program.

3


Based on the results, relevant policies will be carried out to improve microcredit
programs, and to support the poor.

1.2. Objectives of the study
The general objective of this study is to evaluate the impact of the programs on
the welfare of the households living in the rural areas, especially the poor.
In order to achieve the overall goal, the research must meet the following
specific objectives:
i.

Investigating whether microcredit programs have significant positive effects on
the living standards of the household living the rural areas.

ii.

Investigating whether microcredit programs truly targets the poor rural
households.

iii.

Investigating the determinants on the microcredit programs participation of the

rural households.

iv.

Suggesting policy implications to develop this program as well as to support the
accessibility to microcredit programs of the rural households.

1.3. Research questions
In order to capture the research objectives, the research should answer the
following questions:
i.

Does microcredit program have a significant positive impact on household’
welfare via income/ consumption per capita per month?

ii.

Does microcredit program target the poor household in rural area?

iii.

What is the determinants on households’ access to microcredit programme ?

4


1.4. Organization of the research
In order to achieve the above objectives, the structure of the research is
constructed as follows:
Chapter I

: This chapter gives introduction about the microcredit program, research
methodology, research objectives, and research questions.

Chapter II

: This chapter presents literature review and empirical studies about the
issues related to the research such as poverty, credit market in Vietnam
rural areas, impact of microcredit on welfare of the poor, as well as
determinants on the participation in microcredit programs.

Chapter III : The first part of this chapter presents methodology applied in the
research, especially focusing on the PSM technique. The second part
gives description of data used for analysis.
Chapter IV : This chapter shows the result of the research such as descriptive
statistics; the determinants on the participation of microcredit programs;
and the most important, the result of the impact of microcredit programs
on the welfare of the household via income per capita and consumption
per capita.
Chapter V

: This chapter presents conclusions of main findings in the research,
suggests policy recommendations, and mentions limitations of the
research.

5


CHAPTER II
LITERARTURE REVIEW

This chapter presents literature review and empirical studies about the issues related to
the research. The first part discusses about the overview of poverty regarding definition
of poverty and methods of defining poverty. The second part presents overview of
microcredit regarding definition, characteristics, microcredit market in Vietnam rural
areas and the operation of microcredit program in Vietnam, especially the case of
VBSP. The last part discusses the impact of microcredit on welfare of housholds, as
well as determinants on participation in microcredit programs by previous studies.
2.1. Overview of Poverty
2.1.1. Definition
There is no one single definition of poverty. Poverty can be defined as follows:
"The most commonly used way to measure poverty is based on incomes. A
person is considered poor if his or her income level falls below some minimum level
necessary to meet basic needs. This minimum level is usually called the "poverty line".
What is necessary to satisfy basic needs varies across time and societies. Therefore,
poverty lines vary in time and place, and each country uses lines which are appropriate
to its level of development, societal norms and values." - (The World Bank)
“Poverty is a situation in which a proportion of the population does not enjoy
the satisfaction of basic human needs that have been recognized by the society
depending on the level of economic and social development and local customs and
practices.” (Asia-Pacific Conference on Poverty Reduction by ESCAP, 1993).
There are many ways to define poverty. In general, poverty is expressed via
three main aspects:
1. The income is lower than the average income of whole population.
2. Living standard is below some minimum level necessary to ensure basic needs.
3. There is no opportunity to join or integrate to the development of society.

6


In Vietnam, the Government accepted the definition of poverty by Asia-Pacific

Conference on Poverty Reduction held by ESCAP (1993). Many methods to define
poverty have been developed by GSO and MOLISA. This research employed the
Regional Rating Method by MOLISA to define poverty as well as the poor households.
2.1.2. Method of defining poverty.
2.1.2.1.Expenditure / Consumption Method
This method specifies the poor via their expense on the goods baskets including
food and non-food good, in which the expense on food products must ensure the level
of 2000 kalo/capita/day. When the household cannot obtain this level, they are living in
poverty. This method is used and developed by The General Statistics Office of
Vietnam (GSO).
2.1.2.2.Income Method
This method specifies the poor via their minimum income in order satisfy their
minimum basic needs. The International poverty rate (by World Bank) states that
people with income less than 1USD/day are considered as living in poverty.
Meanwhile, the poverty rate in Vietnam has been calculated as follows:
Table 2.1: Poverty Rate in Vietnam
Region
Urban
(VND)
Period

2004
2006
2008
2011 - 2015
Source: Report by GSO and MOLISA (2010)

Rural
(VND)
218,000

260,000
370,000
450,000

168,000
200,000
290,000
35,0000

However, this method is not applied homogenously by each region. To obtain
the precise information on true income of households is very difficult because they
often have tendency to under-declare their income.

7


2.1.2.3.Regional rating Method
This method is applied and developed by MOLISA. To execute this, MOLISA
has employed such methods as investigation and reviewing in combination with quick
identification method, quantitative method and evaluation method

under the

participation of households (Official Dispatch 3461/LD-TBXH-BTXH, 2011) . Then,
the households will be interviewed by Commune staff about such criteria as income,
expenditure, assets, house condition, dependency ratio, sanity condition, etc,.
Following these standards given by MOLISA, the local authorities at village level will
evaluate and choose which households are poor, then make a list and send to commune
authority. Then, the commune authority will review the list and send to DOLISA at
District-level for being issued “Certificate of poverty”.

Households with “Certificate of poverty” that will answer “YES” when being
question about their state of poverty are classified as the poor households in this
research.

2.2. Overview of Microcredit
2.2.1. Some definitions
a. Rural finance is defined as 'financial services offered and used in rural areas by
people of all income levels', and agricultural finances 'a sub-set of rural finance
dedicated to financing agriculture-related activities, such as input, supply,
production, distribution and wholesaling, and marketing'. (The Consultative
Group to Assist the Poor (CGAP) )

b. Rural credit is the credit which is given to the farmers for agriculture and other
purposes relating to rural activities. Rural credit makes up to 90 percent of
activities of rural finance market.

8


c. Microfinance is defined as providing to the poor and low-income people with
variety of small-size financial services such as savings, credit and other basic
financial services. (United Nations).
d. Microcredit
“Microcredit is a program which extend small loans to very poor people for selfemployment projects that generate income, allowing them to care for themselves and
their families” (The Microcredit Summit, 1997).
Microcredit is defined as provision of thrift, credit and other financial services
and products of very small amount to the poor in rural, semi-urban and urban areas for
enabling them to raise their income levels and improve living standards”. (Reserve
Bank of India - Master Circular, 2011)
Microcredit programs have been considered as an effective tool for hunger

eradication and poverty reduction. Microcredit has been developed by the Grameen
Bank under the leadership of Prof. Muhammad Yunus, who received the Nobel Peace
Prize in 2006.
2.2.2. Characteristics of microcredit
In order to be considered as microcredit, the loan should include the such
characteristics as :
(1) The small loan size : The term "small loan" may vary in each country. As
Microfinance Institutions (MFIs), the amount ranges between $30 and $200.
In Bangladesh, the average loan size of microcredit is 393.55USD. A report by
Microcredit fund (MCF) showed that average size of microcredit loans is
795USD. In this research, the amount to be considered as microcredit is the
average loan size from VBSP at 444USD (Source: www.mixmarket.org in
2008).

9


(2) The high interest rate: The rate may vary from 15 to 35 percent per year
(Microfinance Institutions).
(3) Targeting the poor: Du (2004) found that microcredit targets the poor and lowincome households.
(4) The purpose of improving living standard: The main objective of microcredit is
to eradicate hunger and reduce poverty. This objective can be achieved via
income and employment generation.
(5) No collateral: Collateral is often considered as a good tool of reducing default
risk incurred by the lenders. However, it causes difficulty for the poor because
of their lack of precious assets for collateral. Therefore, microcredit is an
innovative lending service that provides the poor with loans without the need of
collateral and only based on trust (Xia Li, 2010).
(6) Group-lending scheme: Without collateral, microcredit program controls
borrows via using scheme such as group-lending. The main mechanism of this

scheme is that the members of group will monitor one another and be
responsible for the repayment of the other members. If one group member
defaults, the whole group will have less opportunity to access to the program in
the future. Anderson and Nina (2000), Besley and Coate (1995) stated that
group-lending scheme is considered as a “social collateral” which can help
lenders to minimize default risk as well as reduce cost of monitoring.
(7) Targeting women: In their research, Cheston and Kuhn (2002) stated that the
proportion of female borrowers all over the world is about 74 percent.
In this research, the microcredit loans are extracted based on the definition of
microcredit by Microcredit Summit (1997) and the information of microcredit loan size
by VBSP. Therefore, microcredit needs to meet such characteristics as:
(1) The loan is granted and provided by VBSP. The reasons to focus on only the
case of VBSP are : (i) VBSP is the major provider of credit for the rural

10


households as well as the poor; (ii) VBSP is the most typical financial institution
that best represents the Government in hunger eradication and poverty reduction
campaigns; (iii) Nowadays, VBSP is the greatest provider of microcredit in
Gross Loan Portfolio as well as the number of borrowers (Table 2.3), and these
numbers tend to increase more and more (Table 2.4).
(2) The average loan size is about 444USD (7,360,00VND in term of exchange rate
in 2008 at 16580VND/USD) (Source : www.mixmarket.org in 2008);
(3) The purpose of borrowing is to run production or self-business in such
industries as Agriculture, Forestry, Fishery, Business and Trading, Services, etc.

2.2.3. Characteristics of rural credit market in Vietnam
“The formal rural credit is defined as the credit that provided by the Vietnam
Bank for Agriculture and Rural Development (VBARD) and access to such a form

kind of credit referred to ability to obtain a loan” (Vien, 2006). Besides VBARD, the
Vietnam Bank for Social Policies (VBSP) and the Vietnam Bank for the Poor (VBP)
are also the major sources of credit for rural households. The main functions of these
banks are targeted in struggling with hunger eradication and poverty alleviation as well
as becoming a major credit source for the poor, minority ethnic groups.
The semi-formal credit sector provides loans through sociopolitical unions in
the rural areas. Some unions that have efficient operation in this sector include
Women’s Union Farmers’ Association, or The People’s Credit Funds (PCF),
Informal credit sources have been traditional providers of credit in rural areas
and are the result of an underdeveloped formal credit market. In Vietnam, informal
credit market has played a significant role in providing credit to rural households in the
past. The characteristic of this sector are specified as:
The research only focuses on the formal credit sector with microcredit loans
from VBSP.

11


2.2.4. Overview of microcredit program in Vietnam
2.2.4.1. Microfinance institutions and performance of microcredit program.
In Vietnam, microcredit program was first applied by Tinh Thuong (TYM) fund
in 1992. TYM was established in 1992 based on the model of Grameen Bank of
Bangladesh and managed by the Vietnam Women's Union (VWU). After that, some
more MFIs were established such as Binh Minh CDC, CEP, etc... However, at that
time, the operation of microcredit programs by TYM as well as most of MFIs was not
adjusted and controlled under a legal framework. Most of MFIs at that time were only
considered as political social organization. Without legal framework, the MFIs had
difficulty in mobilizing capital.
After the promulgation of the decree 28/2005/ND-CP that prescribes the
establishment of small-sized financial institutions and the decree of 165/2007/ND-CP

that amends and implements decree 28/2005/ND-CP, microcredit has been remarkably
improved and increased in great quantity.
Table 2.2: Characteristics of Microcredit Programs in Vietnam from 2005 to 2011
Average loan
per borrower
2000
86
2001
98
2002
101
2003
187
2004
226
2005
260
2006
241
2007
378
2008
435
2009
510
2010
550
2011
610
Source : www.mixmarket.org

Year

Gross Loan Portfolio
(USD)
1,940,888
3,693,409
4,912,074
630,602,241
864,943,591
1,103,533,447
1,169,333,228
2,208,590,097
3,059,283,932
3,979,270,468
4,652,328,963
5,476,680,085

12

Number of active
borrowers
22,568
37,661
48,620
3,371,273
3,820,166
4,251,506
4,858,491
5,848,567
7,028,691

7,805,106
8,453,818
8,976,422


Figure 2.1 : Gross Loan Portfolio of Microcredit in Vietnam from 2005 to 2011
6,000,000,000

5,000,000,000

4,000,000,000

3,000,000,000

2,000,000,000

1,000,000,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source : Calculated from the data at www.mixmarket.org
Table 2.2 and figure 2.1 showed the trend of microcredit from 2000 to 2012.
From the year 2000 to 2002, the operation of microcredit was ineffective, the gross
loan portfolio was small and increased very slightly. From 2003 to 2006, the operation
of the program was improved, but there was only a moderate increase in the gross loan
portfolio. From 2007 to 2011, since the decree 28/2005/ND-CP and 165/2007/ND-CP
took affected, there has been a remarkable increase in gross loan portfolio.
Table 2.3 presented the most updated information (in 2011) about the number
of microfinance institutions as well as their operation via three indicators such as

average loan per borrower, gross loan portfolio and number of active borrowers . This
table showed the outstanding role of main microfinance providers such as VBSP,
CPCF, CEP, TYM and M7, in which VBSP is the greatest providers of such kind of
lending service nowadays. Therefore, this research analyses the impact of microcredit
programs provided by VBSP only.

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Table 2.3: Main Characteristics of the MFIs in Vietnam in 2011
Gross Loan
Portfolio
(USD)

Number of
active
borrowers

VBSP

Average loan
balance per
borrower
(USD)
579

4,932,544,460

8,519,497

CPCF

8,814

457,581,075

51,914

CEP

231

44,647,899

193,238

TYM

274

19,965,308

72,958

M7

210

5,334,193

25,407

WU (Ha Tinh, Son La)

113

2,659,580

23,607

Dariu

161

2,243,715

13,936

NMA
Fund for Women Development HCM

92

1,964,721

21,369

181

1,723,535

9,528

Microfinance Fund, Hai Phong

---

1,692,635

---

CAFPE BR-VT

148

1,522,332

10,300

TCVM Thanh Hoa

138

1,469,763

10,650

WV Vietnam

183

1,221,721

6,690

Binhminh CDC

188

835,079

4,449

BTWU

121

264,780

2,189

Chi-Em

76

231,459

3,032

MCDI

95

185,449

1,950

Women Development Fund

239

157,428

660

BTV

160

157,185

983

CSOD

95

123,776

1,300

VietED MF

617

98,147

159

345

55,483

161

MFI name

STU
Source : www.mixmarket.org

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2.2.4.2. Microcredit program by VBSP
In 1995, the State announced the establishment of the Vietnam Bank for the
Poor (VBP) with the purpose of poverty reduction. Later, in 2003, the VBP was reorganized and renamed the Vietnam Bank for Social Policies (VBSP). The VBSP
continued the mission of fighting poverty. Since its establishment, VBSP has operated
effectively via providing various lending service to support the poor. One of the most
effective lending service that VBSP provides is micro credit program. Table 2.4 and
figure 2.2 showed the operation of microcredit program by VBSP from 2005 to 2011.

Figure 2.2: Microcredit Program Operation by VBSP
Gross Loan Portfolio
6,000,000,000
5,000,000,000
4,000,000,000
3,000,000,000
2,000,000,000
1,000,000,000
0
2005 2006 2007 2008 2009 2010 2011

Number of active borrowers
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2005 2006 2007 2008 2009 2010 2011

Source: Calculated from the data at www.mixmarket.org

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