POLICY CREDIT MANAGEMENT IN VIETNAM BANK FOR SOCIAL POLICIES TO MEET TARGETS OF POVERTY REDUCTION AND ENSURING SOCIAL SECURITY

ACADEMY OF BANKING DUONG QUYET THANG POLICY CREDIT MANAGEMENT IN VIETNAM BANK FOR SOCIAL POLICIES TO MEET TARGETS OF POVERTY REDUCTION AND ENSURING... After 12 years of construction and

ACADEMY OF BANKING

DUONG QUYET THANG

POLICY CREDIT MANAGEMENT IN VIETNAM BANK FOR SOCIAL POLICIES TO MEET TARGETS OF POVERTY REDUCTION AND ENSURING

ACADEMY OF BANKING

Instructor:

1 Assoc.Prof Dr Kieu Huu Thien

2 Dr Nguyen Quang Thai

The thesis was defended before the Assessment Council for PhD Thesis of Academy level at hour, dated 2016 at Academy of Banking

The Thesis can be found at:

- Library of Academy of Banking

- National Library

INTRODUCTION

1 Rationale

Entering the third Millennium, humanity witnesses thriving development of science and technology, but also faces an enormous challenge: Poverty After 12 years of construction and development, to accompany the poor and other social policy beneficiaries, VBSP has overcome many difficulties, affirmed its important role in poverty reduction and social security as a reliable address to provide credit to the poor and other social policy beneficiaries Despite significant achievements, poverty reduction is facing a huge limitation globally: unsustainable poverty reduction In Vietnam as well as all over the world, relapse into poverty is happening and poor group is still being added every year

Facing the situation, the author chose the theme: "Policy credit

management at Vietnam Bank for Social Policies to meet targets of poverty reduction and ensuring social security" as the subject of

this doctoral thesis

2 Literature Review

Many studies in the world have discussed about microfinance and policy credit Authors representing research of this topic are:

Frede Moreno (2004) “Good governance in microcredit strategy for

poverty reduction: Focus on western Mindanao, Philippines”; Takyi,

Emmanuel Ankrah (2011) “Micro-credit management in rural Bank:

The case of Baduman rural Bank Ltd; Agba,A.M.ogaboh, Stephen

Ocheni and Festus Nkpoyen (2014) “Microfinance Credit Scheme

and Poverty Reduction among Low-Income Workers in Nigeria”;

Mario Olivares and Sofia Santos (2009) “Market Solutions in

Poverty: The Role of Microcredit in Development Countries with

Financial Restrictions”; Janda K and P Zetek (2014) "Survey of Microfinance Controversies and Challenges" ; Wright, Graham

(2000) "Designing Quality Financial Services for the Poor”

Domestically, research topics related to the policy credit has been widely studied, but topics directly related to policy credit management to meet targets of poverty reduction and ensuring social security has still been in narrow range

In summary, research topics have been in narrow scale or in some certain aspects, not many research has focused on the full range

of contents related to policy credit management Furthermore, as objects of studies differ due to geographical and historical constraints and with many socio-economic fluctuations so far, researches have only solved a part of issues relating to microfinance Such solutions are not in uniformity to enhance the role of microfinance and policy credit to meet targets of poverty reduction and ensuring social security for Vietnam in current context

3 Objectives

The ultimate goal of this research topic is to propose measures

to enhance policy credit management in order to better respond to targets of poverty reduction and ensuring social security in the period

of 2015-2020 and beyond To accomplish the goal, the authors focus into the following:

- Clarification of policy credit basic theory and specific contents of policy credit management The system of credit management process and criteria for evaluating the effectiveness of policy credit management and system of factors that affect its implementation Experience and international practice in policy credit management

- Assessment of the status of policy credit management in VBSP, outlining achievements, constraints and reasons

- Propose solutions and proposals to strengthen policy credit management in VBSP to meet targets of poverty reduction and ensuring social security

4 Object and research scope:

- Object: The research focuses on policy credit management

in Vietnam Bank for Social Policies

- Research scope: The research focuses on the period since

Vietnam Bank for Social Policies’ establishment to the end of

2014 and in the whole network of Vietnam Bank for Social Policies

5 Methodology

The thesis uses the method of interpretation, analysis, synthesis, statistics, comparison, empirical method and survey Specific research methods applied are: Field observations to understand the status and impact of policy credit activities in VBSP; Get expert opinions through direct interviews and through workshops

- symposiums; Analyze and synthesize data and forecasts

6 New contribution of the research

Theory: The thesis has codified and systematically analyzed

forms of policy credit and contents, methods of policy credit management

In practice: SPSS software is used to input data, analyze

survey results, and quantify the influences of some factors to the implementation of policy credit management in Vietnam At the same time, one-way ANOVA is used test to confirm the assessment collected from surveyed households to be statistical significance

Recommendations: The Thesis has proposed measures to

enhance policy credit management in VBSP, and made recommendations to the Government, the Ministries, and the State Bank, local authorities, the Fatherland Front and mass organizations

to create an environment as well as legal basis and to enhance capacity of VBSP in policy credit management

Chapter 3: Solutions to policy credit management in VBSP

to meet targets of poverty reduction and ensuring social security

CHAPTER 1 THEOREOTICAL BASES OF POLICY CREDIT

MANAGEMENT

1.1 POLICY CREDIT

1.1.1 Concept of policy credit

Policy credit means providing poor people with small loans to help them engage in productive activities or grow a small business

According to European Commission (2000), microfinance concepts are understood in a broader sense: the provision of a wide range of financial services including savings, loans, payment services, money transfers and insurance to poor people, low-income households and small businesses

According to Article 1, Decree 78/2002/ND-CP dated 04/10/2002 of the Government, social policy credit is defined as

follows: " Credit for the poor and other policy beneficiaries means

the use of State-mobilized financial sources to provide preferential loans for poor people and other policy beneficiaries in service of production, business, job creation and life improvement, thereby contributing to the implementation of the national target program on hunger elimination and poverty alleviation, and social security”

1.1.2 Features of policy credit

Firstly, a credit institution designated by the State or established

by the State to implement policy credit in the field of social security

Secondly, the credit policy is the government's credit channel,

operates not for profit purposes

Thirdly, policy credit borrowers are the poor and other policy

beneficiaries designated by the Government

Fourthly, funds for policy credit is from the State budget, ie

Funds from the State budget and derived from the State budget

Fifthly, the Government or the person authorized by the

Government shall make decision on interest rates, loan terms, loan procedures and approach to policy credit funds

Sixthly, diverse lending methods

1.1.3 Types of policy credit

- Based on the loan duration: 03 types, including short-term, medium - term and long - term credit

- Based on the assurance to repay: 02 types, including unsecured credit and secured credit

- Based on operation: lending to industries of national strategic importance; projects which is financially feasible, but require too much investment or too long repayment period; and lending to aim at reducing poverty and ensuring social security

1.1.4 Policy credit risks

Policy credit risks are recognized under 2 angles: objective risks and subjective risks Objective risks are due to objective reasons such as disasters, war, the borrower dies or missing and have no heirs

or due to other unexpected incidents causing loan loss while the borrower has strictly follow policy regime Subjective risks are from both sides, the policy credit institution and the borrower

1.1.5 Roles of policy credit

- Policy credit is a solution to reduce poverty and ensure social security in Vietnam

- Secondly, policy credit contributes to economic development

- Thirdly, policy credit contributes to the country's political stability

- Fourthly, policy credit is to bridge and facilitate functions and tasks of mass organizations

- Fifthly, policy credit contributes to strengthen the management role of local government

Sixthly, policy credit contributes to narrow the gap of socio economic development between regions in the country

-1.2 POLICY CREDIT MANAGEMENT

1.2.1 Definition of policy credit management

"Policy credit management is a process consisting of uniformly coordinated and linked activities from the central to grassroots levels

of government, mass organizations, VBSP and borrowers in the policy credit sector aiming to reduce poverty, ensure social security

at the lowest cost and highest efficiency"

1.2.2 Policy credit management

Policy credit management must comply with basic contents, certain and tight processes The first content of policy credit

management is policy credit funding management; secondly, policy credit management is to manage borrowers; thirdly, the loan conditions; fourthly, the credit limit or the loan; fifthly, the network administrator; sixthly, loan term and repayment period; seventhly,

loan classification and risk provision Eighthly, loans security

1.2.3 Policy credit management methods

From research review, some policy credit management methods can be listed as following: economic method; administrative method; education method; and analysis and statistical method

1.2.4 Criteria to assess the effectiveness of credit policy

Social efficiency: Demonstrating in economic, political and

social effectiveness The supreme goal of policy credit is hunger eradication, poverty reduction, socio - political stability and ensuring social security Policy credit is one of the solutions to thoroughly implement the National target program on hunger eradication and poverty reduction

Economic efficiency: to consider from the perspective of cost

savings for the State budget, mitigate damage leading to loss of capital, efficient use of funds from the state budget and mobilized funds for social security etc,

1.2.5 Factors affecting policy credit management

- The socio - economic environment;

- Financial capacity and risk management system;

- The quality of staff and network organizational structure;

Firstly: Diversification of resources for poverty reduction targets Secondly: Harmonious combination between the resources of

the public sector and private sector in poverty reduction credit

activities

Thirdly: Develop forms of poverty reduction support through

microfinance institutions

Forthly: To continue development, VBSP should apply

effectively operation forms of a microfinance institution

CHAPTER 2 POLICY CREDIT MANAGEMENT IN VIETNAM BANK FOR

SOCIAL POLICIES

2.1 OVERVIEW ON VIETNAM BANK FOR SOCIAL POLICIES

2.1.1 History and operation characteristics

VBSP is a legal entity with the charter capital, its own seal, legal assets and nationwide transaction network from central to local level, a nation-wide unified management and administration apparatus and its Headquarters based in Hanoi VBSP acts as a non-profit credit institution that is currently in charge of providing policy credit to the poor and other policy beneficiaries The initial charter capital is VND 5,000 billion, which is supplemented in corresponding to operation requirements periodically Its operation duration is 99 years The operation structure is under a systematic and unified management

2.1.2 Achievements

2.1.2.1 Banking funding sources

VBSP funding sources consist of: (i) Funding from the Central State Budget; (ii) Borrowings and mobilized fund; (iii) Entrusted capitals The development of VBSP banking funding sources reported over the last years is remarkably enhanced, not only

in growth and quality but also in structure The total funding source was VND 9,047 billion at the time handed over from the Bank for the Poor As of 31 December 2015, the total capital reached VND 146,460 billion, making an increase of VND 135,936 billion in comparison with the number in 2003

2.1.2.2 Banking portfolio

During early days of operation, VBSP only implemented three policy credit programs The bank currently implements 20 policy credit programs assigned by the Government As of 31st December

2015, 07 biggest credit programs in the outstanding loans accounted for 95% of the total, namely: poor households program at 25.5%; near-poor households program at 19.3%; disadvantaged students program at 17.2%; rural water supply and sanitation program at 14.1%; production and business in disadvantaged areas program at 10.9%; job creation program at 4.8% and housing for the poor program at 2.6% Additionally there are policy credit programs for migrant workers abroad for limited term, migrant workers abroad living in poor districts, housing purpose with deferred payment in Mekong river delta, extremely disadvantaged ethnic minority households, housing for the poor against flood in North Central and Central Coast etc, VBSP policy credit programs are all implemented for poverty reduction, social security and socio-economic development All the policy credit programs which diversify VBSP credit operation and make contribution to channel policy credit to the people are highly recognized by the people, the Party, the State and the policy credit management capacity of VBSP is recorded

2.1.2.3 Communication and international cooperation

The role and position of VBSP in international relations are improved noticeably through the communication and international cooperation over the last years In the Microcredit Summit Campaign Report, VBSP stands the second in the scale of program for rural water supply and sanitation, the third in the number of active

borrowers among 10,000 microfinance institutions and banks around the world VBSP continuously develops and enhances cooperation with international organizations at home and abroad to implement various projects

2.2 POLICY CREDIT MANAGEMENT IN VIETNAM BANK FOR SOCIAL POLICIES

2.2.1 Policy credit management in Vietnam Bank for Social Policies

2.2.1.1 Management of funding sources for policy credit implementation

VBSP funding sources consist of 05 sources: (i) Funding from the Central State Budget; (ii) Borrowings designated by the Government ; (iii) Fund mobilized and borrowed with market interest rate; (iv) Entrusted capitals from the local state budget, economic organizations and individuals; and (v) Other funds and capitals

- Based upon the mobilization interest rate, there are two sources as follows: non-interest bearing funding and low-interest bearing funding

- Based upon the mobilization term, there are two sources as

follows: short-term funding and medium and long-term funding

During early period of operation (2002-2006), the funding mobilized at the market interest rate accounted for higher proportion than the non-interest bearing and low-interest bearing funding From

2007 up to now, the non-interest bearing and low-interest bearing funding conversely has accounted for higher proportion When VBSP

is on the way to stability and development, VBSP puts priorities to mobilize non-interest bearing and low-interest bearing sources to minimize the subsidies from State Budget as legislated