Tiếp cận tài chính vi mô tại Trung Quốc, Bangladesh và Philippines Bài học kinh nghiệm cho Việt Nam (1)

Header Page of 166 VIETNAM ACADEMY OF SOCIAL SCIENCIES Graduate Academy of Social Sciences DANG THU THUY FINANCIAL INCLUSION IN THE FORM OF MICROFINANCE IN CHINA, BANGLADESH AND PHILIPPINES – INTERNATIONAL EXPERIENCES AND IMPLICATION FOR VIETNAM Major : International economics Code : 62.31.01.06 SUMMARY OF DOCTORAL DISSERTATION IN ECONOMICS Hanoi – 2017 Footer Page of 166 Header Page of 166 Doctoral Dissertation is completed at Graduate Academy of Social Sciences - Vietnam Academy of Social Sciences Supervisiors: Prof Dr Nguyen Quang Thuan Assoc Prof Dr Do Van Duc Opponent 1: Prof Dr Dang Thi Loan National Economics University Opponent 2: Assoc Prof Nguyen Duc Trung State Bank of Vietnam Opponent 3: Ph.D Nguyen Thuy Duong Banking Academy This thesis will be defended at Institute Council at Graduate Academy of Social Sciences - Vietnam Academy of Social Sciences Can be found at: - Library Information Center of Graduate Academy of Social Sciences - National Library of Vietnam Footer Page of 166 Header Page of 166 INTRODUCTION Necessity of the study Financial inclusion in the form of microfinance is regarded as a pratical task in expanding the approach of financial services to improve livelihoods, poverty reduction for the citizen In Vietnam, financial inclusion in the form of microfinance is at the early stage development It earns initial achievements and contributes to economic development, poverty reduction, and enhances the capital accessibility of individuals, poor households as well as small enterprises Yet, microfinance accessibility in Vietnam encouters difficulties from both providers and beneficiaries Doing research on international practices so as to find out solutions for Vietnam to accelerate microfinance accessibility for the poor and small enterprises is necessary In recent years, countries in Asia-Pacific such as China, Bangladesh and the Philippines regarded financial inclusion as one criterion to achieve sustainable development In China, financial reform played an important role in the initial success of financial inclusion The year 2005 marked a milestone in microfinance activity transformation in China In annual development plan, Bangladesh government highly appreciates microfinance in achieving social economic growth, and benefits to citizen and enterprise The Philippines government established positive policy to support microfinance operations effectively, provide small loans to the poor and develop its economy China, Bangladesh and the Philippines are developing countries with many similarities to Vietnam in microfinance development level Successful experiences and unsuccessful lessons from those countries are very practical for development of microfinance system in general and enhancing microfinance inclusion in our country in particular However, international researches on experiences from three countries of China, Bangladesh and the Philippines in promoting microfinance inclusion to find out lessons and solutions for Vietnam are incomplete, lack of details and systematic Therefore, the study, “Financial inclusion in the form of microfinance in China, Bangladesh and the Philippines – International experiences and implication for Vietnam” is very much needed Research objectives and tasks 2.1 Research objectives The thesis aims at systematize theoretical and practical basis of microfinance operations, analyze the situation of microfinance inclusion in China, Bangladesh and the Philippines to find out lessons, directions, solutions and recommendations for the improvement and development of microfinance operations in Vietnam 2.2 Research tasks Footer Page of 166 Header Page of 166 To achieve the above objectives, the thesis should perform specific tasks: (i) Review of the published works related to the thesis, inheriting the research findings and elucidating further the question (ii) Systematize the basics of microfinance operations, microfinance inclusion (iii) Analyze the situation of microfinance accessibility in China, Bangladesh and the Philippines in order to objectively evaluate the situation as well as experiences of microfinance inclusion in those countries (iv) Assess the development process and situation in Vietnam’s microfinance inclusion through research model of relationship between the outreach and sustainability of microfinance institutions (MFIs) in Vietnam (v) From international experiences and current situation of Vietnam’s microfinance inclusion, the thesis proposed orientations and solutions to improve microfinance inclusion in Vietnam Subject and scope of research 3.1 Subject of research Study subjects are the microfinance inclusion in China, Bangladesh and the Philippines 3.2 Scope of research 3.2.1 Space of study Thesis assesses the current situation of microfinance operation in the three countries of China, Bangladesh and the Philippines 3.2.2 Time of study Thesis studies microfinance system development of China, Bangladesh and the Philippines during the period from 2010 to the end of 2014 3.2.3 Content of study Microfinance inclusion is understood in the following aspects: the supply of products and services from the MFIs, the demand from customers and the support from the Government In the thesis, the author chose to assess the microfinance inclusion from only providers of microfinance products and services Research Methodology 4.1 Assessment of study The author uses the approach of microfinance operations in the three countries of China, Bangladesh and the Philippines in view of the overall and perspective of each country with full of analazing, evaluating and comparing according to specific criteria to draw lessons for Vietnam in improving microfinance inclusion 4.2 Method of study Footer Page of 166 Header Page of 166 The thesis used a combination of qualitative research methods and quantitative research methods With these key objectives and specific research, each research methods are applying, handling flexible and appropriate Qualitative research methods:  Methods of analysis and synthesis of theory: The author studies incorporated by topic: financial inclusion, microfinance, microfinance inclusion Based on the aggregated analysis of each topic, sorting the contents of documents, collected information in a scientific way  Hypothesis method: The assumptions are based on the basis of research on relationship between the outreach and sustainability of MFIs  Comparative method: The thesis compares and assesses the current situation objectively, finds out the experiences in microfinance inclusion in China, Bangladesh and the Philippines as a basis for analysis, evaluation, and comparison to contribute the content of research Besides, the author uses quantitative research methods through research model  Data sources: The data are extracted from official sources: State Bank of Vietnam (SBV), Vietnam microfinance working group (VMFWG) and official website Mixmarket  Research model: The model of the relationship between the outreach and sustainability of MFIs of Christen et al (1995), Thys (2000) applied Ordinary Least Squares (OLS) This model was tested and confirmed by Olivares Palanco (2005) that sustainability affected the outreach of MFIs Besides, other factors also affected the outreach of MFIs such as: operating time, the width of outreach, competitiveness, gender of customer, credit methods In this study, operation self-sufficiency (OSS) is used as a variable for sustainability and regarded as the value depends on the model Operating times of MFIs (years), outreach index and effective measures are three independent variables that can affect the sustainability of MFIs Research on outreach, the author use two important variables to measure that: (i) the number of active borrowers (the width of outreach) and (ii) average loan per borrower (the depth of outreach) The effective measures are (i) growth of gross loan portfolio, (ii) operation expense, (iii) deposits/gross loan portfolio and (iv) portfolio at risk > 30 days  The time of study: The author used research model at a time in Footer Page of 166 Header Page of 166 2014 (cross-section model) to assess the microfinance inclusion and OSS of MFIs in Vietnam  The number of selected MFIs: According to VMFWG (2015), the number of Vietnam’s MFIs is 36 by the end of 2014 However, the author selected 31 MFIs as observers because of these institutions implement periodic reports accurately and honestly  Review the appropriateness of the model: The model is built and tested the relationship between the outreach and sustainability of MFIs The author uses some test methods such as: heteroscedasticity test, normality test and stability that test whether there exists multicollinearity problems interfered with the results of the model or not New proposals from the results of the thesis (i) Systemize the theoretical basis of microfinance inclusion in improving the quality of the life, poverty alleviation and socio-economic stability (ii) Assess objectively of situation in microfinance inlusion of three countries of China, Bangladesh and the Philippines (iii) Select group of assessing indicators of outreach: the width of outreach (the number of borrowers, size of deposits and loans, number of microfinance products and services…) and the depth of outreach (average loan per borrower, borrower retention rate, the rate of customer out of poverty…) (iv) Apply the model of the relationship between the outreach and sustainability of MFIs of Christen et al (1995), Thys (2000) and Olivares Palanco (2005) developed The thesis uses and assess the factors affecting OSS to independent factors in outreach (v) Propose some contributed views and solutions to promote and improve microfinance inclusion in Vietnam in the coming years Theoretical and practical meaning of the thesis 6.1 Theoretical meaning Based on the theoretical and practical study, the thesis brings new academic contributions such as: (i) The thesis studies microfinance inclusion and evaluates MFIs’ outreach for the target customers (ii) The thesis chooses and adjusts the assessment indicators of MFIs’ outreach in two ways: (a) the width of outreach (operational network, microfinance products and services, the number of active borrowers) and (b) the depth of outreach (group of target borrower, size of deposits and loans, borrower retention rate, and the rate of customer out of poverty) (iii) Applying the model bases on theoretical basis as well as conforms to MFIs in Vietnam Footer Page of 166 Header Page of 166 6.2 Practical meaning Besides theoretical meaning, the thesis also brought practical meaning, such as: (i) The thesis researches experiences in microfinance inclusion in three countries in Asia: China, Bangladesh and the Philippines to objective assessment of situation of microfinance inclusion in Vietnam (ii) The results of anlysis model are appropriate and meaningful for assessing and finding an intimate relationship between the outreach and sustainability of MFIs (iii) Based on assessments from international experiences and research results, the thesis provides direction, solutions and proposals aimed at improving microfinance inclusion in Vietnam in the next time Structure of the thesis Beside the Introduction, conclusions and recommendations, list of references, the thesis content is divided into four chapters, namely: Chapter I: Overview of research related to the thesis topic Chapter II: The rationale and practice in microfinace inclusion Chapter III: The current situation and the experiences of China, Bangladesh, and the Philippines on microfinace inclusion Chapter IV: Microfinace inclusion in Vietnam and solutions for enhancing microfinace inclusion on the basis of lessons from China, Bangladesh and the Philippines CHAPTER I: OVERVIEW OF RESEARCH RELATED TO THE THESIS TOPIC 1.1 The situation of research The research projects directly related to the subject that the author can be classified into two main groups according to each research topic in the country and abroad with the specific contents as: Group 1, consiting of the studies on financial inclusion and Group 2, including the studies on microfinace and microfiance inclusion In group 2, the author will be divided into three smaller problems with details: (i) assessing the development of microfinace operations, (ii) microfinace development directions and (iii) the relationship between the outreach and sustainability of MFIs 1.2 The agreed points and the problems needs in the further study The research projects in the overview mentions situation of microfinace inclusion in different sides in various countries are analyzed and evaluated deeply Howerver there are still research gaps that the thesis can access as the tasks: Firstly, the author will systemize some theoretical issues related to financial inclusion, microfinance inclusion The published research Footer Page of 166 Header Page of 166 projects are also referring these problems, howerver, the contents are not specific Second, the author is responsible for evaluting the microfinance inclusion in three Asian countries: China, Bangladesh and the Philippines All three countries have practical models in private microfinace approach, is the factual basis to study and give a suitable model for development of microfinace industry in Vietnam The thesis will evaluate the full details of microfinance outreach in the three countries with selected contents, assessing width and deepth outreach to highlight the situation of microfinance inclusion in mentioned nations Thirdly, the author will focus on evaluating microfinance outreach in Vietnam for five years (from 2010 to 2014) The thesis will be deeply appreciated, honest and objective about the situation in Vietnam’s microfinance inclusion in the past years along with the lessons learned from the three countries of China, Bangladesh and the Philippines to offer recommendations help microfinance outreach in Vietnam toward longterm development and stability CHAPTER II: THE RATIONALE AND PRACTICE IN MICROFINACE INCLUSION 2.1 Microfinance and MFIs 2.1.1 Microfinance 2.1.1.1 The history of microfinace development Microfinance developed strongly in Bangladesh in the 1970s Dr Muhammad Yunus – Professor of economics at University of Chittagong, had developed the idea of microcredit while studying the lives of the poors in his homeland when they struggled in the famine in 1974 He decided to establish an organization to help the poors in his countrt and its name Grameen Bank At this time, the modern microfinance was officially born After the initial success of many organizations working in the field of microfinance, the series of MFIs in the world also began to apppear The United Nation declared 2005 as “the year of Microcredit” and by 2006 the Summit on Microfinance announced its report with more than 3.000 MFIs and served more than 106 millions of the poors in the developing countries 2.1.1.2 The concept of microfinance - According to The Consultative Group to Assist the Poor (CGAP): “Microfinance is the provision of basic financial services to low-income people including savings, credits, pensions, money transfers, insurance ” - In view of Asian Development Bank (ADB) “Microfinance is the provision of a broad range of financial servieces such as deposits, loans, Footer Page of 166 Header Page of 166 payment services, money transfers and insurance to poor and low-income households and their micro-enterprises Synthesis of the above concepts, we can understand that “Microfinance is the provision of financial products and services to the poors, low-income households to meet the customers’ demand and investment for the business” 2.1.1.3 Impact of microfinance Microfinance has a direct impact on individuals, households and communities in many aspects At individual level includes physical, consciousness, awareness, relationships; At household level: economic, livelihood strategies, internal family relationships; At community level: the economy, society, culture, politics 2.1.2 Microfinance institutions 2.1.2.1 The concept of MFIs - According to the United Nations Environment Programme (UNEP): “A MFI is an organization that provides financial services targeted to the poor While every MFI is different, all share the common characteristic of providing financial services to a clientele poorer and more vulnerable than traditional bank clients” 2.1.2.2 The main insitutions providing microfinance Microfinance providers can be devided into three main categories: (i) formal, (ii) semi-formal and (iii) informal 2.1.2.3 The role of microfinance institutions The MFIs’ operations play a dual role in both financial and social sectors In financial sector, the MFIs provide important financial services (i) savings mobilization, (ii) reallocation of savings for investment and (iii) creating favorable conditions for goods and services exchanges, becoming a powerful tool to reduce poverty and increase income levels Other social sector, MFIs create opportunities for low-income people to have access to financial services and to enhance their participation in public activities Basically, MFIs simultaneously perform two tasks: financial intermediation and social intermediary 2.2 Microfinance inclusion 2.2.1 The concept of financial inclusion - CGAP (2011) defines financial inclusion as “a state in which all working age adults, including those currently excluded or underserved by the financial system have effective access to the following financial services provided by formal institutions: credits, savings, payments and transfer, and insurance” - According to World Bank (WB), financial inclusion defines as “the use of formal accounts, can bring many welfare benefits to individuals and businesses” Footer Page of 166 Header Page 10 of 166 Synthesis of the above concepts, we can understand that financial inclusion as effective access and use of financial services such as credits, savings, payments and transfer, and insurance provided by formal institutions of all working age adults 2.2.2 The concept of microfinance inclusion - “Microfinance approach is a development approach that provides financial as well as social intermediation The financial intermediation includes the provision of savings, credit and insurance services, while social intermediation involves organising citizens’ groups to voice their aspirations and raise concerns for consideration by policy makers and develop their self-confidence” (Robinson 2002) - Moreover, Conroy (2002) stated that microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and their small enterprises” Thus, we can understand the microfinance inclusion is “the customers – poor peoples, low-income households, and small enterprises can access or be provided basis financial services by MFIs” 2.2.3 Benefits of microfinance inclusion (i) Microfinance is an important tool in poverty reduction strategies MFIs improve access and provision of financial products and services effectively to customers such as savings, credit and insurance to help poor people increase their income and manage risk better….Microfinace services improve the allocation of resources, promoting the market, in other words, and microfinance promotes economic growth (ii) Microfinance helps to provide effective financial services and products to support the poors, low-income and disadvantaged people in society (iii) Microfinance contributes to the overall development of financial system through financial market intergration 2.2.4 Factors affecting the sustainability of microfinance institutions The microfinance operations depend on many internal and external factors (i) Internal factors: MFIs’ business development stretagies, the varity of products and services, distribution channels to meet the needs of the market and target customers, financial strength and human resources (ii) External factors: Policy environment, economic environment, political environment, social environment, information technology environment and customer factor 2.2.5 Criteria for evaluating the microfinance accessibility Synthesis of views and evaluation criteria of many scientists in many prestigious organizations, the author would chosse the criteria, Footer Page 10 of 166 Header Page 14 of 166 Debt to equity ratio Total assets (USD) Debt to equity ratio Total assets (USD) Debt to equity ratio 12 17.41 Bangladesh 3,928 3.88 The Philippines 976 4.46 13.66 12.72 3.13 1.59 3,812 3.77 4,539 2.92 5,584 3.13 3,440 1.53 1,028 3.87 745 3.98 749 4.17 1,005 3.64 Source: Mix market (2014) 3.1.1.3 Similarities and differences of microfinance institution system in China, Bangladesh and the Philippines MFI system in China, Bangladesh and the Philppines has many similarities These countries are considered as the leading country in microfinance sector in Asia and around the world The main objective of the microfinance industry in the three countries head to the social mission, poverty reduction, social-economic stability and community development Besides the similarities of microfinance systems in the three countries, there still have differences in each MFI system Author selected China because this country orientated to harmonious socialist, in line with Vietnam Government’s stretagies in the next stage Both Bangladesh and the Philippines are the two leading countries in microfinance so that their experiences help Vietnam’s microfinance industry 3.1.2 Legal framework and regulations related to microfinance activities in China, Bangladesh and the Philippines Understand the importance of the regulations on microfinance, policy makers attempted to learn, analyze and make more rational policy to develop microfinance in line with the conditions of each country In 2006, Bangladesh government established Microcredit Regulatory Authority (MRA) - special inspection and supervision agency for NGO MFIs Since then, the MRA is responsible for making policy regulations and guidelines to support sustainable development of this financial sector Bangladesh Bank encourages and promotes formal banking institutions toward the poors, low-income customers or links with NGO MFIs Similarly, CBRC and the PBC together with BSP and Commission Philippines Securities and Exchange (SEC) have regulated a series of policies aimed at promoting microfinance successfully The effective policies will create more business opportunities for new financial intermediaries as well as promote business innovation 3.2 The current situation of microfinance inclusion in China, Bangladesh and the Philippines 3.2.1 Overall of financial inclusion in China, Bangladesh and the Philippines 3.2.1.1 Demand of financial services According to CGAP (2012), those who are: (i) limited in accessing Footer Page 14 of 166 Header Page 15 of 166 13 financial/banking services or (ii) using unsuitable services could be devided into groups: (a) households in rual areas, (b) low-income people, and (c) small- and micro-sized enterprises Chart 3.1: Financial inclusion in China, Bangladesh and the Philippines (2014) Sourse: Universal financial acess (WB) (2014) Despite difficulties in acessing financial services, demand of this group is rather high As of December 2014, number of adults was more 1,141 million, whereas more 240 million people (above 21.1%) could not access to official financial services The ratio of adults in Banladesh who was unable to access to official financial services was much higher compared to Chinan, reach more 77 million (69.1%) Sinilarly, in the Philippines, number of adults was 66,3 million, whereas 45,5 million (68.7%) could not acceess to basic financial services 3.2.1.2 Supply for financial services MFIs in China always try their best to access and provide customers with suitable products and services Tabble 3.2: Basic data of provided financial service in China, Bangladesh and the Philippines (2010-2014) China The criteria Bank branches per 100,000 adults Bank branches per 1000 km2 CU&FC branches per 100,000 adults CU&FC branches per 1000 km2 MFI braches per 100.000 adults MFI braches Bangladesh The Philippines 10 11 12 13 14 10 11 12 13 14 10 11 12 13 14 n.a n.a 7.7 7.8 n.a 7.4 7.6 7.8 8.1 n.a 31.4 33.7 19.3 22.4 23.6 n.a n.a 9.1 9.2 9.59 59.0 61.8 64.7 67.5 70.4 15.7 16.2 17.2 18.3 19.5 n.a n.a 5.5 4.8 4.36 16.9 18.0 17.7 20.9 22.8 8.2 9.2 12.8 14.7 17.6 n.a n.a 6.5 5.7 5.18 13.9 15.3 14.6 18.9 20.6 4.5 3.5 5.5 6.9 8.4 n.a n.a n.a 0.7 0.79 3.3 6.3 7.4 12.7 26.3 4.0 6.0 n.a n.a n.a n.a n.a n.a n.a n.a 15.3 21.2 27.4 24.2 30.2 11.0 17.6 22.7 26.3 28.7 Footer Page 15 of 166 Header Page 16 of 166 per 1000 km2 Number of ATMs per 100.000 adults Number of ATMs per 1000 km2 14 24.7 30.2 37.5 46.7 55.0 2.0 3.6 4.8 6.3 9.2 15.4 17.2 19.3 22.4 23.6 28.8 35.5 44.2 55.3 65.4 16.2 19.1 46.9 52.0 79.3 31.4 35.7 41.0 48.7 52.6 Note: CU&FC branches: Credit Union and financial cooperative branches; ATM: Automated teller machine Source: IMF, Financial Access Survey ADBI (2014) 3.2.2 Situation of microfinance inclusion Microfinance inclusion in China, Banladesh and the Philippines was analysed based on two criteria: (i) width, and (ii) depth 3.2.2.1 China  Width of microfinance inclusion a Operation network Microfinancial services supply institution network established in China developed rapidly with target customers were mainly the poor, lowincome household This network in cities, provinces in China included banking sector and non-banking sector b Diversity in services MFIs in China provided a plenty of microfinance specific products and services for their customers to support their customers (individuals and enterprises) to business, alleviate poverty Examples of products and services are agriculture loans, individual loans, enterprise management services c Size of financial supply and number of MFIs The width of microfinance inclusion in terms of service value and number of customers in China was rather high in 2014 From 2010 to 2014, number of customers involved in microfinance activites steadily increased and reached 31,933,678 customers with outstanding loans of 5,524,526,294 USD at 2014-end Besides loan activities, MFIs also focused and on mobilized billion USD from residents Table 3.3: Loans, deposits of China’s microfinance institutions (20102014) Year 2010 2011 2012 2013 2014 a Number of borrower Number of loans 12,496,198 12,574,691 12,539,106 21,877,930 31,933,678 12,501,666 12,672,196 12,608,976 21,880,890 31,876,304 a: Loan portfolio (in USD) 1,124,657,820 1,219,745,027 2,808,759,744 4,156,806,700 5,524,526,294 Number of deposits Deposits (in USD) 183,428 687,641 1,013,484 1,763,836 2,637,836 262,420,158 1,003,128,480 1,684,600,610 2,234,382,837 3,874,031,020 From 2010 to 2013 (up 30th September); 2014 (up 31st December) Source: Mix Market (2010-2014) Footer Page 16 of 166 Header Page 17 of 166 15  Depth of microfinance inclusion a Target customers MFIs focussed mainly on women At 2014-end, the ratio of women compared to total customers borrowed from MFIs in China was 76.4% From 2010 to 2014, the ratio of woman customners increased from 53.48% to 76.4% b Size of loan and deposit Average outstanding loans and deposits is an indicator to evaluate the eco-social situation of each customer Mix and WB also use their criteria to evaluate target customers of financial institutions based on the value of average outstanding loans and deposits of each customer in relation to countries’ average GNI per capita The lower the indicator, the deeper the microfinance inclusion Based on data from Mix market, China in 2014, average outstanding loan and deposit per customer compared to CNI per capital were 18.76% and 4.12% respectively According to Mix market and WB: - Target market: low-income customer (average outstanding loan per customer/GNI per capital < 20%, and average outstanding loan per customer < 150 USD) - Target market: medium low-income customer (average outstanding loan per customer/GNI per capital ≥ 20% and ≤ 150 %) - Target market: high-income customer (average outstanding loan per customer/GNI per capital ≥ 150% and ≤ 250 %) - Target market: small enterprise customer (average outstanding loan per customer/GNI per capital > 250 %) c Borrower rentence rate MFIs in China tried their best to maitain number of borrowing customers The customer maintaining ratio doubled from 56.01% in 2010 to 107.53% in 2014 Thus, beside attracting new customers, MFIs in China also paid much attention to maitaining old customers d Rate of customer out of poverty Based on poverty standard with income of 1.9 USD/day according to 2011 PPP propsed by WB, number of the poor in China declined sharply According to annual report, number of customer rises out of poverty was 3,9 million whereas number of customer rises out of poverty as a result of using microfinance services was more than million (25%) in 2014-end Although total number of customer rises out of poverty in 2014 remained modest, the ratio of customer rises out of poverty as a result of using microfinance services increased by 5% compared to 2013 3.2.2.2 Bangladesh  Width of microfinance inclusion a Operation network Footer Page 17 of 166 Header Page 18 of 166 16 In 2014-end, big MFIs: Grameen Bank; BRAC; ASA and Buro Bangladesh dominated microfinance market in Bangladesh From 2010 to 2014, number of NGO increased by nearly 20%, number of branches also increased with the similar rate This was to conclude that Bangladesh government’s policy and strategy to promote number of MFIs and improve the quality of services proved to be efficient b Diversity in services Microfinance products and services for poor and very poor customers in Bangladesh were mainly agriculture loans and business loans c Size of financial supply and number of MFIs MFIs in Bangladesh expanded in terms of size and service value Although number of customers of MFIs in Bangladesh decline, the customer quality improved Table 3.4: Loans, deposits of Bangladesh’s microfinance institutions (20102014) Loan Number of Number of Number of Deposits Year portfolio borrower loans deposits (in USD) (in USD) 20,367,254 788,768,294 2010 21,318,062 20,924,544 2,600,803,564 19,808,785 880,207,560 2011 22,005,189 21,009,466 2,860,674,570 21,445,265 1,022,006,628 2012 23,767,596 22,359,724 3,779,047,764 22,534,748 1,027,077,114 2013 24,454,217 22,691,975 4,524,030,175 23,541,186 1,979,477,608 2014 26,045,758 25,512,322 5,782,158,276 Source: Mix market (2010-2014) From 2010 to 2014, number of loans increased by nearly 20% while outstanding loans incearsed sharply year by year MFIs in Bangladesh diversified their customers and aimed at real customers and loans to boost economic growth Besides, number of deposit accounts and deposit mobilization in MFIs also increased steadily  Depth of microfinance inclusion a Target customers At 2014-end, the ratio of women compared to total customers borrowed from MFIs in Bangladesh was 90.71% From 2010 to 2014, the ratio of woman customners remained above 90% b Size of loan and deposit According to Mix and WB standards, MFIs’ target customers in Bangladesh were poor and very poor people Based on data from Mix market in Bangladesh, in 2014, average outstanding loan and deposit per customer compared to CNI per capital were 21.99% and 7.79% respectively c Borrower rentence rate Footer Page 18 of 166 Header Page 19 of 166 17 Customer maintaining ratio of MFIs in Bangladesh always remained above 65% in the period of 2010-2014 This ratio rose from 67.39% in 2010 to above 85% in 2014-end To remain high customer maintaining ratio, Bangladesh government and MFIs offered policies that harmonized benefits from institutions and customers, created some accessible, userfriendly integrated service packages d Rate of customer out of poverty According to annual report, at 2014-end, number of customer benefited from efficiently using loans from MFIs to business and rose out of poverty was 6,8 million (account for 34.5% total number of people who rose out of poverty in Bangladesh) 3.2.2.3 The Philippines  Width of microfinance inclusion a Operation network MFIs in the Philippines becane a financial services supply network for target customers From 2010 to 2014, number of instutution decreased by 30% due to government policy to reduce the size, improve quality and efficient of MFIs b Diversity in services MFIs in the Philippines provided financial solutions, created jobs and develop community Products and services provided by these MFIs enabled customers to business via loans, deposits to avviliate poverty: microfinance loans, micro-agricultural loans, micro-housing loans, microdeposit mobilization c Size of financial supply and number of MFIs At 2014-end, total number of microfinance customers in the Philippines was above 20 million with outstanding loans of more billion USD, deposit mobilization was more billion USD After years, total mobilized deposit rose 35% from 1,543 million USD in 2010 Table 3.5: Loans, deposits of the Philippines’ microfinance institutions (2010- 2014) Yeara 2010 2011 2012 2013 2014 Number of borrower 13,083,323 15,224,677 17,671,617 19,281,398 20,315,313 Number of loans 3,432,429 3,594,240 3,004,667 2,588,397 3,876,992 Loan portfolio (in USD) 2,538,164,662 2,786,115,891 3,339,935,613 3,721,309,814 3,555,179,775 a: Number of deposits 3,900,260 4,429,552 3,700,592 3,487,482 4,732,766 From 2010 to 2013 (up 30th September); 2014 (up 31st December) Source: Mix Market (2010-2014)  Depth of microfinance inclusion a Target customers Footer Page 19 of 166 Deposits (in USD) 1,543,832,114 1,476,793,669 1,360,714,509 2,198,079,372 2,133,107,865 Header Page 20 of 166 18 From 2010 to 2014, the ratio of woman customners remained above 90% That is to say, womam customers in the Philippines received special attention from MFIs and got effectively access to financial products and services b Size of loan and deposit According to Mix and WB standards, MFIs’ target customers in the Philippines were also poor and very poor people Based on data from Mix market in the Philippines, in 2014, average outstanding loan and deposit per customer compared to CNI per capital were 5.36% and 3.06% respectively c Borrower rentence rate Similar to Bangladesh, customer maintaining ratio of MFIs in the Philippines always remained above 65% in the period of 2010-2014 Thanks to effective activities of MFIs, customer maintaining ratio in the Philippines rose to nearly 75% d Rate of customer out of poverty According to BSP report, at 2014-end, number of customers who used loans from MFIs effectively was 7,9 million compared to 15,8 million poor people (based on WB poverty standard) in the Philippines (accounts for abover 40%) Thus, the Philippines government’s efforts to alleviate poverty had positive signals 3.3 Experiences on microfinance inclusion in China, Bangladesh and the Philippines 3.3.1 Experiences of success 3.3.1.1 China Necessary actions and detail strategies improved microfinance inclusion in China should be regarded as useful experiences in enhancing the financial inclusion ability: (i) Encourage capital market involve in microfinance activities, (ii) upgrade traditional organization model, (iii) develop rural cooperation financial sector based on market efficiency, (iv) encourage process and product improvement for better accessment, (v) establish special large-sized funds, (vi) cooperate between banking activities and microfinance activities, (vii) promote microinsurrance service, and (viii) improve training ability 3.3.1.2 Bangladesh Bangladesh government promulgated microfinance development strategy for each period to improve microfinance activites between MFIs and low-income people, SMEs, such as: (i) use microcredit in poverty alleviation, (ii) hand over authority to women, (iii) “export” microfinance inclusion model of MFIs in Banladesh 3.3.1.3 The Philippines Government and MFIs in the Philippines brought microfinance Footer Page 20 of 166 Header Page 21 of 166 19 products and services to customer via modern information infrastructure, such as: loan settlement, loan disbursement, deposit mibilization Moreover, some MFIs in the Philippines equiped online or sofware tools which were similar and user-friendly with the aim of: (i) attract new customers, (ii) improve economic efficiency for MFIs, and (iii) better services for old customers 3.3.2 Experiences of failures and causes 3.3.2.1 China Microfinance activity in China was in developing process, thus it cannot avoid potential risks Risk management in MFIs were regarded as unsuccessful issue in China in order to improve microfinance inclusion as well as maintain sustainable operation of MFIs Main causes of potential risks in microfinance in China were: (i) lack of fund and distribution channel, (ii) interest rate and duration for microcredit were not flexible, (iii) credit ranking system was not believable enough, (iv) avalization mechanism for microfinance activity was not strong enough, (v) lack of monitoring activity for agricultural microcredit 3.3.2.2 Bangladesh The lack of loan controlling system in MFIs resulted in overlap loans to customers which affected deposit mobilization and loans from MFTs Main causes for overlaping loans in MFIs in Bangladesh were: (i) under-control operation environment and increasing demand in microcredit market, (ii) loan supply from MFIs surpassed real demand of customers, and (iii) microfinance was regarded as action plan for poverty avelliation In summary, overlaping under-control loans in some MFIs in some areas in Bangladesh reduced the microfinance inclusion for a number of low-income people 3.3.2.3 The Philippines Main obstacle in improving microfinance activity in the Philippines was political intervention and lack of customer credit information Main causes of microfinance inclusion in the Philippines deterioration were: (i) politicens in the Philippines thought the microfinance inclusion potential might benefit them in politic activities, (ii) the lack or incomplete of customer credit information might result in overlap loans like Bangladesh In general, politic intervention and the lack of correct credit infornation were unsuccessful lessions for improving microfinance inclusion for the poor in the Philippines rural areas Footer Page 21 of 166 Header Page 22 of 166 20 CHAPTER IV: MICROFINANCE INCLUSION IN VIETNAM AND SOLUTIONS FOR ENHANCING MICROFINACE INCLUSION ON THE BASIS OF LESSONS FROM CHINA, BANGLADESH AND THE PHILIPPINES 4.1 Microfinance inclusion in Vietnam 4.1.1 Overeview of microfinance in Vietnam In Vietnam, there are three sectors to provide microfinance: (i) formal: commercial banks, VBSP, Cooperative Bank, official microfinance institutions, (ii) semi-formal: semi-formal microfinance institutions, microfinance programs in Vietnam Women's Union at district/province level, and (iii) informal: relativies, friends, shopowerners and merchants Poverty avelliation rate in Vietnam tends to slow down Total population of Vietnam is around 93 million, whereas 70% population is living in the countryside, 15% population is ethnic minority with limited ability to access to financial services Besides, operation network of credit institutions is not large enough to provide services to the poor in rural areas People’s awareness about benefit of modern financial products and services is limited 4.1.2 Legal framework and regulation on microfinance activity Current legal framework with specific features related to microfinance set a background for sustainable microfinance development in Vietnam, established a fair business environment for microfinance activity Legal framwork for such issue is divided into sectors: (i) formal sector, and (ii) semi-formal sector 4.1.3 Current microfinance inclusion in Vietnam 4.1.3.1 Width of microfinance inclusion a Operation network Microfinance service supplying network in Vietnam is mostly based on financial institution VBSP is the largest credit suplier for poor and lowincome customers People’s credit funds were upgraded to Cooperative Bank in 2013 with the aim of supporting credit funds In late 2014, three official institutions (TYM, M7MFI Thanh Hoa MFI) were officially transformed from semi-formal microfinance instituties b Diversity in services Microfinance institutions in Vietnam supplied a plenty of products and services to customer to support business activities and aveliate poverty Main products and services are: (i) financial products and services: microcredit, deposit, payment, microinsurrance, and (ii) non-financial products and services c Size of financial supply and number of MFIs Number of customers, size and of services supplied by microfinance actitity in Vietnam showed the breath of microfinance inclusion in finacnial Footer Page 22 of 166 Header Page 23 of 166 21 sector Along with global and regional trends, microfinance activity in Vietnam is developing gradually Table 4.1: Loans, deposits of Vietnam microfinance institutions (2010-2014) Number of Number Loan portfolio Number of Deposits Yeara borrower of loans (in USD) deposits (in USD) 2010 2011 2012 2013 2014 637,562 974,472 1,284,374 1,427,361 1,534,774 532,370 863,726 1,139,837 1,239,873 1,423,183 113,374,387 182,371,873 276,373,373 305,736,836 359,799,780 436,937 737,837 831,371 1,139,381 1,213,381 109,383,371 121,373,837 169,373,373 217,383,372 283,993,885 a : Excluding VBSP and Coopbank Source: Mix market (2010-2014) 4.1.3.2 Depth of microfinance inclusion a Target customers In Vietnam, woman is target customer of MFIs The ratio of woman customners accounts for 86.94% compared to total customers in Vietnam In some institution (TYM as an example) all customers are women b Size of loan and deposit According to Mix and WB standards, MFIs’ target customers in the Vietnam were also low- and very low-income people Some MFIs started to focus on low-medium-income customers c Borrower rentence rate MFIs in Vietnam always maintain this ratio Customer maintaining ratio of MFIs rose from above 65% in 2010 to 85% in 2014 According to VMFWG, in some official MFIs, this ratio was much higher, such as 115% for TYM, 86% for M7MFI, 100% for Thanh Hoa MFI High customer maintaining ratio is the result of specific strategy in customer relation, legal support for customer who used products of MFIs d Rate of customer out of poverty In recent years, Vietnam was paid much attention for its achievements in poverty avelliation and living standard improvement According to WB poverty standard, number of the poor in Vietnam declined form 4.2 million in 2010 to 2.8 million in 2014 Number of customers who rose out of povery thanks to loans from MFIs was 1.1 million (nearly 40% total number of people who who rose out of povery in Vietnam) 4.1.4 Analysis of microfinane inclusion in Vientam (econometric model) Model to analyse the relationship between microfinance inclusion and self sustainability of MFI developed by Christen et al (1995) and Thys (2000) based on ordinary less square Then, the model was tested and confirmed by Olivares Palanco (2005) that the sustainability affect microfinance inclusion of MFIs and other factors (type of institution, operation time, width of inclusion, customer gender, credit providing method) also had impacts on microfinance inclusion Footer Page 23 of 166 Header Page 24 of 166 22 Table 4.2: Descriptive statistics N.of observation Mean Median Maximum Minimum Std.Dev OSS 31 132.8065 126.0000 200.0000 70.00000 29.17010 Age 31 0.877419 0.700000 2.300000 0.200000 0.671173 Borrower 31 2414.154 43.21000 68630.42 1.300000 12299.50 Average 31 0.555806 0.250000 7.870000 0.080000 1.375899 Growth 31 31.41742 26.14000 126.4100 -6.430000 30.91151 Operation 31 13.20645 12.40000 29.60000 2.500000 6.004439 Deposit 31 0.262258 0.170000 0.980000 0.000000 0.254280 PAR 31 0.581935 0.020000 5.680000 0.000000 1.197721 Source: Author's research (2016) The following regression model will be used: Yi = β0 + β1X1i + β2X2i + β3X3i + β4X4i + β5X5i + β6X6i + β7X7i + Ɛ i (1) 4.1.5 Analysis of microfinance inclusion in Vietnam 4.1.5.1 Achievements Despite slow speed of developing in quantity of customers and new MFIs in Vietnam financial market, MFIs in Vietnam gained certain achievements: (i) the sustainable operation ratio was always remained at rather high number, (ii) MFIs always focused on initial target customers, (iii) MFIs activity was more and more professional, and (iv) customers were commited and loyal to MFIs, 4.1.5.2 Main causes of difficulties Microfinance inclusion of custiomer still encouters some difficulties: (i) unclear development strategy of some MFIs in Vietnam, (ii) limited in products and services with low quality, (iii) limited human resource, and (iv) inadequate policy and legal framework 4.2 Compare microfinance inclusion of Vietnam with China, Bangladesh and the Philippines China, Bangladesh and the Philippines are three countries with relatively vibrant microfinance operations in the Asia - Pacific With specific characteristics, each country has its strengths and weaknesses MFIs in China, Bangladesh and the Philippines, with long historical experiences, attracted a large number of customers, enabled low-income customers to use microfinance as effective methods to improve their lives, did business activities and rose out of poverty Besides, in order to compare the microfinance inclusion in the four countries, index average loan per customer as well as the average savings balance per customer should be used These two indicators measure the depth of micrifinance inclusion Footer Page 24 of 166 Header Page 25 of 166 a 23 : Included in VBSP Coopbank Source: Mix market (2010-2014), CMFWG (2010-2014) Chart 4.1: The number of customers using microfinance products and service in China, Bangladesh, the Philippines and Vietnama (2010-2014) 4.3 Objective, view and necessity to develop microfinance in Vietnam Main objectives of microfinance in Vietnam are: (i) establish a suitable legal framework for microfinance operations, (ii) improve policy-making capacity of authorities, (iii) improve operation capacity of MFIs, (iv) communicate and improve common knowledge about the role of microfinance, and (v) recommend specific solutions which enable sustainable microfinance operation 4.4 Orientation to improve microfinance inclusion in Vietnam With the purpose of improving the accessibility, maintaining the sustainability of microfinance systems, Vietnam Government also proposed a development roadmap with points: (i) establish suitable legal environment, in accordance with particularities of microfinance operations, (ii) improve policymaking capacity of management agencies through microfinance staff and nexpert training activity, (iii) improve capacity of MFIsin terms of assistance in personnel training, preferred fund seeking; implement training programs to support governance capacity building to certify depth- and breadthsustainable development, (iv) communicate and improve common knowledge about the role and impacts of microfinance, enhance the popularise the experiences and effective models microfinance operations and (v) implement other supporting measures such as facilitating the funding for microfinance operations, forming training centers in microfinance, supporting the formation of microfinance Association Five development points are expressed through three issues: microfinance sector, microfinance institutions and clients of MFIs 4.5 Solutions to microfinance inclusion in Vietnam 4.5.1 For management agencies: (i) Establish effective regulatory framework to develop the microfinance sector in a sustainable way, open more new Footer Page 25 of 166 Header Page 26 of 166 24 approaches, and compliance-driven market, (ii) coordinate with local governments, foundations and social and political organizations to develop sustainable microfinance activities, (iii) improve the awareness of the society about the role and effectiveness of microfinance operations, (iv) strengthen the inspection and supervision oprations upon microfinance operations, (v) implement activities in comply with microfinance system development strategy framework in Vietnam and (vi) accelerate the transformation of semiofficial microfinance institutions to formal microfinance institutions 4.5.2 For MFIs: (i) improve the governance and administration of microfinance institutions, (ii) improving the quality of human resources, (iii) enhance information transparency of products and services to protect the legitimate interests of customers, (iv) diversify the types of services, improve the quality of products supplied to customers, (v) improve linkage between microfinance institutions and other financial institutions, (vi) Provide supporting financial products and services as the non-financial services and (vii) perform assessments of social performance within MFIs 4.5.3 For donors and investors: MFIs activities in Vietnam still needs the support of donors and investors for long-term development, including support for training costs to improve corporate governance, loans incentives and support for human resources development, upgrade software for microfinance operations, research and develop target market 4.5.4 For microfinance development supporting institutions: develop a of microfinance institutions network and link Vietnam MFIs Vietnam with international microfinance network It is crucial for the sustainable development of the microfinance system in Vietnam 4.6 Recommendations The author raises four recommendations: (i) for the State Bank of Vietnam (the management agency with direct supervision), (ii) for related agiencies (Ministry of Finance, VMFWG, Microfinance Center…) (iii) MFIs and (iv) to customers of MFIs CONCLUSION Assessing the real situation of microfinance inclusion accurately in China, Bangladesh and the Philippines provides us an overview of the development, action plan and ability to access customers, effectiveness of fund usage in MFIs in the three countries Microfinance in China, Bangladesh and the Philippines has overall similarities and complementary specific differences for objective assessment as well as practical experiences to develop the microfinance operation in Vietnam The international microfinance experiences are multi-dimensional picture to develop microfinance operations in Vietnam with both economic and social impacts In addition, the author dedicates somes limitations of the thesis and subsequent research in the future Footer Page 26 of 166 Header Page 27 of 166 THE WORKS HAVE BEEN PUBLISHED RELATED TO THE THESIS I Published articles in scientific journals Dang Thu Thuy, Bubble the listed banks according to income statement, Banking Review No 22, November 2012, page 34-47 Dang Thu Thuy, Microfinance education for the poor – experiences from other countries and lesson for Vietnam, Banking Science & Training Review No 145, June 2014, page 63-68 Dang Thu Thuy, Microfinance customer protection in Vietnam, Journal of Vietnam Academy of Social Sciences No 11 (84), November 2014, page 34-42 Dang Thu Thuy, Financial consumer protection regulations in Vietnam, Banking Science & Training Review No 151, December 2014, page 17-24 Dang Thu Thuy, China’s experiences in enhancing financial accessibility in rural areas, Chinese Studies Review No (161), January 2015, page 62-73 Dang Thu Thuy – Nguyen Thi Hai Yen, Operational self-sustainability and outreach of microfinance institutions in Hanoi city, Banking Science & Training Review No 160, September 2015, page 57-61 Dang Thu Thuy, Situation of microfinance system in the Philippines, Southeast Asian Studies No 12 (189), December 2015, page 40-47 Dang Thu Thuy, Situation of microfinance system in Bangladesh, Vietnam Review for Indian and Asian Studies No 12 (37), December 2015, page 44-54 Dang Thu Thuy, Shadow banking system in China – potential risk, Chinese Studies Review No (176), April 2016, page 37-44 10 Dang Thu Thuy, Financial inclusion through mobile banking services in Bangladesh, Vietnam Review for Indian and Asian Studies No 5(42), May 2016, page 33-39 11 Dang Thu Thuy, Financial inclusion in the Philippines, Southeast Asian Studies No 7(196), July 2016, page 43-47 12 Dang Thu Thuy – Nguyen Thu Ha, Microinsurance – social benefit towards the poors – Experiences of the Philippines and implication for Vietnam, Banking Science & Training Review No 171, August 2016, page 70-76 13 Dang Thu Thuy, Legal framework for the development of green banking, international experiences and suggestions for Vietnam, Chinese Studies Review No (180), August 2016, page 71-78 14 Dang Thu Thuy, The operation of People’s Credit Fund system – the support boosting Vietnam rural economy, Economic Studies No 11 (462), November 2016, page 34-39 15 Dang Thu Thuy, Vietnam’s current policy to attract remittance, Journal of Vietnam Academy of Social Sciences No 12 (109), December 2016, page 26-30 Footer Page 27 of 166 Header Page 28 of 166 16 Dang Thu Thuy, China’s microfinance experiences, Chinese Studies Review No 12 (184), December 2016, page 60-72 17 Dang Thu Thuy, Bangladesh’ microfinance experiences, Vietnam Review for Indian and Asian Studies No 1(50), January 2017, page 22-29 18 Dang Thu Thuy, Assessment of microfinance institutions’ outreach in Vietnam through the relationship between the outreach and sustainability, Banking Science & Training Review No 176+177, January & February 2017, page 52-58 II Published articles in scientific conferences proceedings Dang Thu Thuy, Digital financial services in China and implication for Vietnam, International Conference “Developing financial markets in international integration context” dated October 28th, 2016, International Conference Proceedings volume 1, Dantri Publishing House, page 678-685 III Published books and references Translating document (from English to Vietnamese), “Microfinance Handbook – An Institutional and Financial Perspective” accepted at Banking Academy in October 2016 III Research project Foreign Trade University’s research project (2015), “Sustainable development for microfinance institutions in Hanoi city”, Grade: Very good The project “Transformation of economic development form in China after 18th National Congress of the Communist Party of China”, Dr Hoang The Anh (Institute of Chinese Studies) – project leader, under Program of ministry level “China’s the strategic adjustment and new development form, impact on the world, regional and Vietnam", Grade: good Footer Page 28 of 166 ... and service in China, Bangladesh, the Philippines and Vietnama (2010-2014) 4.3 Objective, view and necessity to develop microfinance in Vietnam Main objectives of microfinance in Vietnam are:... large-sized funds, (vi) cooperate between banking activities and microfinance activities, (vii) promote microinsurrance service, and (viii) improve training ability 3.3.1.2 Bangladesh Bangladesh government... i (1) 4.1.5 Analysis of microfinance inclusion in Vietnam 4.1.5.1 Achievements Despite slow speed of developing in quantity of customers and new MFIs in Vietnam financial market, MFIs in Vietnam