Development of microfinance organisations in Vietnam

This provides a particularly interesting case study in view of the large-scale changes that have taken place in the economy over the period, which has experienced the transition from a Central Economic Planning System towards a “socialist-oriented market economy”, with increased integration in the world economy.
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Development of microfinance organisations in Vietnam VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 60-69 Original Article Development of Microfinance Organisations in Vietnam Hoang Thi Thu Hien1,*, John Creedy2 1 Vietnam Academy of Banking, 12 Chua Boc, Quang Trung, Dong Da, Hanoi, Vietnam 2 Victoria University of Wellington, New Zealand Received 01 December 2020 Revised 19 December 2020; Accepted 19 December 2020 Abstract: The aim of this paper is to examine the development of microfinance in Vietnam from the early 1980s. This provides a particularly interesting case study in view of the large-scale changes that have taken place in the economy over the period, which has experienced the transition from a Central Economic Planning System towards a “socialist-oriented market economy”, with increased integration in the world economy. Starting from a framework, or taxonomy, of microfinance organisations, the paper explores how the two main objectives of microfinance organisations - of meeting the economic needs of borrowers and being sustainable - have eventually been met using a diversity of organisational forms. Keywords: Microfinance, microfinance organisations, Vietnam.1. Introduction * supply of other financial services, such as savings, micro-credit, and so on. These services The aim of this paper is to examine the are offered by various institutions, withdevelopment of microfinance in Vietnam from different institutional structures, ranging fromthe early 1980s. This provides a particularly state-owned banks to non-governmentalinteresting case study in view of the large-scale organisations, both for and not-for profit, andchanges that have taken place in the economy using contrastive lending methods.over the period. Indeed, the formal use of the An important motivation for the analysis ofterm, “microfinance” is relatively recent1. microfinance is that access to small amounts ofPreviously, microfinance meant micro-credit, credit is generally regarded as an importantwhich corresponded to a credit of low amount factor to encourage entrepreneurial activity anddesigned for people who had very little income. to reduce poverty in developing countries whereRecently, the term microfinance refers to the poverty levels are high. The majority of_______ asset-constrained people in developing countries* Corresponding author. do not have access to standard commercial joint E-mail address: hienhtt@hvnh.edu.vn https://doi.org/10.25073/2588-1108/vnueab.4455 stock banks, which ration credit and require1 The term microfinance institutions entered the Law of collateral. The market failure arises fromCredit Institutions in 2010. 60 H.T.T. Hien, J. Creedy / VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 60-69 61asymmetric and costly information problems. To economy was characterised by an extensivefill this gap in the market, microfinance system of government controls. Ownership oforganisations (MFOs) have developed. the means of production (land, building, machines, and other assets) was under collectives, and private ownership and private2. Types of Microfinance Organisation economic activities were not allowed (Table 1). When discussing a wide range of 3.1. State Financial Systemorganisations, it is useful to begin with a Until 1988, Vietnam had a mono-bankingframework, or taxonomy, within which the system, in which the State Bank of Vietnamvarious forms can be placed [1]. The credit performed the functions of a central bank andmarket for low-income people is risk-driven, an intermediary bank. The banking system wasgiven a high level of asymmetric information. supply-driven, heavily subsidi ...