Evaluation of the credit activities for poor households in the vietnam bank for social policies ha nam branch

THE EXECUTIVE MASTER OF BUSINESS
ADMINISTRATION

Evaluation of the credit activities for poor
households in the Vietnam Bank for Social
Policies – Ha Nam Branch

Graduate Student: Luong Thi Phuong
Supervisor 1: Dr. Mai Anh
Supervisor 2: Assistant Professor Chih-Hsu
Wang

Ha Noi, 2018


Lunghwa University of Science and Technology
Approval Certificate of Master's Degree Examination Board

This is to certify that the Master‟s Degree Examinations Board has approved the
thesis Evaluation of the credit activities for poor households in the Vietnam Bank for Social
Policies – Ha Nam Branch published by Ms Luong Thi Phuong in the Master Program of
Graduate School of Department of Business Administration

Master‟s Degree Examination Board

Board Members:

Advisor

Chair

Date 2018/03/09


ABSTRACT
Thesis Title: Evaluation of the credit activities for poor households in the Vietnam Bank for
Social Policies – Ha Nam Branch
Pages: 77
University：Lunghwa University of Science and Technology
Graduate School：Department of Business and Management
Date：December, 2016

Degree：Master

Graduate Student：Luong Thi Phuong
Advisor 1： Dr. Mai Anh
Advisor 1：Assistant Professor Chih-Hsu Wang
Keywords: Credit activities, poverty eradication, preferential interest rates, Vietnam Bank
for Social Policy.
The study employs fundamental statistics methodology to investigate the status of
lending procedure in Vietnam Bank for Social Policy (VBSP) – Ha Nam Branch for poor
households, using the annual data collected from the conducted survey, bank income
statement and credit performance reports. By reviewing the results from previous papers as
well as consulting the experts’ perspectives, this research divides the collected data into
different categories including the lending procedure criteria, the content of loans, the results
of the loan usage and the impacts on the living of the poor households. The results from the
study implementation demonstrate the achievement in lending activities of VBSP Ha Nam
over the observed periods as well as the limitations of the credit procedure. Based on the
thesis findings, the author has proposed some of the feasible solutions to improve the
quantity together with the quality of the credit aiming at poverty eradication in VBSP Ha
Nam.

i


ACKNOWLEDGEMENTS
During the research and completion process of this thesis, I have received the great care and
help of the whole team as well as the individuals in the office.
First of all, I would like to express my sincere thanks to Dr. Mai Duc Anh, the teacher who
has devotedly assisted me with knowledge and methods of working and editing during the
implementation of this thesis.
I also would like to show my deep gratitude to my family, my friends, and those who
frequently ask for encouragement during the preparation of this thesis.
Having obtained the results of this study, I have received comments from teachers in the
International School of Vietnam National University, Hanoi with all the dedication of
provided information from the entire departments, organizations and the poor households in
Ha Nam branch. I would like to acknowledge these help.
Despite many efforts, this thesis is inevitability of shortcomings. Therefore, I expect to
receive the valuable guidance and comments from all teachers and friends.

Thank you!
Author
Luong Thi Phuong

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TABLE OF CONTENTS
ABSTRACT ..................................................................................................................... i
ACKNOWLEDGEMENTS ............................................................................................. ii
TABLE OF CONTENTS ............................................................................................... iii

LIST OF TABLE .......................................................................................................... vii
LIST OF ABBREVIATIONS ....................................................................................... viii
INTRODUCTION ........................................................................................................... 1
1. The necessity of the thesis ....................................................................................... 1
2. The objectives of the thesis ...................................................................................... 2
2.1.General objective ............................................................................................... 2
2.2.Specific objectives ............................................................................................. 2
3. Subject and the scope of the thesis ........................................................................... 3
3.1 Subject ............................................................................................................ 3
3.2 Scope .............................................................................................................. 3
4. New contribution of the thesis ................................................................................. 3
5.Thesis structure......................................................................................................... 3
CHAPTER 1: OVERVIEW, LITERATURE REVIEW AND REALITY OF
CREDIT PROVISION TO POOR HOUSEHOLDS IN VBSP......................................... 5
1.1

Overview of the examined topic ......................................................................... 5

1.1.1.

The reseach on credit provision to poor households in VBSP ................... 5

1.1.2. Studies on credit assessment for poor households in other branches of
VBSP. ...................................................................................................................... 6
1.1.3. Results and gaps of the research ..................................................................... 7
1.2. Fundamental literature review of credit and poverty ............................................. 8
1.2.1. Fundamentals of credit ................................................................................... 8
iii

1.2.2. Fundamentals of poverty ................................................................................ 9
1.3. Credit content for poor households ..................................................................... 14
1.3.1. The role of credit for poor households ...........................................................14
1.3.2. Characteristics of credit activities for poor households ..................................15
1.3.3. Influencing factors ........................................................................................15
1.4. Indicators of credit performance for poor households ......................................... 17
1.4.1. Method of lending .........................................................................................17
1.4.2. Objectives of the loan....................................................................................23
1.4.3. Credit limit and the number of lending households .......................................24
1.4.4. Interest rates on loans ....................................................................................26
1.4.5. Term of the loan ............................................................................................27
CHAPTER 2: METHODOLOGY ................................................................................. 28
2.1. Research questions.............................................................................................. 28
2.2. Research Methodology ....................................................................................... 28
2.2.1. Documents collection method .......................................................................28
2.2.2. Data processing and synthesis method ..........................................................30
2.2.3. Document analysis method ...........................................................................30
2.2.5. Expert consultation method ...........................................................................31
2.3. Key indicators used in the study.......................................................................... 31
CHAPTER 3: LENDING PROCEDURE FOR POOR HOUSEHOLDS IN VBSP
HA NAM ...................................................................................................................... 33
3.1. Overview of Ha Nam Province ........................................................................... 33
3.1.1. Geographical features....................................................................................33
3.1.2. Weather climate ............................................................................................33
3.1.3. Land and the use of land ...............................................................................33
3.1.4. Socio-economic characteristics .....................................................................34
3.2. Poverty status and characteristics of poor households ......................................... 39

iv

3.2.1. Characteristics of the interviewed poor households .......................................41
3.2.2. Status of the member and labor of the household ..........................................43
3.2.3. Land status of surveyed households ..............................................................43
3.2.4. Properties status of interviewed poor households ..........................................43
3.2.5. Participation in social unions.........................................................................44
3.2.6. Income levels of interviewed households ......................................................45
3.3. Analysis of credit activities of poor households in VBSP Ha Nam ...................... 45
3.3.1. Method of lending .........................................................................................45
3.3.2. Objectives of loans ........................................................................................48
3.3.3. The number of loans and lending households ................................................50
3.3.4. Interest rates ..................................................................................................51
3.3.5. Loan maturity date ........................................................................................52
3.3.6. Lending results for poor households of VBSP Ha Nam .................................53
3.3.7. Results from the use of loan ..........................................................................56
3.3.8. The necessary support combined with the VBSP lending policy to
improve the effectiveness of using loan ..................................................................59
3.4. Evaluation of credit activities for poor households VBSP Ha Nam ..................... 59
3.4.1. Assessment the suitability of the loan method ...............................................59
3.4.2. Assessment of the satisfaction levels of loan demands ..................................60
3.4.3. Assessment of the level of response to loan capital .......................................61
3.4.4. Assessment of the suitability of the loan terms ..............................................63
3.4.6. Assessment of the purpose of loan utilization ................................................65
3.4.7. Evaluation of post-borrowing support ...........................................................67
3.4.8. Assessment of the impact of credit on poor households in Ha Nam ...............68
3.4.9. General assessment of credit activities for poor households in VBSP Ha
Nam ........................................................................................................................72
CHAPTER 4: SUGGESTED SOLUTIONS TO IMPROVE THE CREDIT
QUALITY FOR POOR HOUSEHOLDS IN VBSP HA NAM ...................................... 78

v


4.1 Strict control of loan procedures .......................................................................... 78
4.2. Fulfill the demand of the borrowers .................................................................... 78
4.3. Raising loans to poor households ........................................................................ 79
4.4. Maintain and stabilize preferential interest rates.................................................. 80
4.5. Attach credit limit to loan purpose ...................................................................... 80
4.6. Fulfillment of the lending demand timely for the business cycle of poor
households. ................................................................................................................ 81
CONCLUSION ............................................................................................................. 82
REFERENCES .............................................................................................................. 84

vi


LIST OF TABLE
Table 1. Land Use Statistics of Ha Nam Province Period 2014 – 2016........ 34
Table 2. Population and labor changes in Ha Nam province 2014 – 2016 ... 35
Table 3. Producing results of Ha Nam province from 2014-2016 ................ 37
Table 4. Proportion of poor households in Ha Nam province ...................... 40
Table 5. General information on interviewed poor households .................... 42
Table 6. Number of households lending for money in 2014-2016 ............... 51
Table 7. Loan terms under different programs and purposes ....................... 52
Table 8. Some key indicators of credit activities in VBSP Ha Nam during
2012-2016 ................................................................................................... 53
Table 9. Authorized loans through socio-political organizations at VBSP Ha
Nam on 31/12/2016 .................................................................................... 56
Table 10. Debt collection turnover of poor household loans in VBSP Ha Nam
during 2012-2016........................................................................................ 57

Table 11. Overdue loans of poor households at VBS Ha Nam Province for the
period 2012 - 2016 ...................................................................................... 58
Table 12. Poor household assessment of loan procedures............................ 60
Table 13. Loan levels of interviewed poor households with loans from VBSP
................................................................................................................... 62
Table 14. Loan terms and assessment of poor households ........................... 64
Table 15. Interest rates and assessments of poor households on preferential
loan rates .................................................................................................... 65
Table 16. Use of loans by poor households ................................................. 66
Table 17. Income levels and income changes of poor households borrowing
money ......................................................................................................... 71
Table 18. Indicators reflect the access and impact of credit to poor
households in Ha Nam ................................................................................ 76

vii


LIST OF ABBREVIATIONS

VBSP

Vietnam Bank for Social Policy

SLG

Savings and Lending Group

SME

Small and Medium Enterprise

LISWD

Labor-Invalids and Social Welfare Department

viii


INTRODUCTION
1. The necessity of the thesis
Along with the innovation of the society, there are significant changes in the
development of the economy and the social life of people. However, during the period
of the market economic transformation, the effects of it on different areas and group of
citizen are not equal. Therefore, there is a part of the society who cannot catch up with
this change and encounter a lot of difficulties in both normal life and production, so that
they gradually become the poor. Due to the fact that poverty has negative effects on the
stability of the politics, economics and the environment, the Communist Party of
Vietnam (hereafter known as the Party) and the government has confirmed the
importance of the close relationship between economic growth and the progress of the
society. Therefore, it is considered the vital policy that poverty should be eradicated.
The elimination of the poverty is defined as the focus on the development strategy
of Vietnam as well as other developing nations. Until now, the national strategy for the
development of society and the eradication of the poverty has achieved some certain
success and gained the approval of people which has significantly contributed to the
stability of the politics and attracted the foreign investments. It is undeniable that the
States, the local government as well as the international organizations have been
focusing to reduce the current level of poverty, in which credit provision can be
considered as one of the fundamental solutions not only in Vietnam but also in other
developing countries. According to the recent inquiry, over a half of the households
who are provided credit under this policy agreed that the lending aiming at reducing

poverty has positive effects on them. A lot of people have crossed the poverty line and
can afford to purchase more instruments for their work and consumption.
Credit business, especially the part for the poor has contributed considerably for the
eradication of the poverty in social life and the Vietnam Bank for Social Policies
(VBSP) is the official financial institution which takes a crucially important role in the
poverty elimination mission of the whole banking system. Although significant efforts
have been made in order to improve the lending procedure to make it easier for the poor
households in accessing the credit, there are still a lot of issues from both the lenders
and the borrowers such as identifying the appropriate borrowers, the credit line, credit

1


terms which still encounters enormous limitations and are required to be more suitable
depending on the subjects, purposes and the effectiveness of the lending. Therefore, the
results are not adequate to the efforts of the relative parties and the effectiveness are
relatively low.
As above requirements, on the 4th of October, 2002, the Prime Minister signed the
Decision 131/TTg to establish VBSP to reorganize the former Vietnam Bank for the
Poor to provide credit for the low-income and other beneficiaries of social welfare.
VBSP – Ha Nam Branch was established under the Decision 508/QD on May 10 th
2003 of the Chairman of the VBSP aiming at implementing the credit policy of the
government under the Decree 78/2002/ND-CP for the low-income and other
beneficiaries of social welfare.
As other nationwide branches of VBSP, VBSP Ha Nam targets at the beneficiary of
social welfare, especially the low-income which occupied 23.41% of the current
customers and 27.47% of the outstanding loans in 09 different lending programs. It can
be seen as the right policy of the government that is advocated by the people. However,
the effectiveness of this policy still does not meet the objectives of the local government
which affects the quality of the services for the poor.

In the expectation that credit for the poor can be more effective in implementing the
poverty eradication policy of the government in both the nationwide scope and Ha Nam
province, I conduct the research “Evaluation of the credit activities for poor households
in the Vietnam Bank for Social Policies – Ha Nam Branch” to be my main topic for
master thesis.

2. The objectives of the thesis
2.1.General objective
To assess the credit procedure for poor households of VBSP Ha Nam, then
suggesting some solutions to improve the lending activity and the effectivenesss of the
loan usage.
2.2.Specific objectives
-

To systematize the literature review and the reality of the credit for poor

households.
-

To evaluate the real situations in credit provision for poor households in VBSP

2


Ha Nam
-

To suggest direction and solutions in order to improve the quality of the credit

actitivities for poor households of VBSP.

3. Subject and the scope of the thesis
3.1 Subject
The subject of this thesis is the credit activity for poor households under the lending
program for breeding, farming, producing and trading of VBSP Ha Nam
3.2 Scope
About the content: This thesis focuses on the lending activity for breeding, farming,
producing and trading of poor households in VBSP, the effectiveness of the loan usage
and its impact on the poor.
About the location: The research is conducted in Ha Nam branch
About the term: The research is conducted from 2012 to 2016, so that the figures in
this thesis are mainly from the beginning of 2012 to the end of 2016 and the suggested
solutions are for the later years.

4. New contribution of the thesis
The thesis clarifies some certain content, literature review and reality related to the
credit incentives for poor households.
The thesis also carries out research on the current situation and suggests some
solutions to improve the effectiveness of the preferential credit for poor households in
the examined location.
The reality and solutions in this thesis is suggested in the basis of investigating,
evaluating the current lending procedure in VBSP Ha Nam, in order to improve the
quality of the credit provision in the upcoming time.

5.Thesis structure
Apart from the introduction, conclusion and references, the thesis is divided into 4
chapters:
Chapter 1: The overview, literature review and reality of credit provision to poor
households in VBSP

3


Chapter 2: Methodology
Chapter 3: Lending procedure for poor households in VBSP Ha Nam
Chapter 4: Suggested solutions to improve the credit quality for poor households in
VBSP Ha Nam.

4


CHAPTER 1: OVERVIEW, LITERATURE REVIEW
AND REALITY OF CREDIT PROVISION TO POOR
HOUSEHOLDS IN VBSP
1.1 Overview of the examined topic
1.1.1. The reseach on credit provision to poor households in VBSP
Poverty eradication and preferential credit for poor households as well as other
beneficiaries of social welfare have been studied within the local scope and of the whole
country. Among the studies related to poor household credit management at the
Vietnam Bank for Social Policies, the following papers are the most remarkable:
- "Models for Social Policy Bank and Solutions to improve the operational
efficiency of the Social Policy Bank" (2002), of Do Tat Ngoc. The research was carried
out on the Bank of Social Policy models and solutions to improve the operational
efficiency of the Policy Bank in general.
- "Credit for the Poor and Poverty Eradicating Funds in Vietnam" (2002), by
Nguyen Trung Tang. This thesis is about credit issues for the poor and funds for the
purpose of reducing poverty level in our country during the operation of Vietnam Bank
for the Poor.
- Duong Quyet Thang with the article "Complete the savings and loan model to
contribute to effective credit policy management." The article reviews VBSP

performance over 10 years of poverty eradication, improving the quality and
effectiveness of policy credit, breaking policy credit out of commercial credit,
encouraging all of the people to participate in poverty eradication and help to reduce
lending on usury in rural areas. The article explores the model of Savings and Lending
Group (SLG), members of the Savings and Lending Group, regardless also being
members of other social and political organizations, as long as they are poor households
and other beneficiaries who wish to borrow from VBSP. By the end of 2012, the
country had 200,000 SLGs. In fact, there are many different types of SLG and are
organized flexibly. However, the existence of different types of SLG, various
mechanisms and levels of management lead to the inability to have a unified operational
mechanism and to operate under certain standards. In practice, there are issues in the

5


management of SLG. Due to these above mentioned problems, the author suggests
some solutions to improve the model of SLG.
1.1.2. Studies on credit assessment for poor households in other branches of VBSP.
"Solutions to improve credit efficiency for poor households VBSP - Thanh Hoa
branch", (2011), the thesis for Master of Economics by Le Thi Thuy Nga. In this work,
the author systematizes the fundamental theories of poverty and credit for poor
households, analyzing, assessing the status and effectiveness of credit for poor
households of VBSP at Thanh Hoa province, and proposing solutions and
recommendations to improve the credit effectiveness of poor households at VBSP
Thanh Hoa. The solution is proposed as follows: Firstly, VBSP should pay special
attention to the role of the Party, local governments and take full advantage of the direct
guidance from the Party and the authorities at all levels; Secondly, VBSP and other
socio-economic organizations need to have close, consistent and open coordination
from the basis, creating opportunities for the poor and other beneficiaries of social
welfare to access financial and banking services. Thirdly, to regularly carry out the

propaganda and dissemination of lending policies for poor households. Fourthly is the
preliminary review, timely encouragement. Fifthly is to regularly improve the level of
staff of VBSP, capital managers of organizations, associations and SLGs. The sixth is
implementing

administrative

procedures

reform,

simplified

procedures,

loan

applications to create favorable conditions for the beneficiaries which allows them to
easily access to preferential credit policy. It can be seen as the sources of success in
implementing the credit program.
- "Management of credit activities at the VBSP - Nghe An branch for the
districts of Nghe An province under the 30A Program" (2014), a master of economics
thesis by Nguyen Van Hung. In this work, the author systematizes the basic theoretical
issues of credit and how it is operated while analyzing and evaluating the situation and
management activities of VBSP in various districts of Nghe An province under 30A
Program. At the same time, the author proposes some solutions to improve the
efficiency of credit management activities in Social Policy Banks in the examined
districts. The solutions can be summarized as follows: Firstly, taking advantage of the
orientation of the Board of Directors, VBSP Executive Board; the leaders of the Party,
authorities at all levels, the active coordination of the trusteeship associations and

6


related branches; Secondly, the organization should implement well the method of
partial entrusted lending through socio-political organizations; Thirdly, administrating
well at the branch level according to the principle: "Determination, centralization,
democratization and effectiveness". Fourthly is to regularly pay attention to the staff,
training and arranging the work reasonably, enhancing ideological education, increasing
sense of discipline, enthusiasm, professional ability, communication as well as creating
trust for customers which can be seen as the decisive factors for success.
- "Management of preferential loans to support the poor at the Social Policy
Bank of Yen Khanh district, Ninh Binh province" (2014), the master thesis on
economics of Vu Thi Lan. In this work, the author systematizes the theoretical and
practical basis for the management of preferential loans and assesses the situation of
preferential loan management at VBSP Yen Khanh. At the same time, it proposes some
key measures to effectively manage the preferential loans to support the poor in Yen
Khanh district, Ninh Binh province. The solutions are as follows: (1) Improving the
self-control in mobilizing capital to serve VBSP lending activity; (2) Effectively
implementing the lending policy through local socio-political organizations; (3)
Strengthening the control over the use of loans through socio-political organizations; (4)
Increasing the flexibility in disbursement; (5) Combining providing loans with
encouraging agricultural expansion and vocational training for poor households.
1.1.3. Results and gaps of the research
1.1.3.1. Results of the research
The above mentioned studies have dealt with different aspects of credit
management issues for poor households, focusing on clarifying the roles, necessity and
impacts of VBSP credit policy on poverty eradication while analyzing and evaluating
the credit management activities for poor households in both the headquarters and local
branches. The studies have also tried to find effective solutions to enhance the

efficiency of credit management for poor households at VBSP. It can be seen as
valuable resources for the author to refer to in the course of this thesis.
1.1.3.2. Gaps of the research
There are existing gaps which can be seen as critical issues of credit activity for

7


poor households in VBSP Ha Nam. Therefore, the thesis "Evaluation of the credit
policy for poor households in the Vietnam Bank for Social Policies – Ha Nam Branch"
aims at filling the gaps.

1.2. Fundamental literature review of credit and poverty
1.2.1. Fundamentals of credit
1.2.1.1. What is credit?
Credit is an economic concept that reflects the relationship between lenders and
borrowers. In this relationship, the lender is obliged to transfer the right to use the
money or goods to the borrower for a specified period of time. When the lender is due
for repayment, the borrower is obliged to repay the amount or value of the goods. The
loan was accompanied by an interest.
According to the economic aspect, in fact, credit is an economic relationship of
the use of temporary unused capital between the borrower and the lender on the
principle of repayment which is based on the credibility among parties.
Credit is also an economic phenomenon that arises in the context of commodity
production. The emergence and development of the credit not only aims at satisfying
the need for regulating capital in society but also as an impetus for economic growth.
Recently, credit has been seen as an important instrument for the strategy of poverty
eradication.
1.2.1.2. The nature of credit
Credit can be seen as an economic category which is operated in variety of

methods. It represents the relationship between two parties: the owner of the money or
commodity used by others for a certain period of time and should be refunded to the
owner with a greater value. The difference is called as the credit income. The repayment
of both capital and interest is the characteristic of the nature of credit that distinguishes
it from other economic categories.
Along with the development of the commodity economy, capital market has
been developed dynamically and diversely. The formation and development of credit is
a unifying of many forms while each form relates to a specific socio-economic
condition, they can complement each other or may negate one another in the process of

8


development.
1.2.1.3. Forms of credit
There are various research papers on credit policies in the market economy that
classify credit in a number of different ways:
- Based on the loan term, credit can be separated as short-term credit (1 year or
less), medium-term credit (1 to 5 years) and long-term credit (over 5 years)
- Based on the form of loan, it can be in cash or in kind.
- Based on the subjects of the credit relation, it includes commercial credit, bank
credit, government credit and international credit.
- Based on the method that credit is provided, it is divided into orthodox and
unorthodox credit.
Orthodox credit can be considered as the publicly-listed financial institution
under the supervision and management of the different levels of government. Orthodox
credit plays a key role in the credit system of a nation.
Unorthodox or informal credit is the credit granted by individuals, institutions
outside formal credit institution system, based on a given principle between the lenders
and the borrowers to avoid credit risks.

1.2.2. Fundamentals of poverty
1.2.2.1. Definitions and concepts of poverty
There have been numerous different perspectives on poverty so far, since
poverty can be considered as a dynamic state. It changes in space and time with the
starting point is the growth of production and the economy derived from the increase in
human needs which leading to the changes of society.
The Asian Development Bank has introduced the concept of absolute poverty
and relative poverty as follows:
Absolute Poverty: Absolute poverty is a phenomenon that occurs when the
income or consumption of a person or household falls below the poverty line (often
defined as poverty). In detail, it is often defined as "A living condition characterized by
malnutrition, boredom and illness that is below the reasonable level for a human being."

9


Relative poverty: Relative poverty can be considered among social correlations,
depending on the accommodation and popularity of the living venue. Therefore, relative
poverty is defined as those who live below acceptable standards in certain locations and
times.
These are people who feel deprived of what most people in society enjoy.
Hence, benchmarks for relative poverty often vary from country to country or from
region to region. Relative poverty is also a manifestation of inequality in distribution
and income.
The assessment of poverty is highly dependent on the system of policies and
development solutions of each place. Nowadays, it is the relative poverty to attract
attention from the authority in order to find solution that are capable of narrowing the
gap between the rich and the poor. In addition, consideration of relative poverty is
significant when developing solutions for different groups of people in the community
and in different communities in a region.

Poverty issues are often associated with distribution and income. Uneven
distribution and income often leads to increased poverty. Hence, poverty eradication is
closely linked to economic growth and social justice.
There are currently two different perspectives on poverty:
Firstly, poor people are those who do not know how to work so it is undoubtedly
to be always resulted in failures and therefore they need to be helped. The point is likely
to look down and to despise the poor, to help them without trusting them and limiting
their potential ability.
Secondly, the poor are also human beings, also born with equal rights to others.
However, they cannot find the opportunity to do what the wealthy can do. Poverty has
taken away human rights, so if the poor are given the chance to overcome poverty, they
can do anything that people in less difficulty situation can do.
The above view shows respect to the poor and placing their trust in them, so that
it enables them to contribute to the country's economic and social development.
As discussed, poverty can happen to someone when they do not have the
opportunity or conditions of doing business as others, but they bear the risk of doing
business which results in asset losses leading to poverty.
10


1.2.2.2. Characteristics of the poor
Poverty can be seen in almost every part of the society. However, in general,
unwealthy people are featured by the following traits:
Firstly, nearly 80% of the poor work in farming and live in rural areas.
Secondly, the poor often have narrower educational background than the
majority of the population. Statistics show that about 90% of the poor have only basic
or lower than the secondary education. It is explained that poor households' educational
level lowers their income from assets and other resources which also prevents them
from finding better jobs in high-paying industries. According to the author Do Thien
Kinh, the probability of poverty could reduce by 2% if people increase the schooling

time for one year. Meanwhile, the author Kim Thi Dung, while studying the roles of
microfinance in poverty alleviation in the northern mountainous provinces, suddenly
discovered that many poor people cannot sign in the credit contracts. They can only
have their signature by pressing the finger-print instead.
Thirdly, the poor often own little or no land or other assets, which makes them
more difficult to access and cannot take advantage of external opportunities.
Fourthly, poor households tend to be family households with a high proportion
of dependents. Large families with only few employees are mostly the poor. According
to Dr. Do Thien Kinh, in 1998, each mother in the poorest quintile had an average of 3.5
children, compared with 2.1 children in the richest quintile.
Fifthly, the majority of the poor live in remote rural areas which are easy to be
influenced by natural disasters and the infrastructure is relatively underdeveloped.
Because of their very low and unstable incomes, they are unlikely to have savings and
are also unable to cope with losses in bad harvest, from the unemployment, natural
disasters, declining health and other potential catastrophe.
1.2.2.3. Criteria for identifying poverty
It can be subjective to find an instrument to quantify the incidence of poverty
because of the variety in identifying the number of poor people. Within a country there
are numerous different standards, even among different regions, there are also a lot of
points of view.

11


It is now common in the world to use two specific measures to quantify the
incidence of poverty. Most studies use poverty rate data based on the income standard
of 1 USD/person/day. Other studies use a change in the 20 percent of the poorest total
income as an approximate measure of the movement in poverty.
Therefore, in the process of studying poverty, depending on the characteristics
of each country and region, it is best to use the poverty line of that country.

*The poverty views in Vietnam
In Vietnam, beyond the scope of measuring and recognizing the extent and
magnitude of poverty, some of the more important objectives are to help formulate
policies and programs for poverty eradication. It is suitable for socio-economic
conditions in general as well as regions and localities in particular.
In addition, the poverty line is used as a means to monitor the implementation of
the policies, programs and solutions to eliminate poverty.
Within the framework of this research, I used the poverty line under Decision
No. 09 on 30th of January, 2011 of the Prime Minister to serve for this research
purposes. In the period from 2016 to 2020, the poverty line is defined as follows:
-

Poor households:
Mountainous rural areas below 700,000 VND/person/month.
Urban area is less than 900,000 VND/person/month.

-

Near poor:

Rural area near poverty: 701,000-> 900,000 VND/month.
Urban area near poverty: 901,000-> 1,300,000 VND/month.
1.2.2.4. Causes of Poverty
Poverty in our country can be the consequence from many reasons, both
objective and subjective. The main reason is due to lack of experience, but also
because of the risk and social evils.
Poverty is the consequence of many groups of factors such as lack of capital,

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underemployment, lack of knowledge, lack of land, ... but ultimately, it can be divided
into the following groups:
 Group of causes by the poor themselves:
+ Lack of capital for production: This is the main cause, lack of capital often fall
into vicious circle, poor production, not enough to eat, have to rent, have to borrow to
ensure the minimum daily living. It can be said: Lack of capital production is the
biggest obstacle limiting the development of production and improve the quality of life
of poor households.
+ Lack of experience and knowledge of farming: Traditional cultivation methods
are deeply ingrained in the subconscious, self-sufficient production is the main, often
living in remote areas, difficult transportation, lack of mean, illiterate children,…These
difficulties make it impossible for the poor to improve their educational level, and they
do not have the conditions to apply scientific and technical advances to cultivation, their
lack of experience and their low level of production leads to the inefficiency in daily
works.
+ Poor health and disease are also factors that push people into severe poverty.
+ Land is less cultivated; landlessness is on the increase.
+ Lack of jobs, not actively looking for work, lazy. On the other hand, as a result of
the war leading to many people losing their labor, many widowed women lead to a lack
of labor or a lack of young, healthy workers capable of undertaking hard work.
+ The risks in life as the poor often live in remote places, far from the center, the
weather is harsh, where frequent droughts, floods, epidemics .... It is also because they
often live in remote areas where transportation is difficult to access and their goods are
often sold cheaply (due to transportation costs) or unsold, and the quality of goods is
reduced due to the lack of traffic.
 Group of causes due to social and natural environment:
The harsh natural conditions have profoundly affected the agricultural production of
poor households. The extreme climatic areas such as natural disasters, floods, droughts,
epidemics, barren land, less cultivated land, complex terrain, difficult transportation,

lack of infrastructure are the regions with the poorest households.

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1.3. Credit content for poor households
- Credit for poor households providing microfinance services is mainly credit
and savings. Banks often claim that small loans and savings are not profitable, and so
they are not interested in these small groups. This gives room for private credit
development, especially in the countryside. Private commercial services are available
for large borrowing costs (because of high interest rates) for borrowers, especially the
poor. Non-governmental organizations and non-bank financial institutions have
developed methods of providing appropriate credit to low-income borrowers.
- The subjects of poor household credit policy are the poor, mainly those who
have low or no income, if given the financial support they can be better off. Poor people
often have many different ways of making a living: farming, aquaculture, forestry,
industry, services, trading, recycling, hired labor.
- Credit institutions for poverty eradication are sustainable financial institutions.
Financial sustainability is reflected in offsetting costs, including risk, revenue growth,
stimulus savings, monitoring and support in the use of credit, increased efficiency in the
use of funds. This organization is often a multi-functional organization of borrowers in
collaboration with banking, social and development organizations. Microfinance has
made up for all the costs and risks of non-subsidized, profitable organizations.
- The method is built for each individual or group of involved customers. Credit
for poverty eradication is usually provided for each household or household group, for
households with certain conditions to generate income, be willing to pay on loans and
interest - usually the economically poor, for the group of clients especially the
extremely poor, through credit and savings groups.
- Credit for poverty eradication provides financial services right in the area
where borrowers and saving people live, attracting more people, reducing credit costs

and increasing the savings of the community.
- Credit for poverty alleviation provides a large amount of financing to large
clients through multifunctional financial institutions that provide financial services to
millions of customers, with far reaching implications.
1.3.1. The role of credit for poor households
Credit for poverty eradication is usually a small-scale financial service of
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sustainable credit institutions - primarily credit and savings - that is provided to people
working in agriculture, aquaculture, trades, providing services on a small scale. Credit
for poverty eradication is also a service that is appropriate to the financial characteristics
of the poor.
1.3.2. Characteristics of credit activities for poor households
Derived from characteristics of poor households, credit activities for poor
households have the following basic characteristics:
- Method of lending: Because the borrowers are poor households with low
qualifications and low assets, they should lend money through local socio-political
organizations which can be seen as a bridge between poor households to borrow money
from the Social Policy Bank, and helpers for very low interest rates, as well as the
traders, supervisors of the loan usage of the household.
- The amount of loan is small; the loan amount is only several tens of million
- The term of the loan is medium and long term
- Interest rates are more preferential than commercial rates
- Debt collection (including the principal) is carried out regularly to limit the risk
to the lender, monitoring the use of funds, supporting mechanisms, and raising the
awareness of the borrower when using the capital to do business and to generate
income.
- There is no collateral for the loan but it is insured by the trust of local sociopolitical organizations.
- The time before and after loans are very important for poor households. Loans

are often linked to technical, material and information support.
1.3.3. Influencing factors
1.3.3.1. Factors related to the legal environment and policy guidelines for poverty
eradication
The State intervention in the economy is an important factor for economic
stability and development. Proper and timely regulation of the State will help the
economic environment to be healthy, or vice versa, which will cause market disruption.
To provide the State with policies to support capital for the poor communes and poor
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