Oda management in the third rural finance project at transaction center iii bank of investment and development of vietnam,graduation thesis

Graduation Thesis Banking Academy STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty GRADUATION THESIS ODA MANAGEMENT IN THE THIRD RURAL FINANCE PROJECT AT TRANSACTION CENTER III – BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM Lecturers: PHAM THI HOANG ANH (Ph.D) NGUYEN PHUONG LAN (M.A) Student’s name: NGUYEN THI TRANG DAI Class: ATCA – K11 Hanoi, 6th June 2012 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy ACKNOWLEDGEMENTS First of all, on the completion of the study, I would like to send my sincere thanks to my supervisors, Ms Pham Hoang Anh, PhD, Faculty of Banking and Ms Nguyen Phuong Lan, MA, Faculty of Foreign Languages, Banking Academy for their continuous supports of my study and research including their clearly explanation, correction, insightful comments, criticism and suggestions Secondly, I would like to express my deepest gratitude to Transaction Center III – Bank of Investment and Development of Vietnam in general, and all the staff of the Project Management Unit in particular for offering me an internship opportunity and providing me with a good working condition I also owe a great debt of gratitude to my family and friends who have constantly encouraged and supported me during the time of conducting the research Last but not least, I would like to thank readers who share their interest and feedback on this study Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy ABSTRACT The graduation thesis presents a comprehensive review of Offical Development Assistance (ODA) as an essential factor in Vietnam economic development In general, the thesis throws some light on the theoretical framework and gives an overview of ODA in Vietnam in recent years In particular, it focuses on a new model of ODA management through the Rural Finance Projects (especially the third project) funded by The World Bank and implemented at Transaction Center III – Bank of Investment and Development of Vietnam The thesis shows that the projects have achieved several successes, contributing to the development of rural economy as well as enhancing the capacity of Vietnam’s financial system Broad conclusions and recommendations to further ODA management in Vietnam are also developed Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF TABLES AND FIGURES CHAPTER 1: INTRODUCTION 1.1 Rationale 1.2 Literature review 1.3 Aim and scope of research 1.4 Research questions .3 1.5 Research methodology CHAPTER 2: THEORETICAL FRAMEWORK ON OFFICAL DEVELOPMENT ASSISTANCE (ODA) .4 2.1 Definition of ODA .4 2.2 Classification of ODA 2.3 Advantages and disadvantages of ODA .7 CHAPTER 3: ODA MANAGEMENT IN THE THIRD RURAL FINANCE PROJECT AT TRANSACTION CENTER III – BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM .12 3.1 Overview of ODA in Vietnam 12 3.2 ODA management in The Third Rural Finance Project at Transaction Center III – BIDV 17 3.2.1 Introduction of The Third Rural Finance Project (RF III) 18 3.2.2 ODA management in The Third Rural Finance Project at Transaction Center III – BIDV 19 3.2.2.1 Implementation progress of Credit Components A and B 19 3.2.2.2 Situation of ODA management of Component C 24 3.2.2.3 General assessment of the Third Rural Finance Project 27 3.3 Evaluation of ODA management in The Third Rural Finance Project at Transaction Center III – BIDV 29 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy 3.3.1 Achievements 29 3.3.2 Drawbacks .32 CHAPTER 4: RECOMMENDATIONS FOR IMPROVING ODA MANAGEMENT AT TRANSACTION CENTER III – BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM 35 CONCLUSION 37 REFERENCES 38 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy LIST OF ABBREVIATIONS ADB Asia Development Bank BIDV Bank of Investment and Development of Vietnam BSA Bank Supervision Agency CCF Central People’s Credit Fund FDI Foreign Direct Investment EAB Eastern Asia Commercial Joint Stock Bank HO Head Office MB Military Bank MFI Microfinance Institution MLF Microfinance Loan Fund MOF Ministry of Finance MPI Ministry of Planning and Investment NGO Non-governmental Organization NPL Non Performing Loan ODA Offical Development Assistance OECD Organization for Economic Cooperation and Development PCF People’s Credit Fund PFI Participating Financial Institution PMU Project Management Unit RDF Rural Development Fund RF I First Rural Finance Project RF II Second Rural Finance Project RF III Third Rural Finance Project SGIT Saigon Bank for Industry and Trade SBV State Bank of Vietnam SHB Saigon – Hanoi Commercial Joint Stock Bank SME Small and Medium Enterprise Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy TA Technical Assistance UNs United Nations UNDP United Nations Development Programme UNICEF United Nations Children’s Fund US$ United State Dollar VAPCF Vietnam Association of People’s Credit Fund VBARD Vietnam Bank for Agriculture and Rural Development VIB Vietnam International Bank VND Vietnam Dong VPBank Vietnam Prosperity Commercial Joint Stock Bank WB World Bank Western Bank Western Commercial Joint Stock Bank Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy LIST OF TABLES AND FIGURES Table 3.1: Information of Designated Account Table 3.2: Classification of loans by terms Table 3.3: Outstanding loans structure of Project by regions by Quarter 4/2011 Table 3.4: Implementation expenses and disbursement of Component C Table 3.5: Intermediate Outcome Indicators of the Project Figure 3.1: ODA commitment, signed agreement and disbursement – Comparison among different periods Figure 3.2: Trend of ODA loans and grants over the period Figure 3.3: Top ten donors of gross ODA (2009-10 average) Figure 3.4: Outstanding loans of the Project from Q2/2009 to Q4/2011 Figure 3.5: Outstanding loans of PFIs/MFIs by loan-term by Quarter 4/2011 Figure 3.6: RDF III and MLF III sub-loans by sectors in Quarter 4/2011 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 1 Banking Academy CHAPTER 1: INTRODUCTION 1.1 Rationale The process of industrialization and modernization, together with Vietnam’s affiliation in the international trade has brought not only opportunities but also challenges to our country One of the main targets of the Government is to reach the average per capita income of US$ 1,500 by 2020, requiring approximately 8%/year of average growth and an increase of at least 20% in invested capital, of which ODA (Offical Development Assistance) is a key factor in the development of the national economy, as Hayami and Godo (2005) said: “For such developing countries, in which the investment needs for development tend to exceed domestic saving capacities, net capital import from abroad represents a possible escape from the vicious circle of slow economic growth and low savings” (pp.45-46) According to statistics from the Ministry of Planning and Investment (MPI), ODA capital has been effectively used and since 2006, ODA capital disbursement in Vietnam has been on the increase, especially by the end of 2011, the amount of ODA capital disbursed for Vietnam was valued at more than US$ 33 billion, accounting for 61 percent of total agreed ODA capital However, this growth is still assessed to be lower than many other countries, especially in the rural economy, mainly due to insufficient access to credit in rural areas Therefore, the question raised here is how to manage ODA in an effective way to bring the best to rural areas in particular and to the whole economy in general That is the reason why Transaction Center III – Bank of Investment and Development of Vietnam (BIDV) was established in 2002 with the main role of acting as the Project Owner (wholesale bank) in lending and managing the ODA from the World Bank to Participating Financial Institutions (PFIs) so as to improve access to financial services for rural enterprises This is truly a very new model of banking business in Vietnam, helping banks not only strengthen their capacities to compete with foreign banks but also develop new banking products and spread their branches over the country Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy Through three rural finance projects with the World Bank, especially the third project (launched in 2008 and expected to finish in 2013), Transaction Center III – BIDV has achieved several successes However, some drawbacks still remain That is why I decided to choose “ODA management in the Third Rural Finance Project at Transaction Center III – Bank of Investment and Development of Vietnam” as the subject of my graduation thesis in order to bring a deeper view of ODA disbursement in this entity, therefore give some recommendations to improve its managerial effectiveness 1.2 Literature review In literature, much effort has been spent investigating the relationship between ODA and economic development According to Estache (2004), there are 102 studies that have examined the impacts of ODA on growth, investment and productivity The majority finding is the positive impact of infrastructure and economic growth on investment Also, Sturm (2001) found that foreign aid has made a statistically significant contribution to public investment, which in turn contributes to economic growth More specifically, Ernst van Koesveld, a member of UNDP, in his “Overview of Offical Development Assistance in Vietnam” (2000) provided analysis of the developments and trends in ODA flows in Vietnam or in 2009, Adam McCarty, together with Alexander Julian and Daisy Banerjee gave a comprehensive evaluation of the implementation of the Paris Declaration and of the 2001 DAC recommendation on untying ODA with reference to Vietnam, etc However, analysis on how to manage ODA effectively is still limited, therefore I hope my graduation thesis, in a small-scale, could make a contribution to the research on this matter, bringing a particular view of a new model of ODA management in Vietnam 1.3 Aim and scope of research The aims of my graduation thesis are to: Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis development Consultancy Training Provision RF III Banking Academy 26 1,387,200 457,200 56,200 14,998,850 42,751 0% 9% 42,751 1,422,391 9.48% 727,709 (Source: PMU) As can be seen from the statistics, in comparison with components A and B, the implementation progress of component C was behind schedule, mainly due to the slow disbursement in the sub-components C2 and C3 Specifically, component C1 supporting PMU and BIDV Head Office was rather well implemented, achieving 56% and 23% respectively, in which purchasing ( 86%) and training activities (78%) had high rates of disbursement Component C2 and C3, in contrast, only disbursed 6% and 9% of the total allocated fund (a) Component C1: to support institutional capacity building for PMU and BIDV’s Head Office Component C1 was generally well implemented at the Transaction Center III In 2010 and 2011, the PMU bought one photocopy machine and cars to help them to complete their supervision duty The total spent was US$ 114,570, equivalent to 86% of the allocated fund The advisory and auditing sections experienced a 35% disbursement rate of the allocated funds Furthermore, the training that PMU was in charge of was one of the well-implemented activities of component C, with 78% of allocated funds, or US$ 98,556 There were 10 training courses organized for 428 trainees covering topics: Project start-up, Project appraisal, up-to-date regulations, risk management in banks and Project management and locally and internationally modern bank management As regards to BIDV-Head Office, it organized domestic and overseas training sessions on banking management and one risk management training course for a total of 118 officers, accounting for nearly 97% of the allocated fund (b) Component C2: to strengthen institutional capacity for VBARD and PFIs Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 27 Banking Academy Component C2 has a total fund value of US$ 8.5 million with the goal of supporting VBARD and PFIs in carrying out technical support and training However, this component had such a slow pace of disbursement For instance, with respect to VBARD, the advisory section was not carried out while training remained at a very limited level, accounting for only 7% of the allocated fund Up to Quarter 4/2011, VBARD organized 12 training courses to 446 staff with a total cost of US$ 202,871 In case of PFIs, the implementation and disbursement of technical assistance and training only reached 17% of allocated fund with 121 training courses for 2,663 officers while consulting activities were not implemented by some PFIs (c) Component C3 (Grant component): to improve Vietnam rural finance system such as developing new banking products, supporting SMEs or strengthening the capacity of Bank Supervision Agency (BSA) and Vietnam Association of People’s Credit Fund (VAPCF), etc Overall, the progress of the component C3 was slow, with only US$ 460,565 (9% of the allocated budget) implemented, of which US$ 48,415 was for procurement, US$ 338,791 for training and US$ 73,358 for consulting and audit activities One positive thing is that in component C3, the environmental guidelines have been strictly enforced and obeyed, which has contributed to changing PFIs’ and end-borrowers’ environmental awareness 3.2.2.3 General assessment of the Third Rural Finance Project It can be generally viewed that although being implemented for just over years (from 6/2009 to 12/2011), RF III project with the total investment of US$ 200 million has brought positive impacts on the rural economy and PFIs, helping to create a sustainable system in which households and enterprises in rural areas can more easily access credit By 12/2011, the Project achieved a considerable success in several criteria, some of which even surpassed the planned objectives such as accumulated investment capital for rural enterprises, increased employment and the Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy 28 number of first borrowers of MLF According to statistics, accumulated investment capital for the rural enterprises was US$ 260,479 million by December 31st 2011, achieving 188% of the target RF III also created 62,600 jobs by the fourth quarter of 2011, 125% in comparison with the mid-term target It can be said that the Project disbursement rate of Component A and B has performed beyond expectations Additionally, Component C has made significant breakthroughs over previous projects in providing large amounts of funding to support VBARD, to strengthen the roles of Vietnam Small and Medium Enterprise (VINASME) and to assist BSA in enhancing its supervision capacity over MFIs Table 3.5: Intermediate Outcome Indicators of the Project Project indicators Project output indicators Mid-term goals of the Project Implemented up to 31/12/2011 Component A: Rural Development Fund (RDF) (i) Cumulative volume of medium or long term sub-loans disbursed (unit: million US$) (ii) Number of borrowers (iii) Overdue loans/ loans outstanding (i) Cumulative number of microfinance sub-loans to first time borrowers (minimum number of loans) (ii) Share of microfinance subloans to women borrowers (%) (i) Wholesale bank (BIDV) Compliance accreditation criteria or with a time-bound Institutional Development Plan agreed with IDA (rating on point scale: Unsatisfactory (U), Marginal Unsatisfactory (MU), Marginal Satisfactory (MS) or Satisfactory (S) (ii) Participating Financial Institutions Compliance accreditation criteria or with a time-bound Institutional Development Plan 70 134.9 Percent of completion compared to the goal 188% 22,600 ≤5% 37,726 0,2% 167% Completed 10,000 24,166 242% ≥40% 40% Completed 5/5 criteria 5/5 criteria Completed 21/21 PFI 13/21 PFI Incomplete Component B: Microfinance Fund (MLF) Component C: Bank Capacity Building and New Products Development Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy 29 agreed with IDA (rating on point scale: Unsatisfactory (U), Marginal Unsatisfactory (MU), Marginal Satisfactory (MS) or Satisfactory (S) (iii) Cumulative number of bankers trained in various fields of banking (iv) Training materials prepared 2.800 3,393 155% Prepared Unprepared Incomplete for SMEs training modules (Source: Project progress report Quarter 4/2011 of PMU) These results have shown clearly that the RF III Project has improved the access to financing the rural economy through lending and providing financial products/services It is the effective PFI selection and strong PFIs support in the cooperation process that result in the active disbursement operation 3.3 Evaluation of ODA management in The Third Rural Finance Project at Transaction Center III – BIDV 3.3.1 Achievements Over two years of implementation (from June 2009 to December 2011), the RF III project has had positive effects on the rural economy as well as on PFIs Being regarded as the continuation of RF I and RF II’s success, RF III has carried on reducing investment capital pressure and providing support to enhance working ability for PFIs and developing new banking facilities To be specific, the RF III project has made several achievements as listed below:  Harmonic combination of ODA management and ODA business function In the process of implementing RF III project, BIDV, in association with WB has chosen 27 PFIs and MFIs to involve and act as retail entities, providing services to end-borrowers The model of the project management harmonizes between the function of State management of ODA and the business function of ODA in which ODA management tool is presented in “lending subcontracts” signed between the Ministry of Finance and BIDV regarding to the Project’s total funds Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis Banking Academy 30 Thanks to the application of the harmonious and effective management model along with the wholesale credit mechanism, the Project has raised up counterpart funds of credit institutions involved The self-reciprocal of credit institutions in the project has helped reduce the burden on the state budget in the arrangement of reciprocal capital for the project annually This is the advantage that credit institutions in the Project have over other PMUs currently managing ODA  Production and living standard enhancement in rural areas Another contribution of the RF III project is that by participating in the project, many PFIs have turned their business strategy to the rural market as a potential one The Rural Finance Projects’ funds, especially the RF III’s, have successfully met the medium and long-term fund shortage in rural areas More than 53% of the Project’s MLF loans and 54% of RDF loans have contributed to business establishment and expansion activities Many farmers, small businesses and poor people in remote areas where there are no bank branches shall have access to banking services through the operation of 402 mobile banking vehicles purchased with the project fund Moreover, the RF III project continues to support the development of key economic sectors such as agriculture and stock-raising in a stable and rational fund allocation One thing can be proved with these results that financial access of the poor in rural areas has been improved thanks to RF III, therefore creating significant additional income and employment In terms of income, it is estimated that every US$ invested in the projects in the first year of RF III generated an annual additional income of US$ 0.55 Regarding to job creation, the RF III project surpassed the target at the mid-term with 50,450 jobs created from 25,619 RDF subprojects of which the highest number belonged to the food processing, small-scale business and services sectors The Project has also helped to improve living standards in rural areas, e.g better meals or more access to electricity and water services Another remarkable achievement of RF III is that it has strengthened Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 31 Banking Academy gender equality in the countryside (up to 40% women are end-borrowers of microfinance sub-projects), assisting women to prove their ability to business Equally important, the RF III project also helps raise the awareness of rural people They not only increase production to enrich themselves, their families and society but also have deeper awareness of environmental protection - one of the today top concerns  Institutional capacity enhancement The Project has significantly affected Vietnam’s financial system in general and PFIs in particular Specifically, the Project has set international standards on healthy finance for PFIs involved to follow In addition, it also introduces the concept of environmental protection to PFIs’ loan review process for the first time, making it become another common criterion to the sustainable development of the financial system According to experts inside and outside the country, in general, financial institutions have made a significant progress in adding their own capital (especially joint stock commercial banks) in order to expand investment and market activities, as well as in handling overdue, raising capital and increasing lending volume, improving loan quality and applying modern banking technology Moreover, participating in the RF III project, PFIs have the chance to access stable capital sources with relatively low interest rates and improve the quality of their financial services through technical assistance, local and international consultants as well as training courses provided by Component C To achieve these successes, a number of reasons have been put forward First and foremost, most selected PFIs have their own rural market development strategy, therefore when they participate in the Project, the objectives and strategies of the project helps to accommodate PFIs with accessing end-borrowers in the rural areas Some initiatives have been developed to reach customers in these areas, such as “Saving with farmers” applied in the Kien Giang Branch of Dong A Bank, in which Dong A Bank cooperates with PCF for lending development, “Rural Development Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 32 Banking Academy Loans” by Sacombank which is implemented by Customer Officers or through the cooperation with Associations such as Foodstuff Association, Agriculture Extension Association, etc to select the best clients of Saigon Bank for Industry and Trade (SGIT) These recognized results have help strengthen the competition in the banking sector in the areas not already served by the bank, thus bringing benefits to the end-borrowers in the rural areas Secondly, it is the successful wholesale banking model of BIDV, the effective support and collaboration of PMU – Transaction Center III in examining additional credit lines, proving advice on endborrower selection, quickly answering PFIs’ questions, etc that enhances the effectiveness of ODA management Apart from that, the supervision activities also play an important role in selecting competent PFIs involved in the Project Especially, during the period 2010-2011 of economic downturn, SMEs with small and medium size loans were able to more flexibly adapt and quickly adjust to economic changes than big enterprises, which results in a huge need for funding SMEs Last but not least, strict regulations of the Government to control inflation and stabilize the macro-economy also help to increase managerial effectiveness and credit quality of the project 3.3.2 Drawbacks However, there are still some limitations reducing the effectiveness of development assistance projects in Vietnam in general and in Rural Finance Project in particular:  Drawback in attracting ODA The lure of wholesale banking capital is always associated with the interbank, inter-ministerial relations and complex external factors On the other hand, Transaction Center III was originally built to meet the need of implementing rural finance projects rather than serving as a general commercial bank The ODA funds that Transaction Center III has undertaken are mainly from the three rural finance Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 33 Banking Academy projects financed by the WB, the commission agency’s capital accounts for only a mere percentage Hence the attraction of ODA is moderate due to limited partners  Limitations in risk provision ODA lending activity under wholesale banking model is rather new and has not been widely developed in our country, so the government just only regulates the mechanism of setting up risk reserve fund for retail banks (that is 15% of the total outstanding credit), not a specific mechanism for wholesale banks By participating in this activity, BIDV will be entirely at its own risk when lending to PFIs with low solvency and involving risks in business  Slow disbursement of components C2 and C3 As analyzed above, component C2 and C3, especially the Grant component is a new outstanding point of the Third Rural Finance Project, making it different from two preceding projects It covers a wide range of beneficiaries such as BIDVHead Office, PMU, VBARD, PFIs, VINASME, BSA, etc However, the disbursement progress of these components is rather low owing to the involvement of numerous parties and compliance with WB’s strict regulations on loan and capital grant This delay, in general, has partly lowered the success of RF III These drawbacks can be attributed to four main causes One of the underlying reasons is the international tender procedure According to laws, a project of over US$ 200,000 must comply with not only the international tender procedure with the involvement of contractors, PMU, Ministry of Finance, SBV and WB, but also international standards and related regulations in Vietnam This takes the tender procedure so much time to be completed (at least months) Besides, officials of Project’s beneficiaries directly involved in the project don’t have enough experience in international bidding procedure Another cause lies in the lack of Government policies ODA lending activities through wholesale banking is a relatively new operation in Vietnam, thus the government still has no rational policy 27 institutions involved in RF III are banks with good reputation in Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 34 Banking Academy Vietnam Meanwhile the Government has no specific guidelines to implement the Government Decree 28/2005/ND-CP on the organization and operation of smallscale financial institutions Therefore, Transaction Center III may not choose these organizations to participate in the project except for some PCFs In addition, the Project beneficiaries are also responsible for the slow implementation of component C The beneficiaries of this component include BIDV, VBARD, VAPCF, VINASME, BSA and PFIs Nevertheless, some organizations only participate indirectly and have no direct responsibility for Project management, so they not fully understand the positive impacts they may receive from the Project such as staff’s capacity building, thus they are not active in implementing the project, leading to the delay of component C Finally, in spite of being satisfactory to Project requirement, it is still undoubted that the instability of the economy and the financial monetary in 2010-2011 made trouble to the business of enterprises thus affected the debt payment Bad debts of banks got increased and the NPL ratio increased also In general, the credit quality of almost all PFIs showed a downward trend in comparison with that in the year of 2010 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis CHAPTER 4: MANAGEMENT Banking Academy 35 RECOMMENDATIONS AT TRANSACTION FOR CENTER IMPROVING III – BANK ODA OF INVESTMENT AND DEVELOPMENT OF VIETNAM Based on this research, the following recommendations are drawn to enhance the effectiveness of ODA management at Transaction Center III – BIDV:  Ensuring harmony of interests between parties involved in the Project This principle has always been applied by donors in the process of project design in order to achieve development targets set initially The investment channel in this model is divided into several sections in which each party shall participate and have a corresponding benefit The Government is guaranteed that the loan is fully repaid and it can earn the profit enough to cover exchange rate risk The wholesale bank will enjoy a reasonable profit while banks have access to capital resources with reasonable interest rates (a little lower than the market rates), as well as are supported in strengthening institutional capacity Eventually, end-borrowers can have more chances to access the capital and financial services provided  Accelerating the implementation of capacity building and training (Component C) This sub-component has the lowest disbursement rate and has many delays in the implementation as some Project’s beneficiaries pay more attention to the credit components rather than the capacity building component Therefore there should be requirements in the Project design commanding this component’s disbursement as a top condition of the credit component’s disbursement; especially the supporting activities for VINASME should be coordinated with experienced entities to provide training for SMEs to rapidly achieve the goal of enabling SMEs to access financial services in rural areas This would ensure all components’ targets are met In addition, focusing on training credit officers with typical skills required to make agricultural and rural loans is also an important factor contributing to the high quality of the Project Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 36 Banking Academy  Selecting more micro-finance institutions involved in the Project in order to enhance the disbursement of MLF component MFIs will help provide more loans to first-time borrowers, especially MLFs, thus the disbursement rate of this component would be higher with the involvement of more MFIs However, there might be some difficulties in MFIs’ selection because they are not required to comply with strict accounting, auditing, or safety regulations as other PFIs are If there is no mechanism for checking and monitoring MFIs, there could be potential payment risks Therefore, an increase in the number of MFIs in the Project must go along with the strengthening of BSA  Having a consultancy contract of exchange rate risk analysis When implementing the loans, the Vietnamese Government is subjected to exchange rate risks For medium and long term loans, the changes in exchange rate may be considerable and an analysis of exchange rate trend and potential risks as the result of these changes is considered important It will help Vietnam to determine the price of loans for international financial projects in general and RF III in particular and to be more active with payment schedule  Developing a clear, transparent and equitable system of policies and procedures Limited and unclear policies of the Government are factors hindering the effectiveness of many ODA projects Poor coordination between the Government and donors and between the Government agencies themselves leads to delays in various steps of project design and implementation Therefore only by building capacity in local administration and developing a clear, equitable system of policies and procedures will it help to allocate and disburse funds smoothly, reduce potential risks and create an environment of equality between participants in the project The relationship between the wholesale bank, PFIs and end-borrowers, in this case, is equality with mutual benefits Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 37 Banking Academy CONCLUSION In order to accomplish the industrialization and modernization of the country, Vietnam still needs a lot of capital investment, not only domestically but also from foreign sources Analyses on the situation of mobilizing, managing and using ODA in recent times have shown that ODA has a vital role in supporting socio - economic development in Vietnam In fact, programs and projects using ODA capital mainly focus on areas and sectors that Vietnam is in need of support such as programs and projects on community, traffic, agricultural development, poverty reduction, environmental protection, etc Not only does investment in these areas have the immediate effect but it also provides long-term impacts and a permanent basis for the development of the country The Rural Finance Projects I, II, III financed by the WB are telling examples of ODA project that bring high efficiency of investment These three projects, especially the RF III have made access to funds easier which is necessary for the sustainable development in rural areas of Vietnam So far, the management of lending funds under wholesale banking model has proved to be an effective managerial model in which wholesale funds are operated commercially in accordance with the commitments with the World Bank and Transaction Center III BIDV Furthermore, thanks to the success of The Rural Finance projects, BIDV has become a reliable address in implementing developing large scale projects, creating an effective channel to mobilize capital Through the research on the management of ODA lending at Transaction Center III, based on the purpose, object and scope of research, it can be said that this type of management is still a relatively new activity in the field of ODA capital management as well as banking activities On account of being the first time I have tried such a big study, my thesis would inevitably have some shortcomings therefore I am looking forward to receiving comments from teachers for this work to be complete Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 38 Banking Academy REFERENCES Hayami, Y and Godo, Y (2005) “The poverty to the wealth of nations development economics” Oxford, Third Edition: 45-46 Sturm, Jan-Egbert (2001) "Determinants of public capital spending in lessdeveloped countries", CCSO Working Papers 200107, University of Groningen, CCSO Centre for Economic Research Estache, A (2004) “A survey of the recent economic literature on selected emerging infrastructure policy issues in LDCs”, Background paper for the October 2004 Berlin meeting of the POVNET Infrastructure Working group Mekong Economics (2012) “Mid-term socio – economic impact assessment review”, prepared for Transaction Center III – BIDV Progress reports of The Third Rural Finance III, prepared by Transaction Center III– BIDV Adam McCarty, Alexander Julian, and Daisy Banerjee (2009) “The developmental effectiveness of untied aid: Evaluation of the implementation pf the Paris Declaration and of the 2001 DAC Recommendation on untying ODA to the LDCs – Vietnam country study” MPI (Ministry of Planning and Investment) (2006) “Evaluation Study of Japanese ODA for Vietnam: Summary”, Hanoi MPI (Ministry of Planning and Investment) (2003) “10 years of ODA in Vietnam: Overview on Implementation of the comprehensive poverty reduction and growth strategy and the new chapter of large scale infrastructure”, Report at the Consulative Group Meeting, Hanoi The Centre for International Economics, Canberra and Sydney (2002) “Vietnam poverty analysis”, prepared for the Australian Agency for International Development Government of Vietnam (2005) “Socio–economic development strategy 2006– 2010” Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis “Aid effectiveness Banking Academy 39 progress report – Enhancing aid effectiveness for sustainabledevelopment” (2002), serves for the first AEF Event and the informal mid-term Consultative Group Meeting (CG) 2010 Ernst van Koesveld (2000) “Overview of Official Development Assistance in Viet Nam” ADB/JBIC/WB, Vietnam - ODA project management and performance issues and recommendations, discussed during the Do Song conference, April 2000 Government of Viet Nam (2000) “Ten Year Socio-Economic Development Strategy 2001-2010”, Ha Noi (draft) MPI (2004) “Summary Report on ODA Mobilization and Implementation in Vietnam, and the Impacts of ODA on Local Economy in Central Coasts and Central Highlands”, paper presented at the Workshop on ODA implementation in Central Coasts and Central Highlands in May, Da-Nang Ministry of Planning and Investment [Online] http://www.mpi.gov.vn/portal/page/portal/bkhdt Organization for Economic Cooperation and Development [Online] http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1,00.html Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 40 Nguyen Thi Trang Dai – Foreign Languge Faculty Banking Academy