Notes from Preliminary Review on Microfinance for Poverty Reduction in Vietnam

This paper describes characteristics of microfinance in rural Vietnam, identifies barriers to development and presents recommendations for improvement.

The paper states that the rural financial sector in Vietnam has three sub-sectors, namely, formal, semi-formal and informal. Study findings include:

• Formal sector is largely dominated by Vietnam Bank for Agriculture and Rural Development, Vietnam Bank for Social Policies and the People’s Credit Fund;
• Institutions in the formal sector have extended their network, provided loans to the poor and achieved impressive scale;
• Formal sector institutions, however, have not utilized microfinance techniques that would allow them to reach the poorest clients, especially women;
• Semi-formal sector includes governmental organizations (GOs) and nongovernmental organizations;
• GOs’ microfinance schemes include national programs and schemes that provide loans with highly subsidized interest rates or even without interest rates;
• Informal sector comprising moneylenders, relatives, friends and rotational savings and credit associations. is of great importance in microfinance provision.

The report suggests interventions in the legal framework for microfinance in Vietnam and the entry of professional institutions in the semi-formal sector, and banks in the formal sector. It also recommends support for the Microfinance Working Group.