Summary of PHD thesis: People''s credit funds system for rural economic development in Vietnam

General objective of the thesis: Proposed solutions to improve the operation of the PCF system contributing to rural economic development in Vietnam.

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

NGO DUC DUY

PEOPLE'S CREDIT FUNDS SYSTEM FOR RURAL ECONOMIC DEVELOPMENT IN VIETNAM

SUMMARY OF PHD THESIS

MAJOR: FINANCE AND BANKING

Code: 9 34 02 01

ACADEMIC ADVISOR

Assoc prof Dr DOAN THANH HA

Ho Chi Minh City - 2018

INTRODUCTION

1 Abstract

The operation of the People's Credit Fund (PCF) system is also facing difficulties and challenges on the way of sustainable development Especially in the context of small-scale PCF, they have to compete with other types of credit institutions The PCF system can only overcome the difficulties and challenges when overcoming the weaknesses and promoting the advantages of the cooperative type of credit, especially the ability to associate in organization and operation Between the units forming the PCF system However, this is one of the weaknesses of the organization and operation of the PCF system has not been completed With the aim of providing solutions to improve the system of PCF with rural economic development, the author has selected the topic "The People's Credit Funds system with rural economic development in Vietnam"

2 Overview research

Domestic research, Foreign research

The gap of research and research direction of the thesis:

There are many research projects on the PCF system, but the operation of the PCF system after the restructuring phase of credit institutions for the period 2011-2015 and preparation for the second phase from 2015-2018 there are many changes Therefore, research on the operation of the PCF system in this time domain is necessary and there is no overlap with the research works of which the author is known

So far none of the research works that the author is known is: assessment

of the impact of activities of the PCF system to rural economic development

3 Research objectives

General objective of the thesis: Proposed solutions to improve the operation of the PCF system contributing to rural economic development

4.2 Research scope

Scope of research space: The People's Credit Funds system in

Vietnam

Range of research time:

The data for the analysis of the real situation of the operation PCF system in Vietnam is collected in 2010-2017

The data for use in the model of factor assessment on the operation of the PCF system is collected from 2015-2016

The data for use in the credit assessment model of PCF system to the living standards of the rural population is collected through the Vietnam household living standards survey 2012, 2014

5 Methodologies

Methodology: The thesis utilizes dialectical materialism

Research methodology: The thesis is based on statistical survey method, method of analysis, comparison, inductive, synthetic

6 New contribution of the thesis

New contributions in theory:

The thesis has provided an overview of the PCF system such as: the

concept of the PCF system, the activities of the PCF component constituents, the factors affecting the operation of the PCF system

The thesis has set out the criteria for assessing the performance of the PCF system, the relationship between the completion of the operation of the PCR system and rural economic development

New contributions in practice:

The access to credit of PCF helped increase the living standard of the household to 393,000 VND / person / month and increased living expenses of the household to 290,000 VND / person / month, equivalent

to 20% As a result, credit of PCF contributed significantly to improving the living standards of households

The impact of credit by PCF system and credit on other financial institutions on the living standards of the rural population is the same in both places, having an impact on increasing household living expenses

Chapter 1 RATIONALES ON PERFECT OPERATION OF THE PEOPLE 'S CREDIT FUND SYSTEM AND

RURAL ECONOMIC DEVELOPMENT

1.1 Overview of the operation of the People's Credit Fund system

1.1.1 Common problems

1.1.1.1 Concept of the People's Credit Fund system

According to the Decree No 48/2001 /Decree - Government dated 13/8/2001 on organization and operation of PCF and Circular No 04/2015 / Circular - State bank, the concept of PCF is as follows: is a type of credit institutions that co-operates on the principle of voluntariness, self-control, self-responsibility for performance results, the main objective being mutual support among members in order to promote the collective strength and of each members help each other to

effectively carry out production activities, business services and improve living

1.1.1.2 The organizational structure of the people's credit fund system

- Platforms: The foundation of the PCF system is composed of PCFs

- Link development department

1.1.2 Operation of the People's Credit Fund system

1.1.2.1 The basic units constituting the system of people's credit funds

- Operation of grassroots people's credit funds

- Activities of the credit institutions

- Operations of the coordinating system

1.1.2.2 Factors affecting the operation of the People's Credit Fund system

Internal Factors, External Factors

1.2 To improve the operation of the People's Credit Fund system with rural economic development

1.2.1 To complete the operation of the People's Credit Fund system

1.2.1.1 Viewpoints to complete the operation of the People's Credit Fund system

Completing the operation of the PCF system must be a regular and continuous process in order to overcome the shortcomings and help the PCF system develop safely and effectively

1.2.1.2 The necessity of improving the operation of the People's Credit Fund system

Derived from the orientation of the Party and State; Derived from the need to improve the quality and effectiveness of the operation of the PCF

system

1.2.1.3 Indicators assessing the level of performance of the People's Credit Funds system

The quality of lending operation; Products and services; Financial capacity; Yielding; Operational risk; Applying information technology in the operation of the PCF system

1.2.2 The relationship between the completion of the operation of the People's Credit Fund system and rural economic development

1.2.2.1 The role of improving the operation of the People's Credit Fund system with rural economic development

Improving the operation of the PCF system is a factor and plays an important role in the socio-economic development process in rural areas

In essence, the PCF system has a financial and social role

1.2.2.2 A model assessing the impact of the activities of the People's Credit Fund system on rural economic development

The development of the rural economy is expressed in many aspects, namely, the level of poverty reduction, income generation, employment, development of rural transport infrastructure, increased access to financial services health, education In this reseach, the author focuses

on the performance of rural economic development as the living standard

of rural people when using credit services of PCF system

1.3 Foreign experience in organization and operation of the People's Credit Funds system and lessons for Vietnam

1.3.1 Foreign experience

Desjardins Credit Fund, Quesbec - Canada, German Federal Bank

1.3.2.Some lessons for Vietnam

Firstly, the PCF system should improve autonomy, self-responsibility

and promote the spirit of mutual aid between the constituent units of the system;

Secondly, the Safety Fund is one of the decisive factors for

strengthening and consolidating weak public health workers;

Thirdly, the training of human resources is considered as the decisive

factor for success of the PCF system

Fourthly, the Cooperative Bank must always carry out the role of

regulating capital, ensuring the liquidity of the PCF in a quick and flexible manner and meeting the demand for loans of grassroots PCF

Chapter 2 ACTUAL OPERATION OF THE PEOPLE'S CREDIT FUND SYSTEM WITH RURAL ECONOMIC DEVELOPMENT IN

VIETNAM

2.1 Introduction of the People's Credit Fund system in Vietnam

2.1.1 History formation and development of the People's Credit Fund system in Vietnam

Pilot period of establishment (1993- 2000), consolidation and reorganization phase (01 / 2001-6 / 2004), completion and development phase (7/ 2005- now)

2.1.2 Opportunities and challenges in the operation of the People's Credit Fund system in Vietnam

Firstly, the Party and State are increasingly interested in the collective

sector in general, the PCF system in particular and the conditions for this model to develop

Secondly, with the policy of attaching importance to the three

agricultural policies (Agriculture - Rural - Farmers), the Party and State always pay attention and mobilize all resources for agricultural and rural development in the direction of industrialization and modernization

Thirdly, the results and achievements gained recently have made

people more confident and active participation in the PCF system This is one of the most favorable factors for PCF to scale up and improve the quality operations

Challenges:

Firstly, the chartered capital of PCF is still low, so the level of capital

mobilization and lending is limited

Secondly, the credit market in rural areas is at risk of being left empty Thirdly, the most PCF have had computers for accounting and debt

management, but transactions have not yet been transferred between the Cooperative bank and grassroots PCF

2.1.3 The operation of the units constituting the People's Credit Fund system in Vietnam

2.1.3.1 Cooperative Bank

• Capital mobilization:

Continuing to promote the operation of the Central People's Credit Fund, capital mobilization operation of the Cooperative Bank have a tendency to increase In 2010, the bank will raise its charter capital to 4,320 billion VND and 2,670 billion VND in 2017

• Credit operatio:

The Cooperative Bank provides loans to support and improve the performance of the grassroots PCF In addition, the Cooperative Bank provides loans to other entities on a priority basis to meet the demand for reasonable loans from grassroots PCF

• Capital operation:

The regulatory capital in the PCF system through the central role of the Cooperative Bank increased from 2010 to 2017, especially in the two years 2011 - 2012 the amount of regulated capital reached the highest level of 610 billion in 2012 because these two years it is also a difficult time for the whole banking system in Vietnam

• Payment and treasury services: Account opening; Payment and

treasury services; Other operation

2.1.3.2 Grassroots People's Credit Fund

• Capital mobilization:

The average growth rate of capital mobilized from grassroots PCF level from 2010 to 2017 is very good, from 6,028 billion VND in 2016 to 18.02 billion VND in 2017, which is an increase of 2.98 times Very impressive for grassroots PCF

• Credit operatio:

Average outstanding loans / grassroots PCF from 2010 to 2017 increased quite fast, from 10,060 billion VND in 2010 to 16,250 billion VND in 2017, increase of approximately 1.6 times

 Other operatio: Open deposit account; Payment services;

Procurement of fixed assets; Other professional operatio

2.1.3.3 Vietnam Association of People's Credit Fund

Consultancy operatio; Training operatio; Information and communication operatio; Foreign affairs

2.1.4 Analyzing the factors affecting the operation of the People's Credit Fund system in Vietnam

Size: 300

Participants: people working at People's Credit Funds

Scale and structure of the questionnaire: The scales used in the

reseach are the likert scale with the following five common scales: very disagree, disagree, normal, agree, very agree

Data Analysis: Descriptive statistics of demographic variables; factor

analysis; correlation analysis, regression analysis

Official reseach results:

Rating scale reliability - Cronbach's Alpha coefficient: Cronbach's Alpha coefficient ranges from 0.863 to 0.894

EFA Discovery Factor Analysis:

The coefficient of KMO is 0.881> 0.5 and Sig = 0.000 <0.05, assuming that correlations between observed variables are correlated in overall

The coefficient of KMO is 0.797> 0.5 and Sig = 0.000 <0.05 should assume that the correlation between the dependent variables is correlated

in the overall

Correlation between factors: Between the independent variables and the dependent variable, the correlation coefficient has a non-zero value, and the corresponding Sig value equals 0.000, which is very small compared to 0.05 Assertions between independent variables and

dependent variables are linearly correlated with the correlation coefficient here, namely the Pearson Correlation coefficient, derived from the correlation matrix

Results of the regression function:

PCF = 0.184 * Human resources of the PCF system + 0.164 * Information technology + 0.124 * Financial capacity + 0.116 * Ownership and operation + 0.116 * Network system + 0.116 * Risk management capacity + 0.087 * Operational strategy + 0.069 * Products and services

2.2 The situation of completing the operation of the People's Credit Fund system in Vietnam

2.2.1 To complete the operation of the people's credit fund system according to the evaluation criteria

2.2.1.1 Quality of lending activities

According to the Cooperative Bank report, by the end of 2017, nearly 1,205 PCF mobilized over 82,000 billion VND and lent 76,000 billion VND, providing loans to around 8-9 million people Unlike banks, PCF are only operated locally, mobilized from local members, and are lent only to those members As a result, credit funds have a clear grasp of borrowers, with the lowest NPL ratio in the system ranging from 1% to 2%

2.2.1.2 Service products

The products of PCF have not really linked to the demand of customers, which is very clear in the situation of overcapacity which is happening in PCF while many rural households are still in shortage of

capital for production to trade, or to access credit in other lending channels

2.2.1.3 Financial capacity

Operational sustainability (OSS): OSS in the period 2007-2015 is more than 100%, considered to be sustainable in terms of operations However, international practice suggests that OSS should be greater than 120% for long-term sustainability

Financial Self-Sustainability (FSS): FSS of PCF in the period 2007 -

2015 is over 100%, which demonstrates the ability of financial intermediaries to secure their financial self-sufficiency

2.2.1.4 Yielding

According to the State Bank in Vietnam, by the end of 2017, the has

2050 of PCF system operating in 57 provinces and cities with the total assets of more than 100,000 billion VND Among types of credit institutions, the models of profitability leading the PCF system, higher than commercial banks For the period 2007-2015, ROA and ROE of credit funds were always higher than the industry average, respectively 0.49% and 5, respectively 49%

2.2.1.5 Operational risk

Over the past time, the State Bank has discovered about 30 credit funds across the country with a scale of several hundred billion, by 3 individuals contributed capital, then lending to large enterprises Some PCF have not followed up their operation objectives, show signs of profit and do not strictly follow the credit process, so there are always many risks in operation, threatening the safety of the PCF system