Housing microfinance in vietnam,graduation thesis

Housing Microfinance in Vietnam-2012 Nguyễn Thị Minh An i STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty GRADUATION THESIS HOUSING MICROFINANCE IN VIETNAM Student name : Nguyen Thi Minh An Class : ATCA-K11 Lecturers : Nguyen Hong Yen Tran Thi Hai Ly June, 6th 2012 Housing Microfinance in Vietnam-2012 i Nguyễn Thị Minh An ACKNOWLEDGEMENT My sincerest gratitude goes towards a great number of people who have helped me in my process of writing this paper Firstly, my heartfelt gratitude goes to my supervisors, Dr Nguyen Hong Yen- Deputy Head, Banking Accounting and M.A Tran Thi Hai Ly – English Lecturer for all their enthusiastic help, advice and comments Secondly, I am grateful to all my lecturers in Banking Academy who have tirelessly taught me knowledge and skills helping me finalize this research Last but not least, I would like to thank my parents and all my friends who always support me with advice and encouragement Nguyen Thi Minh An June, 2012 Housing Microfinance in Vietnam-2012 ii Nguyễn Thị Minh An EXECUTIVE SUMMARY This study was carried out to explore the market for Microfinance (MF), Housing Finance (HF) and Housing Microfinance (HMF) in Vietnam The main objective of this research is to take an overall picture of Vietnam HMF, both demand and supply side Also, attention is given to opportunities and challenges of HMF development Finally, it is the goal of this paper to find recommendations for Government and HMF suppliers to put this sector into a new height The methodology of this research was to review the various relevant literature Secondary data from a wide range of websites relating to housing, HF, MF, financial institutions were also collected and analyzed in this study Importantly, Cambodia AMK was chosen as a role model for development of HMF in Vietnam Regarding HMF demand, macro-economic condition, willingness to borrow, and urbanization are considered three main demand determinants In Vietnam, the demand for HMF promises to be extremely high Additionally, this need differs among different income quintiles, ages and areas of residence It is found out that the higherincome group, the younger, and the urban tend to have higher demand for HMF Concerning HMF supply, formal and semi-formal providers are observed In the formal sector, VBSP and TYM are two actors; their scale, however, is small Their products mostly target clients in the Mekong Delta River who are severely affected by natural disasters Recognizing HMF is feasible and profitable, two other financial institutions, namely TechcomBank and Saccombank are also eyeing this market In terms of semi-formal actors, CEP and Habitat for Humanity-Vietnam are two major providers supplying true HMF products at significant level When moving on the specific opportunities for HMF on the Vietnamese market, it is remarkable that HMF market in Vietnam remains enormously potential Together with larger support from the Government, stronger MF and HF suppliers is a great opportunity for HMF to take off Finally, greater willingness of INGOs and international investors holds a big chance for HMF development Despite great opportunities, HMF in Vietnam still has to face huge challenges in the way to scale up outreach of the poor and the middle-income These deterrents are related to unfavorable policy environment, incomprehensive legal framework, and internal difficulties of HMF suppliers Housing Microfinance in Vietnam-2012 iii Nguyễn Thị Minh An In order to remove those barriers, great efforts should be made by the Government and providers It is better for the Government to be a facilitator rather than an actor in HMF sector This means that it is the mission of the Government to create favorable conditions, and to perfect legal framework for actors to base on and develop Uncapping interest rate and implementing sound macro-economic policies are specific actions that are necessary for Government to Regarding HMF providers, deeply researching the market to find suitable products that are affordable and accessible is the vital thing for the seek of clients In return, it brings long-term benefits for HMF suppliers Housing Microfinance in Vietnam-2012 iv Nguyễn Thị Minh An TABLE OF CONTENTS ACKNOWLEDGEMENT .i EXECUTIVE SUMMARY ii TABLE OF CONTENTS iv LISTS OF ABBREVIATIONS v LISTS OF FIGURES AND TABLES vi CHAPTER 1: INTRODUCTION 1.1 Nature of the thesis 1.2 Research Objectives .1 1.3 Scope of Study .1 1.4 Research Methodology 1.5 Potential contribution of thesis 1.6 Thesis structure CHAPTER 2: LITERATURE REVIEW CHAPTER 3: THEORETICAL FRAMEWORK 3.1 Defining Housing Microfinance 3.2 Housing Microfinance Product Characteristics .6 3.3 Factors affecting Housing Microfinance .7 3.4 HMF in the world: Case of Cambodia AMK and lessons for Vietnam 10 CHAPTER 4: HOUSING MICROFINANCE IN VIETNAM .14 4.1 Demand Analysis 14 4.1.1 HMF Demand Segmentation: income 14 4.1.2 HMF Demand Segmentation: age 17 4.1.3 HMF Demand Segmentation: area of residence 18 4.2 Supply Analysis 20 4.2.1 Actors in Microfinance and Housing Finance in Vietnam 20 4.2.2 Housing microfinance institutions and products in Vietnam 23 4.3 Opportunities and challenges of Housing Microfinance in Vietnam 26 4.3.1 Opportunities 26 4.3.2 Challenges .28 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 32 5.1 Conclusions 32 5.2 Recommendations 33 REFERENCES AND NOTES 35 Housing Microfinance in Vietnam-2012 v Nguyễn Thị Minh An LISTS OF ABBREVIATIONS ADB Asia Development Bank CEP Capital Aid Fund for the Employment of the Poor CPI Consumer Price Index FMO The Netherlands Development Finance Company GDP Gross Domestic Product HCMC Ho Chi Minh City HF Housing Finance HFHI Habitat for Humanity International HFH-VN Habitat for Humanity- Vietnam HMF Housing Microfinance INGO International Nongovernmental Organization JSCB Joint Stock Commercial Bank MF Microfinance MFI Microfinance Institution MO Mass Organization NGO Non-governmental Organization PCF People Credit Fund PM Prime Minister PPC Provincial People’s Committee SBV State Bank of Vietnam SOCB State-owned Commercial Bank TYM Tao Yue May Fund USD United States Dollars VND Vietnam Dong VWU Vietnam Women’s Union Housing Microfinance in Vietnam-2012 vi Nguyễn Thị Minh An LISTS OF FIGURES AND TABLES Figure 3.1: Conceptual Model of Housing Microfinance .6 Table 3.1: A General Comparison of MF, HF, and HMF Products Table 3.2: Comparison of socio-economic condition between Vietnam and Cambodia 13 Table 4.1: Classification of income quintiles in Vietnam based on monthly income per capita 14 Table 4.2: Comparison of housing status between the poor an non-poor in Vietnam in 1993 and 2008 .15 Table 4.3: Monthly consumption by income quintile 16 Table 4.4: Evaluation of households on monthly housing consumption compared to the need by income quintile 17 Table 4.5: Number of households have house by type of house 18 Table 4.6: Monthly consumption between urban and rural regions 19 Table 4.7: Evaluation of households on housing consumption in 30 days compared to the need by region (Unit: %) 19 Table 4.8: Overview of mortgage/housing products .21 Housing Microfinance in Vietnam-2012 Nguyễn Thị Minh An CHAPTER 1: INTRODUCTION 1.1 Nature of the thesis Housing is a basic need of people from all corners of the world However, at least one billion people not have access to safe and healthy shelter and the number will increase dramatically with the population growth if the appropriate action is not taken1 Housing problem in Vietnam is also very acute Of the 83 million people living in Vietnam, only 20 percent live in permanent housing, 60 percent live in semipermanent housing and 20 percent live in simple shelter2 This is largely caused by the fact that traditional housing finance is beyond the reach of almost all of Vietnamese people Housing microfinance (HMF) proves to be an effective tool to supply affordable and accessible houses for the poor and the other marginalized categories across countries Also, the Housing Platform in Vietnam set up by the Netherlands Development Finance Company named FMO shows that low and middle income housing is viable and can be an attractive investment opportunity at the same time3 Nonetheless, HMF is still a neglected topic in Vietnam Aiming at taking a closer look at demand, supply, opportunities and challenges of HMF in Vietnam, “Housing Microfinance in Vietnam” is chosen for my graduation thesis 1.2 Research Objectives The research objective is to analyze demand for HMF and supply of HMF in Vietnam as well Also, the study explores opportunities and challenges for institutions offering HMF on the Vietnamese market To address all these issues the following research questions were formulated How are different needs of HMF of people groups in Vietnam? What are HMF products offered by HMF suppliers in Vietnam? What are opportunities and challenges for institutions offering HMF on the Vietnamese market? 1.3 Scope of Study The scope of this research was to study situation of housing microfinance in Vietnam in terms of both demand and supply The focus of this thesis lies on formal and semiformal sector because statistics on informal one are primarily based on anecdotal evidence This study also gives a brief overview of housing microfinance in the world with the case of Cambodia AMK to give some lessons for Vietnam Housing Microfinance in Vietnam-2012 Nguyễn Thị Minh An 1.4 Research Methodology This study is based on previous reports and researches internationally Besides, secondary data from different sources of World Bank, Vietnam Household Living Standard Survey, MIX Market, etc were collected and analyzed to create an overall picture of HMF in Vietnam 1.5 Potential contribution of thesis Current data regarding the demand as well as supply of low income housing in Vietnam is scarce In reality, there is no up-to-date report on this field Therefore, hopefully, this research will give a latest broad picture of HMF sector in Vietnam Also, opportunities and challenges summarizing in this study are supposed to provide useful information for those involving in HMF and those planning to enter into Vietnam HMF market 1.6 Thesis structure The research is divided into five chapters: Chapter 1: Introduction Chapter 2: Literature Review Chapter 3: Theoretical Framework Chapter 4: Housing Microfinance in Vietnam Chapter 5: Conclusions and Recommendations Housing Microfinance in Vietnam-2012 Nguyễn Thị Minh An CHAPTER 2: LITERATURE REVIEW Ferguson & Haider (2000)4 in their study entitled ‘Mainstreaming Microfinance of Housing’, have compared Microfinance, Housing Finance and Housing Microfinance It was found out that HMF shares characteristics with both MF and HF, but also shows some important differences This approach provides a theoretical framework which my thesis is based on to analyze HMF demand and supply in Vietnam In ‘Housing Microfinance in Vietnam’ written by Cornerlis & Ruben (2008)5 and ‘Getting to Scale in Housing Microfinance’ conducted by Mesarina & Stockney (2007)6, a general comparison of MF, HF, and HMF products is made to provide a deeper understanding of HMF product characteristics This comparison is vital for HMF providers to deliver suitable products meeting great demand for housing Sigvalden (2010)7 has pointed out key issues in HMF in his same article that progressive housing building is a “technical fit” between HMF and MF This study suggested that financing house using MF methodology is an effective way to address housing problems for the poor and the underprivileged The article ‘Building the Homes of the Poor – One Brick at a Time’ carried out by Accion (2003)8 has revealed that macro-economic condition is an important HMF demand determinant This study gives background information to find suggestions for Government in the roadmap of facilitating HMF development Daphnis (n.d.)9 in his report entitled ‘Elements of Product Design for Housing Microfinance’ assumed that the potential demand for HMF stems from willingness to borrow existing in the marketplace The degree of willingness depends on the trust on financial system and outreach of appropriate financial services These factors can be used to give recommendation for those involving in HMF market and those planning to enter into this segment Ferguson (2003)10 in his study ‘Housing Microfinance: A Key to Improving Habitat and the Sustainability of Microfinance Institutions’ and Malhotra (2004)11 in ‘Taking housing microfinance to scale: advise for governments and donors’ showed the relationship between urbanization and demand for HMF Those researches reveal that the high urbanization is closely related to a great demand for HMF This finding can be useful for HMF suppliers to choose areas to offer HMF products Housing Microfinance in Vietnam-2012 24 Nguyễn Thị Minh An o TYM In spite of newly entering into HMF market, TYM provided 10 % of the total loan for housing improvement, hygiene and sanitation49 “Affectionate house” is a typical HMF product which TYM has been delivering On 16th October 2010, TYM organized "Affectionate house" hand-over ceremony for Mrs Ngo Thi Nghia - member of center 28, branch 19 in Hoa Phu Hamlet, Hien Son commune, Do Luong District, Nghe An Province This is the second "Affectionate house" that TYM has offered to its disadvantaged clients in 2010 As a single mother, Mrs Nghia's main income comes from rice crop and husbandry Without a house, Mrs Nghia and her child had to live in her brother's house for many years She always dreamed of having a small house as their shelter from rains and the sun In October 2010, thanks to the financial support from Savings Bank Foundation for International Cooperation, Mr Joerg Teumer Financial consultant of TYM development project, the support from her relatives as well as members in center 28, Mrs Nghia has been offered the affectionate house worth VND 42 million After nearly months under construction, the house was built up and put into use with the happiness of Mrs Nghia's family and the gladness of her neighbors In addition, in the interview with Cornerlis & Ruben from the Netherlands Development Finance Company, leaders of TechcomBank and SacomBank showed their willingness to provide HMF products in the near future Result from that research shows that TechcomBank is already doing a HMF project with funds from ADB The target clients are those having monthly income between $100 and $ 400 across the country Loan purposes can be both for upgrading and new house building Interest rate is 8% p.a (subject to quarterly changes)50 The semi-formal HMF institutions At this moment, there are only two semi-formal institutions officially offering HMF products on the Vietnamese market, namely Capital Aid Fund for Employment of the Poor (CEP) and Habitat for Humanity –Vietnam (HFH-VN) These two institutions will be respectively investigated in this section o Capital Aid Fund for Employment of the Poor (CEP) Set up in 1991 by The Labour Confederation of HCMC based on the Grameen Bank model, CEP aims at reducing poverty among workers and the self-employed through the provision of credit By December 2011, CEP served 193,238 active loan clients making it the largest semi-formal microfinance institution in Vietnam Also in 2011, Housing Microfinance in Vietnam-2012 25 Nguyễn Thị Minh An CEP offered an additional loan product, namely housing improvement loan which constitutes 5% of CEP’s loan portfolio Besides, CEP delivered non-financial services including provision of housing for clients that not have access to adequate shelter Here are some major projects on HMF which CEP is implementing The first is the Housing Loan Fund (2005 to 2020) (USD 125,000) with Belgian Technical Cooperation (BTC) It is a 15-year grant funded project aiming at creating a revolving loan fund for housing and sanitation improvements in Tan Binh District, HCMC The second is Worker Housing Fund (2010 to 2015) (USD 1.8m) together with Labour Confederation of HCMC This 5-year loan funded project aims to establish a loan facility that can be accessed by poor workers in HCMC to make structural improvements to their housing Last but not least, CEP is carrying out Micro Housing Finance Fund in the phase of 2004 to 2014 with total value of USD 2million in World Bank – Vietnam Urban Upgrading Project This 10-year loan scheme provides onlending funds for housing improvements in communities affected by the infrastructure upgrades of the Urban Upgrading Project CEP showed its plan in its Annual Report 2011 to continue focusing on providing migrant laborers with credit to create selfemployment and providing poor workers and laborers with housing improvement loans51 o Habitat for Humanity International and Habitat for Humanity Vietnam Habitat for Humanity International (HFHI) is a non-profit, non-governmental shelter organization currently working in over 90 countries It seeks to eliminate inadequate housing and homelessness by making safe shelter a matter of science a matter of conscience and action Habitat for Humanity’s work involves more than building new single and multi-family dwellings Habitat “housing solutions” include rehabilitating or repairing homes, as well as incremental building – upgrading a floor or adding a new roof until a family can afford more Every day an estimated 205 families around the world have a better home thanks to the work of HFHI, its volunteers and partners Habitat for Humanity Vietnam is a part of HFHI and began operations in 2001 in Danang City to provide low cost housing, water and sanitation solutions to marginalized households HFH-VN mobilizes resources (materials, labor and financing) to build, renovate or repair houses with vulnerable families by working on their houses and paying towards its cost, typically through a housing microfinance loan Housing loan repayments go into a revolving fund from which additional beneficiary families can access to build or improve their home HFH Vietnam's Housing Microfinance in Vietnam-2012 26 Nguyễn Thị Minh An projects normally include a mix of new houses, renovations, repairs and water and sanitation facilities depending on need In 2006, HFH-VN selected CEP as a strategic partner in order to offer technical and financial resources for housing solutions, and also to gain experience with sustainable microfinance operations and learn how best to structure effective partnerships providing financial products and non-financial services for housing solutions for the poor In 2011, HFH Vietnam has served over 8,100 families in Vietnam through a mixture of new houses, repairs, water and sanitation, assistance with obtaining secure tenure and technical support, according to need Highlighted projects HFH Vietnam carried out include Housing, water and sanitation improvement credit project, My Tho Urban Sanitation and Housing Upgrading via Microfinance Partnership/Tien Giang in Kien Giang Province, Pilot Programme for finding and provision of technical assistance for housing and sanitation improvement scheme in Dong Nai, Safer future for families affected by typhoon Ketsana and communities exposed to natural disasters in Quang Nam, etc HFH-VN also showed its plan to continue focusing on enabling vulnerable households to obtain safe and secure housing, water and sanitation52 These schemes all aim at making a world where everyone has a decent place to live as its vision To make a conclusion, housing microfinance in Vietnam is “a Mass-Market Still Left Unattended”53 HMF products on the Vietnamese market mainly offered by VBSP, TYM, CEP and HFH-VN have still unmet great demand of Vietnamese people However, the fact that demand outstrips supply creates great opportunities Products based on HMF principles hold promise to fill this gap It is therefore the task for MFIs to choose which product would be the most suitable for the target sub-segment that has been chosen HMF products should suit the MFI in aspects of both its objectives and its internal strength and weaknesses54) 4.3 Opportunities and challenges of Housing Microfinance in Vietnam 4.3.1 Opportunities As far as this research has found out, there are four main opportunities existing on the Vietnam HMF market, namely potential market, bigger support from Government, greater willingness of INGOs and other international investors, and stronger MF organizations and HF providers in Vietnam All these opportunities will be respectively analyzed as follows Housing Microfinance in Vietnam-2012 27 Nguyễn Thị Minh An o Potential market When moving on opportunities for HMF in Vietnam, it is necessary to notice that the very limited amount of HMF products available today is sharply contrary to potential demand This creates a great opportunity called potential market As mentioned in Demand Analysis section, with less than a half of Vietnamese households having permanent houses, the demand for housing upgrading and construction is extremely high Moreover, there is a good sign that positive socio-cultural changes will create favorable conditions for HMF development According to statistics reported by State Bank of Vietnam on 19th March, 2012, there are currently 42 million payment cards However, as said by Mr Bui Quang Tien, Head of Settlement Systems Department (SBV), the portion of Vietnamese people possessing bank accounts is only around 20% because in some cities, one person may have more than one bank account at the same time55 Compared to four years ago when only 10% of the Vietnamese people have a bank account56, this double number now is a positive signal of a modern society with non-cash payment This also implies the increasing trust on formal financial system among Vietnamese people Besides, attitudes towards borrowing are bound to change More people, especially the youth, believe that borrowing that is traditionally considered a face loss helps them to improve their lifestyles In addition, the thought of living and working in peace and contentment (An cu lac nghiep) still proves to be an excellent idea even in modern life Additionally, young couples tend to prefer to live in their own houses over live with their parents All of these factors make a potential market for HMF o Bigger support from Government Support from Government is represented in its great efforts to gradually establish a comprehensive legal framework for microfinance sector in Vietnam over the last few years via following documents: Decree 28/2005/ND-CP dated 9th March 2005 on organization and operation of microfinance institutions in Vietnam; Decree 165/2007/ND-CP dated on 11th November 2007 providing amendments and supplements to the Decree No 28/2005/ND-CP for Microfinance institutions activity in Vietnam More notably, on 6th December 2011, the Government published Decision No 2195/QD-TTg on approval National Microfinance Strategy to 2020 These will create more favorable conditions for the development of microfinance industry from which indirectly boosting HMF products Housing Microfinance in Vietnam-2012 28 Nguyễn Thị Minh An o Greater willingness of INGOs and other international investors At this moment, there are more than 50 INGOs involved in Vietnamese MF market57 Apart from HFH Vietnam, one of the biggest housing institutions in Vietnam, more INGOs eye on housing market for the poor There is a good news from Low Income Roundtable in Hanoi in 2009 that after two years of comprehensive market analysis, Te-Enterprise, a global real estate development and investment firm, has decided to pursue a Workforce Housing Strategy in Vietnam Additionally, Urban Solutions, a Netherlands based company that provides advisory services in the urban sector worldwide, is providing advisory services and training in the field of urban development and housing to Government and Private Sector operators Urban Solutions and other participants of the roundtable have expressed their special interest in establishing a housing task force for platform to address housing challenges in Vietnam According to Mr Paul Schuttenbelt, planner and government expert at Urban Solutions, “This platform could be a first step to breakthrough the monopolistic high end supply and be a broker to start supplying a high demand for a huge middle income group in Vietnam enabling many young couples to escape from "the mother in law syndrome”58 Great contribution of INGOs in terms of both capital and technical assistance is also a momentum of HMF market in Vietnam o Stronger MF organizations and HF providers Last but not least, the stronger health of MF organizations and HF providers also create a big opportunity for HMF sector Over the past few years, MF organizations have become bigger in both its size and its social impact This helps themselves in the path of scaling up its outreach and self-sustainability MF organizations are on the trend of diversifying their services, including housing finance activities HMF products are those offered based on MF principles, therefore MF organizations are suitable suppliers of HMF products The same is true to HF providers As mention earlier, some commercial banks such as TechcomBank and Sacombank showed their willingness to enter HMF market With more plentiful sources of fund from these banks, the HMF niche market promises to be in blossom 4.3.2 Challenges Despite advancements and opportunities, HMF sector in Vietnam still has face great challenges due to unfavorable policy environment, incomprehensive legal framework and internal difficulties of HMF providers These problems will be orderly clarified as follows Housing Microfinance in Vietnam-2012 29 Nguyễn Thị Minh An o Unfavorable policy environment Unfavorable policy environment represents in terms of unsuitable interest rate regulation mechanism, unstable macro-economy, and inadequate property rights provision and shortcomings in monitoring real estate market  Unsuitable interest rate regulation mechanism Since August 2000, the mechanism of base interest rate has been applied for all formal financial institutions According to the regulation, interest rate must not exceed 150% basic rate the SBV announced for the corresponding loan (Item 1, Clause 476 of Civil Code) This will be a challenge because financial institutions need interest rate that is high enough to cover operating costs More seriously, the mechanism of subsidized credit undermines the sustainable development of microfinance The basic assumption that the poor are not able to afford market interest rate has been proven consistently wrong everywhere in the world Permanent access to sustainable financial services has been evident to be more important than low interest rate loans provided by unsustainable institutions59 Moreover, as earlier mentioned, progressive building is characterized by Vietnamese houses, low interest rate leads to demand exceeding the loan supply Obviously banks prefer to select the least risky borrowers (such as those with good collateral) and prefer to give larger loans, which imply lower administration costs Consequently, those who actually want a loan cannot access60 Additionally, market-oriented and demand-driven providers have to face stringent competitive pressure In this process highly subsidized state-owned market supply hampers the development of sustainable microfinance landscape that directly hinders HMF sector  Unstable macro-economy Vietnam’s economic debacle adds to the problem Double-digit inflation rate led to the rapid depreciation of the VND against the USD With the managed-float exchange rate regime, dollar reserves are quickly drying up as the government sells foreign currencies to keep the exchange rate within a band As the currency depreciates further, more people wanted to convert their money into dollars or gold as soon as possible This has serious repercussions to the housing market because most real estate transactions are quoted and concluded in US dollars If the supply of dollars dries up, the real estate market can grind to a halt 61 The price storm also worsens the living standard of Vietnamese people The poor becomes poorer, therefore, their chances of accessing housing finance products is lower than ever Even when land has been set aside for low income housing or when the Housing Microfinance in Vietnam-2012 30 Nguyễn Thị Minh An government has targeted new urban centered such as social houses projects for lowincome people in Hanoi, those projects also fail to meet demands of target groups  Inadequate property rights and shortcomings in monitoring real estate As a subcomponent of the Index of Economic Freedom, the property rights index measures the degree to which a country law protects private property rights, and the degree to which its government enforces those laws Higher scores are more desirable, i.e property rights are better protected Scores are from to 100 The index also assesses the likelihood that private property will be expropriated and analyzes the independence of the judiciary, the existence of corruption within the judiciary, and the ability of individuals and businesses to enforce contracts The Global Property Guide considers protection of property rights as a significant factor affecting the desirability of a residential real estate investment62 According to statistics from The Heritage Foundation and the Wall Street Journal, the Property Rights Index of Vietnam only reaches the level of 15 This number implies that property right is not well-protected in Vietnam As answered by a HCMC local resident, the penetration of Red and Pink Books is unclear, ranging from over 50% to 80-90%63 In many cases, land is traded without the official documents, commonly called “Red Book” or “Red Certificate” As a result, it turns out that people who have assets, in fact cannot use them as collateral64 Besides, shortcoming in monitoring real estate is another source of volatility of Vietnam’s real estate market It is derived from the uncertainty over the implementation of Decree No.71/2001/ND-CP (Decree 71) since August 2010 Decree 71 provides guidance on the implementation of Law on Residential Housing promulgated in November 2005 It replaces Decree 90 passed in September 2006 Intended to minimize risks for buyers, Decree 71 also aims to discourage speculative investments and reduce market liquidity However, developers accelerated the construction of some projects and the purchase of lands This led to huge price spikes in some areas while flooding other areas with new supply Paradoxically, although the demand is very high, dozens of thousands of apartments are unsellable Although prices have fallen to the lowest level in the past two years, it is hard to find a meeting point of buyers and sellers The supply of well-located and affordable projects is thin, and vice versa That shortcoming makes high-end market be out of clients’ hand and waste huge capital that would be better invested in lower-end segments The shortcoming also reveals in the low-end market with social housing initiative of the government According to Mr Dang Hung Vo, Formal Deputy Minister of Natural Resources and Environment, it is problem in the State’s distribution of housing for Housing Microfinance in Vietnam-2012 31 Nguyễn Thị Minh An people resettled by site clearance activities While many were actually homeless, others, because of their relationships with State officers, were given the right to live in resettled houses even though they already had stable accommodation65 Those things distort real estate market in Vietnam in general and HMF segment in particular o Incomprehensive legal framework In recent years, the role and the efficiency of MFIs in poverty reduction in Vietnam have been recognized Policymakers, however, have not completely recognized it yet Consequently, legal framework they make for microfinance development is either insufficient or incomprehensive According to Item a, Clause 1, Article in Decision 64 on management and use of non-governmental aid, the amount of US$500,000 must be approved by the Prime Minister (PM) CEP is stuck with its capital amount of $1,000,000 because the amount is not regulated by the Decision due to interest rate of 0% Paragraph 4, Article of Decree 134- 2005/ND-CP dated on November, 2005 regulated that “The government agencies, unions, administration agencies at all levels and political, social, and professional organizations are not allowed to directly borrow loans from foreign countries, unless being allowed by the current laws and/or the PM” So, loans from foreign countries have to be permitted by the PM Even ADB also disburses their millions of U.S $ to provide credit to Vietnamese poor households through banking system All of these reasons create great challenges for MF organizations in raising fund for the poor The MFI representatives who joined the FMO Low Income Housing Roundtable in Hanoi emphasized that insufficient low cost fund is their main obstacle preventing them from expanding housing microfinance services o Internal issues experienced by HMF providers The last but not least challenge HMF faces lies on difficulties of HMF suppliers The most evident obstacle is the lack of capital to sustain and expand microfinance operations The reasons for this, which have been already previously mentioned, originated from their ambiguous legal status of semi-formal HMF providers due to incomprehensive legal framework The second difficulty lies on insufficient knowledge about microfinance in MFIs leading to problems in setting up a professional organization that is prepared for transition to licensed MFI status Finally, lack of connection among institutions causes a deterrent for development of HMF Housing Microfinance in Vietnam-2012 32 Nguyễn Thị Minh An CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS This section will conclude the main findings of the study, thereby answering the research questions Besides, some recommendations will be provided for both Vietnamese Government, HMF suppliers and related parties 5.1 Conclusions In summary, the most highlighted feature of HMF market in Vietnam is that demand outstrips supply Together with “An cu lac nghiep” thought (living and working at permanent place), the demand for decent place in Vietnam always holds promise to be very high Generally, this demand differs among different income quintiles, ages and areas of residence Regarding income groups, the real potential HMF demand lies on groups from the near poor to the near rich These quintiles account for majority of the Vietnamese people (according to statistics, the poverty rate is some 10% and the rich make up approximately 1% of the total population) When traditional housing finance concentrates on high-end housing market, HMF is considered an useful alternative way to serve these groups In terms of age, the demand among the youth is higher than that of the older This is partly caused by the mistrust of the old on the formal financial system due to the collapse of cooperative systems in their time Besides, the young would prefer to live at their own houses rather than to live with their parents because of generation gap Thus, the demand for HMF in Vietnam mostly relies on these young people The demand between those in urban areas and rural ones is not evidently different, however, the need in urban regions tend to be higher due to higher migration rate Understanding the need of different groups is vital for HMF suppliers to offer suitable products meeting this great demand Notably, due to lack of capital, the Vietnamese people tend to build their house progressively by themselves That implies they need small amount of money at different time but periodically This borrowing approach totally fits microfinance lending method This has coined the term Housing Microfinance HMF is proven to be an effective way to provide affordable and accessible houses for the poor from different parts of the world This concept, however, is still fairly new in Vietnam At present, there are only two semi-formal providers delivering HMF at significant level, namely CEP and Habitat for Humanity – Vietnam These two institutions have offered multiple HMF projects and have brought hope for thousand families This success is still modest if compared to the demand To be fair, other parties that could be considered as delivering HMF, but at smaller scale, are VBSP and TYM HMF Housing Microfinance in Vietnam-2012 33 Nguyễn Thị Minh An programs from these two formal institutions are mostly implemented in the Mekong delta area where natural disasters frequently hamper the people life In spite of the above facts, opportunities of HMF in Vietnam still remain extremely huge Potential market as mentioned above is a momentum attracting investors both internationally and domestically in the near future Also, the bigger support with more attention on social house and building national microfinance development strategy from Vietnam Government creates more favorable conditions for HMF development Additionally, it is the belief among HF suppliers that HMF is a profitable and viable niche market when TechcomBank and Sacombank show their willingness to invest into this segment The last but not least opportunity is created by healthier MF industry and HMF providers The main reason is that they are main potential HMF suppliers, once becoming stronger, they have more capacity to widen financial services, including HMF Within this potential market, Vietnam still has to face huge challenges due to unfavorable policy environment, incomprehensive legal framework and internal issues among HMF actors Although Vietnam Government has paid more attention on MF, its subsidized programs tend to distort the market This is simply explained by the fact that the dominance of formal sector with low or even subsidized interest rate unintentionally causes troubles for semi-formal organizations in carrying out their products Moreover, capping interest rates reduces dynamics of HMF suppliers to cover operating and administrative costs All of these supply-oriented methods fail to reach outreach and sustainability Another barrier stopping HMF development in Vietnam is incomprehensive legal framework Due to ambiguous legal status, NGOs, especially INGOs, find multi-difficulties in operating on the Vietnamese market Finally, internal issues among HMF suppliers such as lack of capital, limited knowledge on HMF and weak linkage among providers are challenging HMF development 5.2 Recommendations Based on the above surgery on HMF in Vietnam, experiences from AMK, and initiatives from the so-called experts, this part turns to some recommendations for both Government and HMF actors on the Vietnamese market Firstly, regarding Government, it is necessary for the State to create benefit able environment for HMF development Specific actions can be named such as implementing sound macroeconomic policies to ensure stable income and heighten living standard of Vietnamese people, uncapping interest rate, i.e not using administrative command or Housing Microfinance in Vietnam-2012 34 Nguyễn Thị Minh An not intervening into demand-based approach Besides, it is high time for the Government to ensure secure tenure and to strictly monitor real estate in aiming at creating a sound market where people in need and have capacity can easily access, in stead of a speculated market Additionally, building a comprehensive legal framework as guideline for MF industry and housing development, especially removing barriers preventing semi-formal HMF suppliers from access capital for scaling and developing sustainably is considered of great importance Last but not least, it is vital for Government to pay more attention to social-housing projects which being implemented, and to create incentives for investors to target low-income people with suitable price and size This support can be carried out via Housing Development Funds, and quickly and carefully via approving Housing Saving Fund Project planned by the Ministry of Construction Secondly, in terms of HMF providers, it is vital for them to actively involve in the market by doing research, learning from international experience and piloting HMF products Once being successful, pilot projects bring confidence for international investors and donors These pilot schemes must be flexible and affordable for target clients In order to so, it is time for suppliers to train their staff with profound knowledge on MF and housing and skills to work well in this field Also, providers need to actively raise capital to diversify financial services and to create national coverage The last important move is to intensify connection among HMF providers The aim is to make a network where suppliers support each other in terms of both capital and technical assistance Those are main actions HMF actors need to for the seek of both themselves and clients Housing Microfinance in Vietnam-2012 35 Nguyễn Thị Minh An REFERENCES AND NOTES Shyam (n.d.) Bamboo Housing, www.inbar.int MicroNOTE 35 (2007) Habitat for Humanity Vietnam Partnering with MFIs to Improve Housing for the Poor FMO (2008) FMO Low Income Housing Roundtable Hanoi, Vietnam Ferguson & Haider (2000) Mainstreaming Microfinance of Housing, Housing Finance International Cornerlis & Ruben (2008) Housing Microfinance in Vietnam Mesarina & Stockney (2007) Getting to Scale in Housing Microfinance Sigvalden (2010) Key issues in Housing Microfinance Accion (2003) Building the Homes of the Poor – One Brick at a Time Daphnis (n.d.) Elements of Product Design for Housing Microfinance 10 Ferguson (2003) Housing Microfinance: A Key to Improving Habitat and the Sustainability of Microfinance Institution 11 Malhotra (2004) Taking housing microfinance to scale: advise for governments and donors 12 USAID (2008) Maximizing choice: Diverse approaches to the challenge of housing microfinance 13 The Center for Urban Development Studies Harvard University Graduate School of Design (2000) Microfinance Initiatives: Synthesis and Regional Summary: Asia, Latin America and Sub-Saharan Africa with Selected Case Studies 14 Cornerlis & Ruben (2008) Housing Microfinance in Vietnam 15 Ferguson & Haider (2000) Mainstreaming Microfinance of Housing, Housing Finance International 16 Shore Bank International (2010) Discussion Paper for an OEEB Strategy in Housing Finance 17 Ferguson & Haider (2000) Mainstreaming Microfinance of Housing, Housing Finance International Housing Microfinance in Vietnam-2012 36 Nguyễn Thị Minh An 18 Daphnis & Ferguson (2004) Housing Microfinance: An Overview 19 Cornerlis & Ruben (2008) Housing Microfinance in Vietnam 20 Mesarina & Stockney (2007) Getting to Scale in Housing Microfinance 21 Accion (2003) Building the Homes of the Poor – One Brick at a Time 22 Young, Hokans & Ahern (2009) Capitalizing Housing for the Poor: Findings from Five Focus Countries 23 Accion (2003) Building the Homes of the Poor – One Brick at a Time 24 Daphnis (n.d.) Elements of Product Design for Housing Microfinance 25 CGAP (2004) Helping to Improve Donor Effectiveness in Microfinance: Housing Microfinance 26 Ferguson (2003) Housing Microfinance: A Key to Improving Habitat and the Sustainability of Microfinance Institution 27 Malhotra (2004) Taking housing microfinance to scale: advise for governments and donors 28 USAID (2008) Maximizing choice: Diverse approaches to the challenge of housing microfinance 29 Accion (2003) Building the Homes of the Poor – One Brick at a Time, Accion International 30 USAID (2008) Maximizing choice: Diverse approaches to the challenge of housing microfinance 31 Merill (2009) Microfinance for housing: Assisting the “bottom billion” and the “missing middle” 32 http://hofinet.org 33 USAID (2008) Maximizing choice: Diverse approaches to the challenge of housing microfinance 34 Shorebank International Vienna (2010) Discussion Paper for an OeEB Strategy on Housing Finance 35 Cambodian Microfinance Association (n.d.) Microfinance in Cambodia 36 Solidarity lending takes place through ‘solidarity groups’ Solidarity lending lowers the costs to a financial institution related to assessing, managing and Housing Microfinance in Vietnam-2012 37 Nguyễn Thị Minh An collecting loans, and can eliminate the need for collateral Since there is a fixed costs associated with each loan delivered, a bank that bundles individual loans together and permits a group to manage individual relationships can realize substantial savings in administrative and management costs 37 The Center for Urban Development Studies Harvard University Graduate School of Design (2000) Microfinance Initiatives: Synthesis and Regional Summary: Asia, Latin America and Sub-Saharan Africa with Selected Case Studies 38 Cambodia Microfinance Association (n.d.) Microfinance in Cambodia 39 Putzeys (2002) Micro Finance in Vietnam: Three case studies 40 Social Services for Human Development – Vietnam Human Development Report 2011- UNDP 41 Quy Tin dung Nhan dan Ho Phong as of Oct 11th, 2010, www.qtdndhp.vn, and PCF Annual Report in 2010 42 Annual Report TYM (2011) 43 www.microfinance.vn, 1st March, 2012 44 www.microfinance.vn, 1st March, 2012 45 Cornerlis & Ruben (2008) Housing Microfinance in Vietnam 46 www vbsp.org.vn 47 Quy Tin dung Nhan dan Ho Phong as of Oct 11th, 2010, www.qtdndhp.vn, and PCF Annual Report in 2010 48 Bulletin No.17 of Vietnam Microfinance Working Group as of August 2011 49 www.tymfund.org.vn, Press Release of TYM as of 25th August 2010 50 www.microfinance.vn, 1st March, 2012 51 Bulletin No.17, Vietnam Microfinance Working Group as of August 2011, p 26 52 Cornelis & Ruben (2008) Housing Microfinance in Vietnam 53 USAID (2007) MicroNOTE 35, Habitat for Humanity Vietnam Partnering with MFIs to Improve Housing for the Poor Housing Microfinance in Vietnam-2012 54 38 Nguyễn Thị Minh An On 13th February 2012, SBV issued Decree No.01/CP-NHNN to classify credit growth quotas for four groups of banks JSCBs listed below are those belonging to the Group (credit growth of 17 percent) 55 http://www.saigon-gpdaily.com.vn 56 www.vietnamnet.vn as of 19th March, 2012 57 Cornelis & Ruben (2008) Housing Microfinance in Vietnam 58 Mother in law syndrome is a traditional habit that new wedded couples have to move in with the mother of the groom 59 Microfinance Industry Report in Vietnam in 2008 60 Putzeys (2002) Micro Finance in Vietnam: Three case studies 61 www.globalpropertyguide.com, 19th April, 2011 62 www.globalpropertyguide.com, 19th April, 2011 63 www.globalpropertyguide.com, 19th April, 2011 64 Cornelis & Ruben (2008) Housing Microfinance in Vietnam 65 http://news.vneconomy.vn/2009100805287787P0C6/building-interest.htm, June 14, 2009