Chapter 2 LITERATURE REVIEW
2.4 Social Policy Bank of Vietnam and the poor approach
2.4.1 Characteristics of the approach to the poor of MFIs in Vietnam
According to Dao Van Hung (2005) - Development of microfinance activities in Vietnam on page 154, bottom-up approach in microfinance is entirely appropriate and effective in the delivery of financial services microfinance to the poor. The successful examples of this approach include the People's Credit Fund, credit programs and other savings due to socio-political organizations perform. These programs have used a bottom-up approach from above, i.e. providing microfinance services to the poor directly at their resident. This approach ensures that those in need have access to capital funding in place and it has been applied to take advantage of the BSP and the ability to mobilize social function of the mass organizations.
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Figure 2.4.1 Economic Growth and Poverty Reduction in Vietnam
Bottom up and linkage method has shown relevance and effectiveness in the delivery of financial services to the poor in rural areas. Some examples demonstrate the success of this program is the People's Credit Fund and the Bank for the poor, credit programs by saving other social organizations and non-governmental organizations and international implementation. These programs use a comprehensive approach (bottom up and linkage method) to delivery of financial services to the poor directly.
This approach ensures that the people who need the capital can access the funds immediately. This method can be considered as the successful of microfinance programs.
2.4.2. The BSP’s approaches to the poor
In implementation of Article 5 of Decree No. 78/2002/ND-CP of the Government dated 04/10/2002, BSP and the relevant socio-political institutions (04 political organizations - including social ones being the Women’s Union (WU), the Farmers’
Association (FA), war veteran (CCB), the Youth’s Union) have co-signed a joint agreement, a written contrast on implementing poverty lending and other policy objects. BSP’s has applied only an application for the loan in all of their branches with 02 basic characteristics:
a. Local socio-political organizations (at the commune and ward level) are mandated to organize the establishment and monitoring activities of the savings and loans groups (SLG) and the capital using process of the households after
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disbursement. The mission of these organizations are as follows:
• Managing existing debts and receiving targets annual growth of capital (if any) to implement.
• Organizing the SLGs following the Decision 783/QD-HDQT of the Board of Directors of the BSP; well performance in the target plans; organizing the SLG meetings and maintaining their norms of operations.
• Directing the SLG to conduct their open process of voting for households eligible to borrowing; shortlisting the households applying for the BSP’s loans;
introducing those qualified for authorization of collecting interest and saving amounts.
• Urging and reminding the SLGs of their inspection and supervision on the poor households’ use of their borrowings; urging them to pay back on time for their debt, interests and savings.
• Training, disseminating learned experience in good production, technological application, forestry and industrial encouragement, and other policy for better household economic activities...
• Preparing statistics and reports as required by the socio-political organizations of the higher level; organizing performance reviews and performance appraisals, work competition and awarding
b. Gathering information about households that having the borrowing demands (without discriminating programs) by establishing SLMs; holding group meeting to determine the eligibility of household members. The SLMs have the following functions:
• Determining memberships following Decision 783/QD-HDQY of the BSP;
making a list of members; disseminating the Party’s and State’s preferential policies to the members of the organization.
• Organizing group meetings, including the first meeting to elect the Management Board, passing the group operation charter; holding periodical meetings with agendas compliant to guideline in Decision 783/QD-HDQT.
• Receiving borrowing applications and loan-using of their members;
coordinating their activity with other socio-political organizations; holding meetings to openly review the group decisions on households eligible to loans, making lists of households with their borrowing proposals to the BSPs, referring them to the commune people’s committees for their approval and delivering their approvals to the BSP.
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• Getting notifications of the approval and informed the borrowing households on the fund releasing timelines; urging the members to receive their borrowings timely.
• Witnessing the BSP’s fund release to the households; implementing the contracts authorizing the collections of interests, and savings if authorized by the Bank.
• Regularly inspecting and monitoring the poor households’ use of their borrowings as per their claimed purposes; urging them to pay back their debts and interests timely and sufficiently; assisting each other in their home economic activity; timely notifying the BSP and the relevant socio-political organizations and commune people’s committees of the house host’s death, moving, facing force-majeure, for timely testimonials of level of risk involved.
Poverty loans used for the right purpose, and urge house hosts to pay the debt, interest paid promptly, fully and help each other make the house host economy.
Promptly reporting to BSP, for the organization of socio-political and communal levels of borrowing house hosts death cases, not even the local residents, force majeure risks are promptly make a report to determine level of risk.
2.4.3 The BSP’s process for lending their capital funds to the poor households The process was designated via the Circular No.316/NHCS-KH dated 02/5/2003 of BSP signed by the General Director. Accordingly, the lending processes were unanimously practiced in the whole system of the Bank (including HCMC) as follows:
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Figure 2.4.3 The BSP’s process for lending their capital funds Source: Vietnam Bank for Social Policies
Step 1: The poor households fill in the loan application form and proposal submitted to the SLGs.
Step 2: The SLGs will review and vote for the households eligible to the Bank’s loans and pass the list of households with their borrowing proposals to the Poverty Eradication Boards and the commune people’s committees.
Step 3: the Poverty Eradication Boards and the commune people’s committees certify and pass the lists to the Bank.
Step 4: the Banks approve and notify the list of eligible households, the fund release schedules and locations to the commune people’s committees
Step 5: The people’s committee ward will send the results of the banks approval to political organizations – social.
Step 6: Political organizations - social notified the results to the saving and Loan Teams.
Step 7: The saving and loan team will inform the results of the Bank approval to poor house hosts.
Step 8: The Bank disburse loan to each approved house host.
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1 6
7
8
3
5 THE POVERTY
REDUCTION WARD - PEOPLE'S COMMITTEE
WARD
The Poor The Savings and
Loan Teams
ORGANIZATION OF SOCIAL-POLITICAL
BANK OF SOCIAL POLICY
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2.4.4 Performing partially entrusted loan through the political - social organizations in the areas of wards
Political organizations - social is a component of the management model of social policy bank, a connection between the state and the people, as one of the extended components of the local BSP. Under the provisions of the Social Policy Bank has made HCM City trustee for the political and social organization in the area of 24 districts and a number of stages in the process of lending to the poor, known as the trustee of each section (specifically Trust Bank for Union Women, the Communist Youth Union of Ho Chi Minh and War Veterans), loan process has 9 works and 6 of them are deleted to 4 organization above to execute. 6 works are:
• Organize meeting the borrowers of the beneficiaries of the credit policy of the government incentives. Announcement and dissemination of program credit policy of the government incentives to the poor and other policy objects.
• Guide the establishment of savings and loans under Decision dated 07.29.2003 783/QD-HDQT of the Board of Directors for Social Policy Bank. Directing and guiding the savings and loan group meetings held to admitting members, chose management structure, building operations of conventional, open voting house hosts wishing to apply for a loan and sufficient loan conditions listed house host bank loan proposal social policy under each program, the ward People's Committee confirmation and suggested lender.
• Receive notification of results and approving the list of house host loans for savings and loans group to group notices to every house host loans.
• Check and supervise the activities of the group savings and loans under management of social organizations. Coordinate with management savings and loan group urging borrowers to repay principal and interest on a regular basis as agreed. Timely alerts for bank lending in the case of the use of loans at risk due to objective reasons (natural disasters, epidemics, fires, deaths, missing ...) and the risk of subjective reasons such as using false loan purposes, the loan evasion ... to take measures appropriate treatment promptly. Coordinating with Bank social policy and local government to handle the case it runs repay overdue loans and guidance documentation house host debt settlement proposal risks due to objective reasons (if any).
• To urge members to give money transaction of Social Policy Bank to repay the principal according to the repayment schedule agreed upon. The collection rates, revenue savings (for group savings and loans bank policy is mandated to collect social); The Management Board shall direct savings and loan urging members to
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bring cash transaction of Social Policy Bank to pay interest savings (if any) agreed periodically (for Savings and loans bank policy is not authorized to collect social).
• Monitoring the activities of savings and loan group, urging the management team mandated to perform the contract signed with the Bank for Social Policies. To organize professional training for entrusted officials the management teams complete the work of the entrusted loans.
The political - social organization must carry out all 6 works. The Bank of Social Policies will pay for the services entrusted to political - social organization with a maximum of 0.06% / month on outstanding loans have gained that interest.