Vietnam's New Law on Microfinance: On the Way to an Enabling Environment

This paper analyzes the new decree on microfinance issued by the Government of Vietnam (GoV) that would allow the establishment of independent MFIs. The decree was issued on March 9, 2005. The paper also makes recommendations toward an enabling environment for microfinance in Vietnam.

The paper states that the decree will have a significant positive impact on microfinance development in Vietnam. It will allow MFIs to develop professional business practices and access larger donor funds and commercial borrowings to expand outreach. The decree is restrictive in areas such as ownership structure, and scope of operations. It does not allow private-sector ownership of MFIs. It only allows mass organizations and local NGOs to establish MFIs. It does not articulate clearly the power of the State Bank of Vietnam to enforce the law. The paper recommends that GoV should adopt the role of facilitator and develop regulations that:

• Encourage the active engagement of the private sector and allow for diverse forms of MFIs;
• Do not subject non-deposit-taking MFIs to capital requirements and prudential regulations;
• Clearly articulate the role and power of the SBV in MFI supervision;
• Ensure the soundness of microfinance operations, but do not discourage innovation.