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

AY 2008 MICROCREDIT PROGRAM TO POVERTY REDUCTION IN VIETNAM (Case study of Ward 3, District 8, Ho Chi Minh City) NGUYEN THU LAN Major in International Relations 4006R310-7 GRADUATE SCHOOL OF ASIA AND PACIFIC STUDIES WASEDA UNIVERSITY PROF SONODA SHIGETO C.E PROF SHIRASHI MASAYA D.E PROF KATSUMA YASUSHI Table of contents Abbreviations Introduction 6 Significance and importance of the thesis Literature review New contribution of the thesis 10 Thesis objectives 10 Scope of the thesis 10 Methodology 11 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 49 3.1.1 District 49 3.1.2 Ward 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 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 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 Michel Chossudovsky Global Poverty in the late 20th century Journal of the International Affairs Fall 1998 No pp 293-311 Youth newspaper No 47 16 Feb, 2008 Ibid P17 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 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 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 of HCMC, Vietnam With respect to reasoning, research on the microcredit program will help people draw experiences and find suitable According to Statistical office (Vietnam), statistical book in 1998 statistical publishing house Ha Noi, 1999 p 9, 31.; statistics office in Ho Chi Minh City Statistical book 1998 1999 p 1, 31, 186-187 Zeller, Manfred; Alion Diagne; and Charles Mataya 1997 Market Access by smallholder farmer in Malawi Implication for Technology Adodoption AgriucuturalProductivity, and Crop Income Agricultural Economics 19 No p.219-229 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 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 Khander Shadiur Microfinance and Poverty: Evidence using panel data from Bangladesh World Bank policy research working paper No 2945 Jan 2003 p197-213 Khander Shadiur and Rashid Faruqee The impact of farm credit in Pakistan Agriculture Economics 28 No 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 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 Zaman Hassan Assessing the poverty and vulnerability impact of microcredit in Bangladesh Background paper 2001 p 80-108 10 Morduch Jonatha and Barbara Haley Analysis of the Effects of Microfinance on Poverty Reduction Wagner Working Paper No 1014 2002 11 Diagne Aliou and Manfred Zeller Access to credit and its impact on welfare in Malawi Research report No 116 Washington DC 2001 12 Morduch Jonatha Income smoothing and consumption smoothing Journal of economic perspective No p 13-14 1998 reduction instead of poverty reduction Coleman (1999) 13 found only negligible impact of a microcredit program in Thailand on household welfare 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 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.) 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 of HCMC 13 Coleman Brett The impact of group lending in Northeast Thailand Journal of development economics 60 No p105-141 1999 10 16 Ministry of Labour and Social Affairs Center for Information Statistics on Labour and Social Affairs Statistical data labour employment in Vietnam 2001 (from survey on labour employment 2001) Labour Social Publishing: Hanoi 2002 p 15 17 Michel Chossudovsky Global Poverty in the late 20th century Journal of the International Affairs Fall 1998 No pp 293-311 18 Morduch Jonatha Income smoothing and consumption smoothing Journal of economic perspective No p 13-14 1998 19 Morduch Jonatha and Barbara Haley Analysis of the Effects of Microfinance on Poverty Reduction Wagner Working Paper No 1014 2002 20 Nisha Agrwal & David Dollar.Economic growth and household welfare in Vietnam in 1990s Washington DC International Food Policy Research Institute 2002 p 102 21 Nguyen Trung Hoa Introduction in poverty sites in District Youth Newpapers.2rd Jan 2003.p.6 22 Nguyen The Nghia-Mac Duong Urbanization and poverty reduction in Ho Chi Minh City Theories and Practice Social – sciences publishing house 2005 23 Preliminary conference report 1999 of poverty reduction in Ha Noi on April 21st 2000 Laboural –social publishing house Ha Noi 67 24 Poverty Joint Donor Report to the Vietnam Consultative Group Meeting HaNoi, December 2003 25 Regional price differences and monthly price changes over the survey period have been taken into account when the poverty lines were calculated 26 Report of Conference of micro credit in poverty reduction project in Vietnam local areas Centre for social development and poverty reduction Nov 2001 Ho Chi Minh 27 See Report of the World Summit for Social Development, Copenhagen 6-12 March 1995 (United Nations publication, Salcs NO E.96.IV.8) p 28 Socialist Republic of Vietnam The Comprehensive Poverty Reduction and Growth Strategy Ha Noi.2002 p30 29 Statistics as of January 1, 2000 by Cadastral Office of District 30 Statistics provided by the local office, 2005 31 Statistics provided as of 2005 32 Statistics provided by local office in 2000 33 Tran Tuan-Pham Thi Lan-Trudy Harpham-Bill Tod Young lives – an international study on child poverty: Vietnam: Preliminary national report 2002.p25-27 34 Youth newspaper No 47 16 Feb, 2008 68 35 Yunus Muhamad Banker to the poor: Micro lending & the battle against world poverty New York Public Affairs 2003 36 Yunus, Muhammad (with Alan Joli) Banker to the Poor: The autobiography of Muhammad Yunus, founder of the Graeen Bank Aurum Press London p.86 37 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 38 Zaman Hassan Assessing the poverty and vulnerability impact of microcredit in Bangladesh Background paper 2001 p 80-108 39 Zeller, Manfred Market Acess by Smallholder Farmers in Malawi: Implications for Technology Adoption, Agricultural Productivity, and Crop Income Agricultura Economics 19 No 1997 p 219-229 40 Wood, Geoffrey D & Shariff, Iffath A Who needs credit: Poverty and finance in Bangladesh ZED Books London & New York 1997 p32 69 Website http://vietnamnews.vnanet.vn (MOLISA considers raising poverty line) http://www.bwtp.org/arcm/indonesia/II_Organisations/MF_Providers/BRI.htm http://www.mof.go.th/mofweb/org/agriculture.html http://www.globalhand.org/home http://www.bwtp.org/arcm/cambodia/IV_News_and_Events/BWTPworkshop/DGRV_Vinh_Vie tnam.pdf 70 Appendixes QUESTIONNAIRE FORM 71 MICROCREDIT PROGRAM TO POVERTY REDUCTION IN VIETNAM (Case study of Ward 3, District 8, Ho Chi Minh City) March 2008 Survey Thank you very much for your valuable participation in this research questionnaire The questionnaire consists of no more than 11 questions and it should only take 10 minutes of your time to complete ***************************** The microcredit program is one of the programs for poverty elimination which are implemented in ward 3, district 8, Ho Chi Minh City, Vietnam This survey is hoped to examine the impact of microcredit program to poverty reduction in ward 3, district 8, Ho Chi Minh City All data collected will only be used for general statistical analysis purposes Your completed answers are extremely important to this survey It is highly appreciated if you could return the completed questionnaire by April 2th, 2008 Any questions/ comments, please feel free to contac:t Nguyen Thu Lan, 2th-year graduate student (2008) 72 Graduate School of Asia Pacific Studies Waseda University Email: thulankoneko@yahoo.com 73 QUESTIONNAIRE Name of the head of household: Address: Gender: □ Male □ Female The status of residence □ Immigrant □ Native Main job: □ Driving motorbike taxi (Xe ơm) □ Selling cooked noodle (Bán hủ tíu) □ Selling fruits (Bán trái cây) □ Selling lottery tickets (Bán vé số) □ Other small business 74 How much you get the loan capital? □ 1,000,000 VND □ 1,000,001VND _ 1,999,999 VND □ 2,000,000 VND What was your monthly income before taking the loan? What is it now? □ Increase □ Decrease or stable Are you saving now? If yes, how much? □ Not saving □ Saving Did your children go to shool before you took the loan? □ Yes □ No 10.Will they stay longer in school now that you have made the loan, or the same? □ The same □ Longer 75 11 Overall, was it a good thing to take the loan? □ Positive answer □ Negative answer Thank you for your cooperation - The end – 76 STATISTICS OF THE SAMPLE The following tables are the statistic results of 48 households in ward from the field reseach Table 1: Gender Sample % 43 89% 11% 48 100% Sample % Immigrant 24 50% Local resident 24 50% Total 48 100% Males Females Total Table 2: The status of residence 77 Table 3: The main job of households in Ward Sample % 19% Selling cooked noodle (Bán hủ tíu) 11 22% Selling fruits (Bán trái cây) 12 26% Selling lottery tickets (Bán vé số) 10 20% 12% 48 100% Driving motorbike taxi (Xe ôm) Other small businesses Total Table 4: VND73 Loan Sample % 1,000,000 27 56% 1,000,001-1,999,999 12 26% 19% 48 100% 2,000,000 Total 73 1USD=15,000 VND in 2001 78 Table 5: Income of households in Ward Sample % Incom below VND 450,00074 21 44% Income above VND 450,000 27 56% Total 48 100% Table 6: Impact of the loan on monthly income Sample % Increase 37 77% Decrease 16% Nsp/na75 6% 48 100% Total 74 VND 450,000 = USD 30 75 Non-specific/not available 79 Table 7: Impact of the loan on savings Sample % Not saving 21 56% Saving 16 44% Total 37 100% Sample % Positive answer 35 74% Negative answer 14% Nsp/na 12% 48 100% Table 8: Total Satisfaction with the loan 80 Table 9: Schooling level among children of househols Sample % Yes 34 71% No 10 20% 9% 48 100% Nsp/na Total Table 10: The same Longer Total Impact of the loan on the length of children’s studies Sample % 28 83% 17% 34 100% 81