Microcredit program to poverty reduction in vietnam case study of ward 3, district 8, ho chi minh city

Table 1.1: Estimated magnitude and incidence of poverty between rural and urban areas according to the new poverty line in 2001-2005 - Rural mountainous areas - Rural plain areas... Ta

AY 2008

MICROCREDIT PROGRAM TO POVERTY

REDUCTION IN VIETNAM (Case study of Ward 3, District 8, Ho Chi Minh City)

G RADUATE S CHOOL OF A SIA AND P ACIFIC S TUDIES

PROF SONODA SHIGETO

C.E PROF SHIRASHI MASAYA D.E

PROF KATSUMA YASUSHI

Table of contents

Abbreviations 4

Introduction 6

1 Significance and importance of the thesis 7

2 Literature review 8

3 New contribution of the thesis 10

4 Thesis objectives 10

5 Scope of the thesis 10

6 Methodology 11

7 Structure of the thesis 12

Chapter 1: Overview of poverty in Vietnam 13

1.1 Poverty in Vietnam 13

1.1.1 Poverty is widespread among households with low and unstable income 13

1.1.2 Poverty is concentrated in areas with unfavourable conditions for making a living 14

1.1.3 Poverty is concentrated in rural areas 15

1.1.4 Poverty in urban areas 17

1.1.5 Poverty is concentrated in remote, isolated and mountainous areas 18

1.1.6 The poverty rate is extremely high among ethnic minority groups 19

1.2 Poverty trends 20

1.2.1 Definition 20

1.2.2 International poverty line measurement method 21

1.2.3 National poverty line measurement method 22

1.3 Causes of poverty and major factors contributing to poverty 25

1.3.1 Limited and poor resources 25

1.3.2 Low levels of educational attainment, insufficient and unstable employment 26

1.3.3 The poor are not given sufficient conditions to access the law and their legitimate rights and interests are not protected 27

1.3.4 Demography-driven causes 28

1.3.5 Risk of high vulnerability to natural disasters and other risks 29

1.3.6 Gender inequality negatively impact the lives of women and children 30

1.3.7 Disease and poor health: another factor pushing people into deep poverty 31 1.3.8 The impact of macroeconomic policies and reform policies (trade

liberalization, state-owned enterprises reform, etc.) on poverty 32

Chapter 2: The role of microcredit on poverty reduction 35

2.1 Definition of microcredit 35

2.2 Role of microcredit on poverty reduction 37

2.2.1 Introduction 37

2.2.2 Characteristics and recent successes of microcredit programs 40

Chapter 3: Micro credit program to poverty reduction in Ward 3, District 8, Ho Chi Minh City 49

3.1 Introduction of ward 3, district 8 49

3.1.1 District 8 49

3.1.2 Ward 3 50

3.1.3 Poverty profile 51

3.1.4 Business and economy 51

3.1.5 Poverty reduction activities of state organizations, mass organizations and NGOs in ward 3 52

3.2 Introduction on microcredit program to poverty reduction in ward 3, district 8, Ho Chi Minh City 53

3.2.1 The goals and the size of the project 53

3.2.2 The pattern of microcredit carried out in Ward 3 53

3.3 Finding from field research 54

3.3.1 Methodology 54

3.3.2 Findings from field research 55

Conclusion 63

References 65

Appendixes……….72

Abbreviations

ADB Asia Development Bank

CIDA Canada International Development Agency

ESCAP Economic and Social Commission for Asia and the Pacific

GSO General Statistics Office

GDI Gender Development Index

GDP Gross Domestic Production

HCMC Ho Chi Minh City

HDI Human Development Index

IUDs Intrauterine Devices

IFAD International Fund for Agricultural Development

MOLISA Ministry of Labour, Invalids and Social Affairs

OECD Organisation for Economic Cooperation and Development

RAP Repatriators’ Association

SOEs State-Owned Enterprises

UNDP United Nation Development Program

VDGs Vietnam Development Goals

WB World Bank

WHO World Health Organization

Introduction

Currently, in all countries and regions in the world, poverty is becoming an issue, which is

hardly solved Even in big cities of developed countries, poverty is also an issue, which causes much

headache to the authorities of these cities In developing countries, poverty is becoming more serious

together with disasters such as natural immigration, unemployment, illiteracy, diseases, social evils,

etc Scientist Michel Chossudovky when doing his research on poverty commented: “The twentieth

century will be ended up with global poverty marked by the collapse of production system of and

health and education programs of the developing countries The globalization of poverty – which

eliminates achievements of the post-war de-colonization – originated in the third world countries

with an attack of debt crisis …” 1

In Vietnam, in the late years of the 21st century, the government implemented reform policies

and suitable economic and social policies, the task of poverty elimination achieved great success

The number of poor families decreased from 58% before 1993 to about 32% in 2000, to 16 % in

20062 and this ratio will likely decrease to 19% in 2010.3 In Ho Chi Minh City (HCMC), the ratio

of poverty decreased from 25% in 1992 to 7,5% in 2001 It is often argued that microcredit is an

important tool for smoothing consumption and promoting production, especially for poor

households5 However, without collateral the poor can face binding constraints in the credit market

Therefore, microcredit program to poverty reduction was carried out in ward 3, district 8, HCMC in

2 years (2001-2003) This program was sponsored by Canada International Development Agency

(CIDA) and controlled by Centre for Social Development and Poverty Reduction, University of

Social Sciences and Humanities, HCMC, Vietnam

The main objective of this thesis is to point out the role of microcredit on poverty reduction

and to examine impact of the microcredit program in ward 3, district 8, HCMC

1 Significance and importance of the thesis

The Microcredit Program is one of the programs for poverty elimination, which are

implemented in Vietnam, particularly in ward 3, district 8 of HCMC, Vietnam With respect to

reasoning, research on the microcredit program will help people draw experiences and find suitable

methods in the process of poverty elimination Practically, those who want to apply the microcredit

program in the poverty elimination may use the thesis as a practical document Research on the

microcredit program only aims at obtaining an experience However, this may be a useful reference

document for those who are interested in this issue Further, it can be used by other districts that

have similar poverty problems

2 Literature review

The role of microcredit in improving household welfare is found in many empirical studies

Microcredit programs that are assessed are implemented in several developing countries such as

Bangladesh, Pakistan, Thailand, et al For example, Pitt and Khandker (1998)7 measured the impact

of group based lending programs in Bangladesh, and found that the programs had positive and

statistically significant to poverty reduction in poor households In another paper, Khandker (2003)

found that micro finance brings benefits for the poorest, thereby significantly reducing poverty in

Bangladesh Significant impacts of credit on expenditure increases for farmers in Pakistan are also

found in Khandker and Faruquee (2003)8 Burgess and Pande (2002) examined the expansion of

7

Khander Shadiur Microfinance and Poverty: Evidence using panel data from Bangladesh World Bank

policy research working paper No 2945 Jan 2003 p197-213

8

Khander Shadiur and Rashid Faruqee The impact of farm credit in Pakistan Agriculture Economics 28

No 3 2003 p 119 - 124

bank branches on household welfare, and showed that this expansion decreases poverty and

inequality Zaman (2001)9 found positive effects of microcredit provided by the Bangladesh Rural

Advancement Committee on poverty and vulnerability reduction in Bangladesh Other successful

stories of the role of micro credit programs in reducing poverty can be found in a review paper of

Morduch and Haley (2002).10

However, several studies do not find significant impact of microcredit on welfare improvement

and poverty reduction For example: Diagne and Zeller (2001)11 did not find statistically significant

effects of microcredit on household income in Malawi Morduch (1998)12 showed that most

potential impacts of microcredit from the Grameen bank in Bangladesh were on vulnerability

reduction instead of poverty reduction Coleman (1999) found only negligible impact of a

microcredit program in Thailand on household welfare

3 New contribution of the thesis

The microcredit program is one of the many solutions for poverty elimination This thesis

examines thoroughly methods applied, skilled implemented and steps taken Then, on this basis, the

thesis summarises systematically the implementation of the microcredit program Further, the thesis

analyses the impact of the microcredit program and points out the role of microcredit on poverty

reduction

4 Thesis objectives

- Researching on the implementation of the microcredit program in a particular area

(ward 3, district 8, HCMC)

- Pointing out the role of microcredit on poverty reduction

- Examining impact of the microcredit program in ward 3, district 8, HCMC.)

5 Scope of the thesis

Poverty reduction is the objective of the whole society and is the national strategy The scope of

the thesis is to research on the “Micro credit Program” implemented in Ward 3, District 8 of HCMC

13

Coleman Brett The impact of group lending in Northeast Thailand Journal of development economics

60 No 1 p105-141 1999

This research aims at examining the impact so the thesis only focuses on the Program implemented

in a particular area

6 Methodology

The thesis bases its source of argument on both primary and secondary data The primary data

comes from the field survey carried out by the author while the secondary data is taken from the

strategies, policies implemented by such international organization as the, World Bank, OECD,

UNDP, ADB, GSO and other institutions working on development and poverty reduction in

Vietnam and Ho Chi Minh City

Microsoft Excel is used as statistical analyse tool to interpret the data and the results are

presented through figures, charts or table Besides, questionnaire and depth interview are also used

as a tool to collect information Moreover, another main measure will be the effective of scholar

books, articles, online and journals to back up the meat of this MA thesis

7 Structure of the thesis

Introductory chapter:

Chapter 1: Overview of poverty in Vietnam

Current poverty situation and causes of poverty in Vietnam

Chapter 2: The role of microcredit program on poverty reduction

Defining microcredit and pointing out the characteristics and recent

successes of microcredit programs

Chapter 3: Microcredit program to poverty reduction in ward 3, district 8, Ho Chi

Minh City

Introducing on ward 3, district 8, and introducing on microcredit

program to poverty reduction Findings from the field result

Concluding chapter: Wrapping the thesis

Some major findings from the results from the program by the field

survey in the area

Chapter 1: Overview of poverty in Vietnam

1.1 Poverty in Vietnam

With total population of around 86 million people14in 2005, Vietnam remains one of the

poorest countries in the region as well as in the world with poverty rate of around 58% before 1993,

falling down from 32% in 2000, to 16% in 200615 In Ho Chi Minh City, the ratio of hunger and

poverty decreased from 25% in 1992 to 7, 5 % in 200116 and 1, 74 % in 200317

1.1.1 Poverty is widespread among households with low and unstable income

Although Vietnam recorded great achievements in bringing down the incidence of poverty,

it is not yet on solid ground in the struggle against hunger and poverty The income of a large

proportion of the population lies just above the poverty line, and even a small adjustment in the

position of the line will put them below the poverty line

According to statistics office (Vietnam), statistical book in 1993, 2002 statistical publishing house

Ha Noi, 2002 p 9, 31.; statistics office in Ho Chi Minh City Statistical book 1993, 2002.p 1, 31, 186-187

17

0.796 (behind Ba Ria Vung Tau’s 0.835 and Ha Noi’s 0.798 (National Centre for Social Sciences and Humanities 2001)

Most of the income of the poor comes from agricultural work Given their very limited

resources (land, labour and capital), their income is highly unstable and they are vulnerable to

unexpected shocks at the family and community levels The income level of many households is

barely above the poverty line, so that a small downward shift in income can easily push them below

the poverty line Seasonal factors affecting agricultural production also create difficulties for the

poor

The rate of increase in income among the poor is low compared to that of the

middle-income group, and much lower compared to the high-income group The widening gap

between the richest and poorest quintiles (from 7.3 times in 1996 to 8.9 times in 1999)18 shows the

extent to which the poor are lagging behind the rich

Thus, although the poverty situation in Vietnam has improved, the rate of improvement

among the poor is slower compared to the average rate and much slower compared to the rich In

addition, the gap in living standards between urban and rural areas remains very large

1.1.2 Poverty is concentrated in areas with unfavourable conditions for making a living

A majority of the poor live in areas that have very poor natural resources and harsh natural

conditions such as mountainous, remote and isolated areas, or in the Mekong River Delta region and

the Central region where sudden weather changes (typhoons, floods, drought) make conditions for

18

General Statistics Office Vietnam statistical publisher p 56 1998, p62 1999

living and producing even more difficult In particular, the underdeveloped infrastructure of poor

regions causes the gap between them and other regions in the country to widen In the year 2000, the

status of infrastructure of 1,870 especially disadvantaged communes is as follows: 20-30% of them

do not yet have roads leading to commune centres; 40% do not yet have enough classrooms; 5% do

not yet have health stations; 55% do not yet have access to safe water; 40% of them do not yet have

electricity lines to commune centres, 50% do not yet have enough small-scale irrigation works; and

20% of them do not yet have markets at the commune or commune cluster level19

In addition, due to unfavourable natural conditions, each year the number of people

qualified to receive emergency relief is relatively high, between 1 and 1.5 million On average, the

number of households that fall below the poverty line again each year remains large relative to the

number of households that manage to escape from poverty

1.1.3 Poverty is concentrated in rural areas

Poverty is a widespread phenomenon in rural areas; over 90% of the poor live in rural areas

Over 80% of the poor are farmers with low professional and business skills, and too little access to

productive resources (capital, know how, technology ) 20They encounter many difficulties in

selling their products due to unfavourable geographical conditions, low product quality, and poor

product mix Poor farmers have little access to information and limited possibility for shifting to

non-farm employment Female farmers in remote and isolated areas, especially unmarried female

householders, and elderly females, are among the most vulnerable of the poor The working time of

poor women is longer but their income is lower; they have a lesser voice in making decisions in their

homes and communities; as a result, they have less opportunity to access the resources and benefits

made available through government policies

Table 1.1: Estimated magnitude and incidence of poverty between rural and

urban areas according to the new poverty line in 2001-2005

- Rural mountainous areas

- Rural plain areas

Urban 265 9.5

(Source: National Program on Poverty Reduction)

1.1.4 Poverty in urban areas 21

Although the poverty rate in urban areas is lower and living standards are higher than the

national average, the rate of improvement in living standards is unequal A majority of the urban

poor work in the informal economic sector with unstable jobs and low and unstable incomes

The transformation of the economic and ownership structure in the state sector has led to

labor shedding, making the living conditions of redundant state employees more difficult These

people have been forced to shift to the non-state sector and have had to accept a lower salary or

wage level Those unable to find a job have joined the ranks of the unemployed

A majority of the urban poor live in areas where the infrastructure is poor and access to

basic services (safe water, hygienic and sanitary environment, adequate water drainage, lighting and

garbage collection, etc.) is very limited

The urban poor are vulnerable because of their great dependence on cash income They

usually have no or limited ability to save, and meet with many difficulties in accessing loans to

create income-generating employment

21

Internatinal Money Fund Report Vietnam: Poverty Reduction Strategy Pape 2004 p.15

The process of industrialization and urbanization has increased the inflow of unregistered

migrants from rural areas, mainly those of working age and children At present, no statistics on the

number of these unregistered migrants are available in reports on urban poverty These migrants

usually find it very difficult to secure permanent registration or registration of long-term temporary

residence and, consequently, they encounter many difficulties in getting a stable job with stable

income They have very limited access to social services and must pay more for them because they

are not given access to basic public social services (health care, education…) that are enjoyed by

registered residents

In addition, the poverty rate is high among other socially targeted groups such as the

unemployed, homeless, and those who fall prey to social evils

1.1.5 Poverty is concentrated in remote, isolated and mountainous areas

Poverty has marked regional characteristics The poverty rate is relatively high in the upland,

remote and isolated areas and ethnic minority areas As many as 64 percent22 of the poor live in the

Northern mountainous region, North Central region, Central Highlands, and Central coastal region

These areas are characterized by difficult living conditions, geographical isolation, very limited

access to productive resources and services, underdeveloped infrastructure, harsh natural conditions

and high frequency of natural disasters

22

General Statistics Office Statistical publishing house: Hanoi 2005 p36

Table 1.2: Estimated poverty magnitude and incidence according to

the new poverty line (2001-2005) developed by regional

poverty reduction program in early 2001

(Source: National Program on Poverty Reduction)

1.1.6 The poverty rate is extremely high among ethnic minority groups 23

In past years, although the Government has actively invested in and supported ethnic

minority communities, they continue to experience many difficulties and disadvantages While

23

Ibid p16

accounting for roughly 14 percent of the total national population, the representation of ethnic

minority groups among the poor is disproportionately high at approximately 29 percent

The majority of ethnic minority people live in remote and isolated areas They are

geographically and culturally isolated, and lack favourable conditions for developing infrastructure

and basic social services

1.2 Poverty trends

Since 1993, poverty has dropped gradually from 58% to 32% in 2000 and 16% in 2006

Inequality of growth and income distribution is high in Vietnam The Gini Coefficient for per capita

expenditures rose from 0.34 in 1993 to 0.35 in 1998 and 0.37 in 2004, showing a modest increase

over a relatively long period

1.2.1 Definition

Vietnam accepts the general definition of poverty agreed to at the Asian – Pacific

Conference on poverty reduction organized by ESCAP in Bangkok, Thailand in September 1993:

“Poverty is a situation in which a proportion of the population does not enjoy the satisfaction of

basic human needs that have been recognized by the society depending on the level of economic and

social development and local customs and practices.”

1.2.2 International poverty line measurement method

The method to define the poverty line based on international standards was jointly

developed by the Vietnamese General Statistical Office and the World Bank and was applied in the

Living Standards Measurement Surveys in Vietnam (in 1992-93 and 1997-98) The lower line is the

food poverty line; the higher line is the total poverty line and includes both food and non-food

commodities

The definition of the food poverty line is based on the standard used by most developing

countries and WHO and as well as international organizations at present, i.e average 2,100 Kcal

daily calorie intake per capita People whose expenditures are lower than this minimum level are

considered poor in terms of food

The method to define the total poverty line is to add the costs of non-food to the minimum

expenditures By adding this amount to the amount for the food poverty line, we have the total

poverty line

The 1993 expenditure-based total poverty line was VND 1.16 million per annum per person

(55% higher than the food poverty line) and the 1998 one was VND 1.79 million (39% higher than

the food poverty line) Based on these poverty lines, the total poverty incidence in Vietnam in 1993

and 1998 was 58% and 37.4% respectively while that of food poverty was 25% and 15%

respectively.24

1.2.3 National poverty line measurement method

Based on the level of the economy and the rate of economic growth, the financial resources

for the 2001-2005 period, and actual living standards of Vietnamese in specific regions, the Ministry

of Labor, Invalids and Social Affairs (MOLISA) of Vietnam developed a national poverty line25 for

the following purposes: identify who are the poor and which communes are poor with specific

numbers and addresses in order to develop a list of poor households from the hamlet and commune

level, and that of poor communes from the district level upwards, who are eligible for support from

the National Targeted Poverty Reduction Program and other support policies

In 1997, Vietnam set a poverty line under the national program (the old poverty line) to apply to

poverty measurement in the 1996-2000 periods as follows: Poor households: different income levels are

set for different areas/regions: rural mountainous and island areas: less than 15 kg per person per month (equivalent to VND 55,000); rural plain and midland areas: less than 20 kg per person per month (equivalent to VND 70,000); and urban areas: less than 25 kg per person per month (equivalent to VND

90,000); Poor communes: communes with poverty incidence of 40 % and above that lack infrastructure

(roads, schools, clinics, electricity and water for livelihood needs, small irrigation works and markets)

In view of the country’s achievements in poverty reduction and economic growth and

improvement in living standards, a new poverty line) was published in 2001 to be applied to poverty

measurement in the 2001-2005 period in which the new national poverty line developed by the

National Poverty Reduction Program is defined at different levels depending on specific

areas/regions, based on per capita income: VND 80,000 per month for island areas and rural

mountainous areas, VND 100,000 per month for rural plain areas, and VND 150,000 per month in

urban areas.26

The new poverty line for 2006-2010 period applied by the plan of Ministry of Labour,

Invalid & Social Affairs (MOLISA) is an urban resident who earns VND230,000 or less a month

and a rural resident earning VND200,000 (US$12.7) or less will be considered poor.27

The poverty line is equivalent to the expenditure level that allows for nutritional needs and

some essential non-food consumption such as clothing and housing This poverty line was first

estimated in 1993 Poverty lines in the following years are estimated by deflating the 1993 poverty

line using the consumer price index28 Figure 1 present the poverty rates over the period 1993-2004

Urban Rural Total

Source: Estimation from VHLSSs

The figure shows that the proportion of people with per capital expenditure under the

poverty line drop dramatically from 58.1 percent in 1993 to 37.4 % in 1998 The poverty rate

continues to decrease to 28.9 % and 19.5 % in 2002 and 2004 respectively.29

In the future, Vietnam will move towards using one common poverty line for estimating

poverty incidence in the country, taking into consideration international poverty standards for

1.3 Causes of poverty and major factors contributing to poverty

1.3.1 Limited and poor resources

Poor people tend to lack many resources and fall into a vicious cycle of poverty and lack of

resources Poor people are likely to remain poor because they are unable to invest in their own

human capital At the same time, limited human capital prevents the poor from escaping from

poverty

Poor households have very little land, and this condition of lacking land tends to perpetuate

This is especially the case in the Mekong River Delta Their lack of land affects their capacity to

ensure food security and prevents them from diversifying their production and shifting to higher

value crops A majority of the poor choose the strategy of self-sufficiency, and stick to traditional

modes of production that generate low value, because they lack opportunities to employ more

profitable production strategies Because of their pursuit of traditional modes of production, their

productivity is low, their products are not competitive and are of low value; this in turn keeps them

trapped in a vicious cycle of poverty

In addition, most of the poor do not have many opportunities to access production

enhancing services like agricultural and fishery extension and animal and plant protection from

disease Many production inputs such as electricity, water, crop seeds and animal varieties, fertilizers,

etc drive up their production costs, and cut into their per unit net revenues

Poor people also have limited access to various sources of credit Without enough capital,

the poor cannot easily renovate production; introduce new technologies and new varieties, etc

Although the access of the poor to credit has improved greatly thanks to the project on providing

credit to the poor under the national program on poverty reduction, a considerable number of poor

people, especially very poor people, still have no access to credit On the one hand, poor people,

because they have no collateral, are forced to rely on small and inefficient loans that limit their

repayment capacity On the other hand, most poor people do not have concrete plans for production

and may use these loans for purposes other than the one they have committed to with their lenders;

this limits their opportunity to access future loans and in the end they become even poorer

In addition, lack of information, especially information on laws, policies and markets,

makes the poor become even poorer

1.3.2 Low levels of educational attainment, insufficient and unstable employment

Poor people tend to be less educated and have few opportunities to find good and stable jobs

Their level of income is barely enough to meet their minimum nutrition requirements; consequently,

they cannot afford to improve their education level even though that would enable them to

eventually escape from poverty In addition, their low level of education hurts their ability to make

wise decisions about education, child delivery and child rearing, and so on with adverse effects on

not only the present generation but also future generations

Child and infant malnutrition have a negative impact on the school enrolment of children

from the poorest families, making it even more difficult for the poor to escape from poverty through

education

Statistics on the educational level of the poor show that about 90 percent have reached at

most lower secondary level or below The results of the living standards measurement survey show

that among the poor, the rate of those who have never attended school is 12 percent; the rate of those

completing primary education and lower secondary education are 39 percent and 37 percent

respectively The fact that education expenditure is high for the poor, and the quality of education

that they are able to access is limited, prevents them from improving their situation in order to

overcome poverty The poverty rate declines as the level of education rises 80 percent of the poor

are involved in agricultural activities that generate very low levels of income A low level of

education prevents the poor from finding better jobs in other sectors, for example in non-farm

sectors that provide more remunerative and stable employment

1.3.3 The poor are not given sufficient conditions to access the law and their legitimate rights

and interests are not protected

Poor people, ethnic minority peoples, and people living under special circumstances tend to

have a low level of education and therefore are unable to resolve legal problems on their own

Enforcement mechanisms are complicated for many of the laws and legal documents, making it

difficult for the poor to grasp In addition, the network of legal services is limited and the number of

lawyers is small; they are unevenly distributed and mainly found in cities and towns, and fees for

legal services remain high

1.3.4 Demography-driven causes

Household size is an important “denominator” affecting the average income level of

household members

Large numbers of children are both cause and effect of poverty The birth rate among poor

households remains very high One of the characteristics of poor households is the large number of

children In 2002, the average number of children per woman in the poorest quintile was 3.5

compared to 2.1 in the richest quintile Large household size leads to a high dependency level (the

dependency level among the poorest quintile is 0.95 compared to 0.37 among the richest quintile).30

One of the causes of the high birth rate among poor households is their poor knowledge of

and very limited access to birth control and reproductive health protection measures The percentage

of poor woman using IUDs is low, and so is the percentage of men whose awareness of their

responsibility in family planning and in using contraceptive method Poor husbands and wives tend

30

Tran Tuan-Pham Thi Lan-Trudy Harpham-Bill Tod Young lives – an international study on child poverty: Vietnam: Preliminary national report 2002.p25-27

to know very little about safe sexual practices They also have a limited understanding of the link

between poverty, reproductive health, and population growth

The high dependency level among poor households also means that labour resources are

inadequate; this also contributes to household poverty

1.3.5 Risk of high vulnerability to natural disasters and other risks

Poor households are highly vulnerable to the daily difficulties and occasional shocks that

may strike an individual, a family or a community Because their income level is very low and

unstable, they have low savings capacity and are unlikely to be able to resist unexpected shocks

(such as loss of harvest, job loss, natural disaster, loss of labor resources, loss of health, and so on)

Given the fragile economic conditions of poor households in rural areas, these shocks will create

great instability in their lives

Production and business risks are also very high for the poor because they have little or no

skills and lack business experience Their ability to respond to and overcome these risks is very

weak; their limited sources of income limit their capacity to overcome risks and may even expose

them to additional risks

The number of people who need emergency relief every year due to natural calamities

ranges from 1 to 1.2 million On average, the number of households that fall below the poverty line

again is large compared to the number of households that manage to escape from poverty This is

because a very large number of households live just above the poverty line and therefore are highly

vulnerable to negative shocks such as natural disasters, job loss, sickness, and so on.31

Analysis of the household living standards measurement surveys in 1992/93 and 1997/98

indicate that households that suffer from frequent natural disasters are likely to fall into deep poverty

Consequently, efforts to identify effective measures to mitigate the consequences of natural

calamities are an important component of poverty reduction

1.3.6 Gender inequality negatively impact the lives of women and children

Gender inequality aggravates the condition of the poor in all aspects In addition to placing

an oppressive burden on women and girls, it also has an adverse impact on their families

Women account for nearly 50 percent of the total agricultural workforce and for a large

share of total new jobs created annually in agriculture However, only 25 percent of the participants

in animal breeding extension training courses and 10 percent of the participants in cultivation

extension training courses are women.32

Women have fewer opportunities to access technology, credit and training, while having to

bear the greater burden of housework, having fewer rights in family decision-making and being paid

less than men for the same work to do Less educated women experience a higher rate of infant and

maternal mortality, their families tend to suffer from poorer health and their children have a higher

dropout rate from school

Gender inequality also contributes to a higher birth rate and a higher HIV transmission rate

because women have less power to protect themselves in sexual relations

1.3.7 Disease and poor health: another factor pushing people into deep poverty

Morbidity and poor health directly influence the income and expenditure of the poor, and

traps them in a vicious cycle of poverty They suffer a double blow: first from the loss of labor

income, second from the very high cost (relative to family income and assets), both direct and

indirect, of diagnosis and medical treatment

The cost of medical care is a heavy burden for the poor, forcing them to borrow money or to

mortgage assets to cover those costs, making their escape from poverty even less likely Meanwhile,

limited capacity to access preventive health care services (clean water, health programs…) increases

the exposure of the poor to communicable diseases

Despite Vietnam’s remarkable achievements in health over the past decade, the percentage

of the poor who are afflicted with common illnesses is quite high According to findings from the

1998 Household Living Standards Measurement Survey, the annual average number of sick days of

the poorest quintile is 3.1 compared to about 2.4 for the richest quintile It is noteworthy that during

the 1993-1997 period, the sickness status of the richest quintile improved considerably (reduced by

30 percent) while that of the poor remained unchanged The improvement in the health status of the

poor is a key factor that will enable them to escape from poverty on their own

1.3.8 The impact of macroeconomic policies and reform policies (trade liberalization,

state-owned enterprises reform, etc.) on poverty

High and stable economic growth in the past period has been a major contributor to poverty

reduction, allowing Vietnam to record an impressively broad and diverse range of achievements in

poverty reduction.33

Nevertheless, the process of development and opening of the economy has had a negative

impact on the poor in certain areas

Inappropriate investment structure: the share of investment in agriculture and rural areas is

still low, and focused on irrigation The bulk of investment spending has concentrated on key

capital-intensive import substitution industries, with little attention paid to investments in

labour-intensive industries Small and medium enterprises have not been encouraged in a timely

manner; many subsidy policies (subsidized interest rates, price subsidies and subsidies for assorted

33

Van de Walle The static and dynamic incidence of Vietnam’s public safety net’in Agrawal.N.Dollar.D and Glewwe P Economic Growth and Household Welfare: Policy Lessons from Vietnam 2001 p45

charges, etc.) have missed their intended targets, with negative effects on markets in rural, isolated

and remote areas.34

The reform of SOEs and the financial difficulties of SOEs led to the elimination of nearly

800,000 jobs during the early years of reform Many laid-off workers experienced great difficulties

finding new employment and fell into poverty A high proportion of these are women, people with

low levels of educational attainment, and older people.35

The policy to reform the economy, create a healthy environment for competition, and

liberalize trade has made the economy more dynamic and provided good incentives for enterprises

and individuals At the same time, not enough attention has been paid to labor-intensive industries,

nor to small and medium-sized enterprises that can create jobs; they have not been provided with

adequate opportunities to develop Lack of information, obsolete production equipment, low level of

competitiveness, and limited production capacity have been important factors that have caused a

considerable number of small-and medium-sized enterprises to go bankrupt and to lay off their

workers, who are then forced to join the ranks of the poor.36

While economic growth broadly contributes to poverty reduction, our ability to improve the

status of the poor (in terms of income level, access to development resources) depends on the type of

economic growth that takes place In other words, the distribution of the benefits of growth among

different population groups, including income groups, depends on the character of growth An

analysis of changes in the income level of different population groups shows that rich people have

benefited more from economic growth, and this has widened the gap between rich and poor

Transport infrastructure to remote, isolated and poor areas is insufficient and weak It is

still extremely difficult to access to these areas Investment from the State is still not enough to meet

the demand, and contributions from the people, mostly in the form of labour, are limited.37

37

Nisha Agrwal & David Dollar.Economic growth and household welfare in Vietnam in 1990s

Washington DC International Food Policy Research Institute 2002 p 102

Chapter 2: The role of microcredit on poverty reduction

2.1 Definition of microcredit 38

Much of the current interest in microcredit stems from the microcredit Summit (2-4

February 1997), and the activities that went into organizing the event The definition of microcredit

that was adopted there was:

The term “microcredit” is translated from English It is a noun, used to implicate programs,

which help the very poor with small loans so that they can create their jobs for themselves with the

aim of increasing their income and stabilizing their life and families

In general, microcredit involves in the extension of small loans to small entrepreneurs those

who are too poor to access any banks

Any knowledge about the difference between microcredit and traditional credit, we must

consider the word “micro” that we have just used A number of problems come to our mind through

the word “micro” such as the small size of the loans made, small size of savings made, the smaller

frequency of loans, shorter repayments periods and amounts, the small level of activities, the

community-based immediacy of microcredit, etc Hence, microcredit does not provide the only

solution but is a menu of various options according to different local demands and needs

Definitions differ, of course, from country to country Some of the defining criteria used

include

- size - loans are micro, or very small in size

- target users – micro-entrepreneurs and low-income households

- utilization - the use of funds - for income generation, and enterprise development, but also

for community use (health/education) etc

- terms and conditions - most terms and conditions for microcredit loans are flexible and

easy to understand, and suited to the local conditions of the community

Most banks and financial institutions have been applied the system which separates

low-income households from the network of reaching credit for a long time That is the reason why

they have to come to informal and unconventional loan systems So far, forms of microcredit have

been greeted because of following positive characteristics:

a Small size of loans is considered as a part in the whole activity These small loans are

completely contrasting to banks’ loans which are in the form of large loans made and

the whole package invested

b Most loans are carried out in short periods The borrowers prefer their repayments

quickly in order to avoid fulfilling any commitments This also reflects the unsafe

situation in their jobs and income

c Most loans need no assurances, but only a little something or without possessions for

collateral Creditors mainly pay much attention to borrowers’ personal information

and close relationships with the purpose of “monitoring” their loan criteria and

repayments Since most services are brought down to local areas and only those who

know clearly about microcredit, the repayment rate is very high

2.2 Role of microcredit on poverty reduction

2.2.1 Introduction

In many countries, especially developing countries, microcredit programs have proved to

be an effective tool in freeing people from poverty and have helped to increase their participation in

the economic and political processes of society The World Summit for Social Development, held in

Copenhagen in March 1995, also underlined the importance of improving access to credit for small

rural or urban procedures, landless farmers and other people with low or no income Governments

were called upon to review national legal, regulatory and institutional frameworks that restrict the

access of people living in poverty, to credit on reasonable terms; to promoting realistic targets for

access to affordable credit, providing incentives for improving access to and strengthening the

capacity of organized credit systems to deliver credit and related services to people living in poverty

and vulnerable groups; and to expanding financial networks, building on existing networks,

promoting attractive opportunities for savings and ensuring equitable access to credit at the local

level.39

 The activity of microcredit program in Vietnam

Although Vietnam has experienced remarkable reduction in poverty over the past 10 years,

nearly 20 percent of the population still lives below the poverty line It is often argued that

microcredit is an important tool for smoothing consumption and promoting production, especially

for poor households40

The poor often face shortages of capital and assets Without collateral they find it more

difficult to access credit in formal markets The government of Vietnam was aware of this fact, and

had conducted policies to provide the poor with preferential microcredit Between 1995 and 2002,

the Vietnam Bank for the poor (VBP) was established under the control of the Bank for Agriculture

and Rural Development (BARD) with the purpose of providing poor households with favourable

credit Since the government has aimed at expanding the credit program for the poor, they closed

VBSP and launched a new bank called the Vietnam Bank for Social Policies (VBSP) beginning

2003 VBSP was independent of BARD and expanded its operations rapidly The branches of VBSP

are currently established in all the districts of Vietnam The poor can borrow from a close VBSP

branch at low interest rates without collateral

2.2.2 Characteristics and recent successes of microcredit programs

2.2.2.1 Characteristics

Informal and small-scale lending arrangements have long existed in many parts of the

world, especially in the rural areas, and they still survive Good examples are schemes in Ghana,

Kenya, Malawi and Nigeria They provide the rural population with access to savings within the

local area and with a certain cushion against economic fluctuations, and they encourage a

cooperative and community feeling The groups formed provide joint collateral and serve as

instruments for spreading valuable information that is useful for economic and social progress.41

All economies rely upon the financial intermediary function to transfer resources from

savers to investors In market economies, this function is performed by commercial banks and the

41

Johnson, Susan and Ben Rogaly Microfinance and poverty reduction Oxfam United Kingdom and

Ireland and Acitionaid 1997 p25-26

capital markets More widespread financial intermediation, as well as increasing depth and variety,

are a hallmark of advancing development But in many developing countries, capital markets are still

at a rudimentary stage, and commercial banks are reluctant to lend to the poor largely because of the

lack of collateral and high transaction costs The poor would borrow relatively small amounts, and

the processing and supervision of lending to them would consume administrative costs that would be

disproportionate to the amount of lending.42 A study by the International Fund for Agricultural

Development (IFAD)43 has confirmed that complicated loan procedures and paperwork, combined

with a lack of accounting experience, limit poor people's access to formal sources of credit Other

reports cite the fact that commercial lenders in rural areas prefer to deal mainly with large-scale

farmers

The absence of commercial banks has led to non-conventional forms of lending The

recent prominence given to microcredit owes much to the success of a relatively few microcredit

programmes and their increasing scale The Grameen Bank of Bangladesh, the most prominent of