Reaching the last mile in Vietnam?
August 4, 2008, Klaus Prochaska
Seventy to 80 percent of the poor in Vietnam have some kind of access to microfinance services, largely through the government-owned Vietnam Bank for Social Policies (VBSP). On a recent trip to Vietnam I had the chance to see up close how the VBSP reaches some 5 million customers with subsidized credit.
We accompanied VBSP loan officers on their trip to a remote settlement in the province of Hoa Binh, located in the mountainous areas northwest of Hanoi. Once a month, they drive to the most remote of a national total of 8,700 transaction points, and convert local authority offices into temporary "bank branches" to disburse loans and collect repayments.
During the seemingly endless trip on longwinded narrow roads it quickly became clear why no other provider of financial services had set up shop. The main square was inhabited by water buffaloes and the area was out of reach of any phone connection. The older women among the clients who slowly started to trickle in had blackened teeth - a byproduct of chewing betel nuts that has become a sign of beauty.
VBSP counts on the help of the Women’s Union, a sociopolitical “mass” organization which, according to our driver, comprises about 60 percent of all women in the country. For a fee, they undertake 6 out of the 10 steps that comprise the whole loan cycle. They advertise, organize eligible customers in groups, distribute and fill out loan applications, and also collect repayments. Actually disbursing the loans through the Women’s Union was discontinued years ago after some incidents of corruption.
Enlisting the cooperation of local authorities and sociopolitical organizations allows for reduced transaction costs. But not enough to run the subsidized loan program sustainably, which is widely criticized for its distorting effect on the market.
VBSP shared their plans of raising interest rates, which currently range from zero to 50 percent of market rate. They also intend to develop a mobile phone banking product to further decrease their cost of operations. Maybe VBSP could play a useful experimentation role with m-banking in Vietnam? The example of Caixa Economica’s use of correspondents in Brazil has shown that public agencies can take the lead in trying out new delivery methods.
