Evaluation of the credit activities for poor households in the vietnam bank for social policies ha nam branch

THE EXECUTIVE MASTER OF BUSINESS ADMINISTRATION Evaluation of the credit activities for poor households in the Vietnam Bank for Social Policies – Ha Nam Branch Graduate Student: Luong Thi Phuong Supervisor 1: Dr Mai Anh Supervisor 2: Assistant Professor Chih-Hsu Wang Ha Noi, 2018 Lunghwa University of Science and Technology Approval Certificate of Master's Degree Examination Board This is to certify that the Master‟s Degree Examinations Board has approved the thesis Evaluation of the credit activities for poor households in the Vietnam Bank for Social Policies – Ha Nam Branch published by Ms Luong Thi Phuong in the Master Program of Graduate School of Department of Business Administration Master‟s Degree Examination Board Board Members: Advisor Chair Date 2018/03/09 ABSTRACT Thesis Title: Evaluation of the credit activities for poor households in the Vietnam Bank for Social Policies – Ha Nam Branch Pages: 77 University：Lunghwa University of Science and Technology Graduate School：Department of Business and Management Date：December, 2016 Degree：Master Graduate Student：Luong Thi Phuong Advisor 1： Dr Mai Anh Advisor 1：Assistant Professor Chih-Hsu Wang Keywords: Credit activities, poverty eradication, preferential interest rates, Vietnam Bank for Social Policy The study employs fundamental statistics methodology to investigate the status of lending procedure in Vietnam Bank for Social Policy (VBSP) – Ha Nam Branch for poor households, using the annual data collected from the conducted survey, bank income statement and credit performance reports By reviewing the results from previous papers as well as consulting the experts’ perspectives, this research divides the collected data into different categories including the lending procedure criteria, the content of loans, the results of the loan usage and the impacts on the living of the poor households The results from the study implementation demonstrate the achievement in lending activities of VBSP Ha Nam over the observed periods as well as the limitations of the credit procedure Based on the thesis findings, the author has proposed some of the feasible solutions to improve the quantity together with the quality of the credit aiming at poverty eradication in VBSP Ha Nam i ACKNOWLEDGEMENTS During the research and completion process of this thesis, I have received the great care and help of the whole team as well as the individuals in the office First of all, I would like to express my sincere thanks to Dr Mai Duc Anh, the teacher who has devotedly assisted me with knowledge and methods of working and editing during the implementation of this thesis I also would like to show my deep gratitude to my family, my friends, and those who frequently ask for encouragement during the preparation of this thesis Having obtained the results of this study, I have received comments from teachers in the International School of Vietnam National University, Hanoi with all the dedication of provided information from the entire departments, organizations and the poor households in Ha Nam branch I would like to acknowledge these help Despite many efforts, this thesis is inevitability of shortcomings Therefore, I expect to receive the valuable guidance and comments from all teachers and friends Thank you! Author Luong Thi Phuong ii TABLE OF CONTENTS ABSTRACT i ACKNOWLEDGEMENTS ii TABLE OF CONTENTS iii LIST OF TABLE vii LIST OF ABBREVIATIONS viii INTRODUCTION 1 The necessity of the thesis The objectives of the thesis 2.1.General objective 2.2.Specific objectives Subject and the scope of the thesis 3.1 Subject 3.2 Scope New contribution of the thesis 5.Thesis structure CHAPTER 1: OVERVIEW, LITERATURE REVIEW AND REALITY OF CREDIT PROVISION TO POOR HOUSEHOLDS IN VBSP 1.1 Overview of the examined topic 1.1.1 The reseach on credit provision to poor households in VBSP 1.1.2 Studies on credit assessment for poor households in other branches of VBSP 1.1.3 Results and gaps of the research 1.2 Fundamental literature review of credit and poverty 1.2.1 Fundamentals of credit iii 1.2.2 Fundamentals of poverty 1.3 Credit content for poor households 14 1.3.1 The role of credit for poor households 14 1.3.2 Characteristics of credit activities for poor households 15 1.3.3 Influencing factors 15 1.4 Indicators of credit performance for poor households 17 1.4.1 Method of lending 17 1.4.2 Objectives of the loan 23 1.4.3 Credit limit and the number of lending households .24 1.4.4 Interest rates on loans 26 1.4.5 Term of the loan 27 CHAPTER 2: METHODOLOGY 28 2.1 Research questions 28 2.2 Research Methodology 28 2.2.1 Documents collection method .28 2.2.2 Data processing and synthesis method 30 2.2.3 Document analysis method 30 2.2.5 Expert consultation method 31 2.3 Key indicators used in the study 31 CHAPTER 3: LENDING PROCEDURE FOR POOR HOUSEHOLDS IN VBSP HA NAM 33 3.1 Overview of Ha Nam Province 33 3.1.1 Geographical features 33 3.1.2 Weather climate 33 3.1.3 Land and the use of land .33 3.1.4 Socio-economic characteristics .34 3.2 Poverty status and characteristics of poor households 39 iv 3.2.1 Characteristics of the interviewed poor households .41 3.2.2 Status of the member and labor of the household 43 3.2.3 Land status of surveyed households 43 3.2.4 Properties status of interviewed poor households 43 3.2.5 Participation in social unions .44 3.2.6 Income levels of interviewed households 45 3.3 Analysis of credit activities of poor households in VBSP Ha Nam 45 3.3.1 Method of lending 45 3.3.2 Objectives of loans 48 3.3.3 The number of loans and lending households 50 3.3.4 Interest rates 51 3.3.5 Loan maturity date 52 3.3.6 Lending results for poor households of VBSP Ha Nam 53 3.3.7 Results from the use of loan 56 3.3.8 The necessary support combined with the VBSP lending policy to improve the effectiveness of using loan 59 3.4 Evaluation of credit activities for poor households VBSP Ha Nam 59 3.4.1 Assessment the suitability of the loan method .59 3.4.2 Assessment of the satisfaction levels of loan demands 60 3.4.3 Assessment of the level of response to loan capital .61 3.4.4 Assessment of the suitability of the loan terms 63 3.4.6 Assessment of the purpose of loan utilization 65 3.4.7 Evaluation of post-borrowing support 67 3.4.8 Assessment of the impact of credit on poor households in Ha Nam .68 3.4.9 General assessment of credit activities for poor households in VBSP Ha Nam 72 CHAPTER 4: SUGGESTED SOLUTIONS TO IMPROVE THE CREDIT QUALITY FOR POOR HOUSEHOLDS IN VBSP HA NAM 78 v 4.1 Strict control of loan procedures 78 4.2 Fulfill the demand of the borrowers 78 4.3 Raising loans to poor households 79 4.4 Maintain and stabilize preferential interest rates 80 4.5 Attach credit limit to loan purpose 80 4.6 Fulfillment of the lending demand timely for the business cycle of poor households 81 CONCLUSION 82 REFERENCES 84 vi LIST OF TABLE Table Land Use Statistics of Ha Nam Province Period 2014 – 2016 34 Table Population and labor changes in Ha Nam province 2014 – 2016 35 Table Producing results of Ha Nam province from 2014-2016 37 Table Proportion of poor households in Ha Nam province 40 Table General information on interviewed poor households 42 Table Number of households lending for money in 2014-2016 51 Table Loan terms under different programs and purposes 52 Table Some key indicators of credit activities in VBSP Ha Nam during 2012-2016 53 Table Authorized loans through socio-political organizations at VBSP Ha Nam on 31/12/2016 56 Table 10 Debt collection turnover of poor household loans in VBSP Ha Nam during 2012-2016 57 Table 11 Overdue loans of poor households at VBS Ha Nam Province for the period 2012 - 2016 58 Table 12 Poor household assessment of loan procedures 60 Table 13 Loan levels of interviewed poor households with loans from VBSP 62 Table 14 Loan terms and assessment of poor households 64 Table 15 Interest rates and assessments of poor households on preferential loan rates 65 Table 16 Use of loans by poor households 66 Table 17 Income levels and income changes of poor households borrowing money 71 Table 18 Indicators reflect the access and impact of credit to poor households in Ha Nam 76 vii LIST OF ABBREVIATIONS VBSP Vietnam Bank for Social Policy SLG Savings and Lending Group SME Small and Medium Enterprise LISWD Labor-Invalids and Social Welfare Department viii disparities, and households with higher levels of borrowing had higher income disparities 77 CHAPTER 4: SUGGESTED SOLUTIONS TO IMPROVE THE CREDIT QUALITY FOR POOR HOUSEHOLDS IN VBSP HA NAM 4.1 Strict control of loan procedures Because VBSP's lending is preferential to mainstream socio-political purposes, there are many benefits that borrowers will receive, such as non-collateral, more preferential interest rates than the commercial rate, the loan period is stable, the procedure of simple lending process so that many negative phenomena could arise such as wrong borrowing subjects In particular, households that need loans are not allowed to borrow, and households who not need loans or are not eligible for loans are entitled to loans Therefore, in order to ensure the benefits of poor households in line with the Party's and State's policies and to ensure the sustainable operation of VBSP, it is necessary to carefully supervise the procedures for lending and household should be appraised before applying to the loan - For the review, it is necessary to ensure publicity, fair judgment There should be regulations set out in the following order: poor households according to poverty standards; the household has not been granted a loan; households actually have demand for loans used for production and business purposes; the household must be able to repay the loan Reviews need to be monitored by the authorities - It is necessary to strictly evaluate the poor households when they are considered for a loan to avoid treating with indulgence Credit officers need to work closely with local officials, association officials, should not trust, delegate fully to the social organizations 4.2 Fulfill the demand of the borrowers The level of meeting the demand for poor households with loans is still very low due to the fact that lending is not the right target, while a large percentage of poor households have not had access to VBSP's credit This is mainly due to the fact that the bank extended its lending to both near 78 poor households as they concern about the possibility of poor, single, unprocessed poor households with poor working capacity It is also owing to the lack of transparency in the implementation process, the reviewers did not provide the information of the local ministries To both ensure the benefits of poor households while ensuring the bank's operations and achieving its objectives, in the context of poverty reduction, it is necessary to further classify poor households in order to have suitable credit measures (interest rate, loan amount, loan term, mode of lending; support; techniques of doing business, information for each lending subject It is possible to classify poor households into: + Very poor household + Poor households close to the poverty line + Near poor households 4.3 Raising loans to poor households Loan size is a very important credit factor for the poor According to the results of the survey and analysis of the loan situation and income of the poor, the credit has contributed positively to investment, job creation and income generation Currently, the level of loans to poor households is relatively low, although the maximum lending rate has doubled compared to 2012 (from 25 million in 2012 to 50 million in 2016), but due to the number of households borrowing So the average loan size per household is only about 35 million With such loans, many households lack capital In order to meet the capital needs, many households have to borrow more from other organizations and individuals, but the borrowing from these organizations is quite difficult for the household, if poor households with low ability will not be able to or not dare to borrow more From the fact that the impact of credit capital has had a positive impact on the incomes of poor households, we strongly suggest some solutions to increase the loan amount for poor households Maximum loan size for households is 50 million VND/household To so, the following specific solutions are required:  Diversification and strengthening of loan capital: 79 + Government needs to regularly supplement capital for poverty reduction + In addition to funding from the clean water and rural environmental sanitation program, VBSP should further strengthen the mobilization of savings among the people  Need to allocate appropriate loans to each locality, each household group (extreme poor, poor and near poor), for each purpose of lending (cultivation, livestock, handicraft, trading), avoid status:  Poor number of poor households, low demand for loans is high; local poor households are high and demand is low  Households who not need capital, have no demand, cannot afford to produce, are able to borrow, have the ability, need capital, they are not allowed to borrow  Households in need of capital are less likely to get more loans, leading to excessive capital Therefore, the lending should be concretized according to localities, groups of households, and purpose of borrowing, the level of new loans / households will be raised to meet the needs of each subject + Strengthen control of borrowers, minimize cheating, not subject to borrowing, combined with serious appraisal of borrowers and appropriate administrative measures 4.4 Maintain and stabilize preferential interest rates Lending rates are a sensitive factor in accessing credit and at the same time affecting income of poor households At present, the commercial interest rate is very high and increasing quickly, affecting the mobilization of the Bank Raising interest rates will not promote the role of preferential loans, creating more conditions for other borrowers Therefore, for the purpose of hunger eradication and poverty alleviation, interest rates are still a powerful tool and it is necessary to maintain a stable interest rate 4.5 Attach credit limit to loan purpose Currently, the loan term of 36 months is suitable for poor households, but for some production and business lines, the above time limit is not reasonable such as planted trees, raising livestock in scale and production Therefore, it is necessary to 80 attach a loan term for each specific purpose to create favorable conditions for households to develop production 4.6 Fulfillment of the lending demand timely for the business cycle of poor households Being delayed or unpredictable, the business cycle often leads to the prospect of losing business opportunities, which can be used for the wrong purposes such as consumption, home equity, and unused land Therefore, in the process of lending, it is necessary to ensure timely and proper lending to households in the crop and business cycle To so, it should be closely linked with the government, extension organizations, professional agencies, science and technology 81 CONCLUSION Vietnam Bank of Social Policy is a state-owned, non-profit credit institution that works for the purpose of poverty eradication and socio-economic development For rapid and sustainable poverty reduction, it is important to improve the effectiveness of VBSP poor credit performance In recent years, the social bank of Phu Ninh district has always followed closely the guidelines and orientations of the District Party Committee and District People's Committee on socio-economic development, implementation of the program targeting poverty reduction Poverty alleviation is a central task that is at the forefront of all the policies and policies of the State and Government Through more than 10 years of implementation of the poverty reduction strategy, Vietnam in general, Phu Tho province in particular, Phu Ninh has achieved great achievements in poverty reduction The credit factor plays an important role in the poverty reduction strategy, where the work of VBSP is critical, which has had a positive impact on job creation and income generation which is confirmed both internationally and in Vietnam In addition, increasing credit activities for poor households to get loans at preferential interest rates is a way to help them develop household economy, increase incomes and step by step escape from poverty Besides the achievement of poor households, there are still many difficulties that need to be overcome in order to further improve the efficiency of this special credit This is not the task of the VBSP but it is the responsibility of the whole people, the local government and firstly the poor Credit activities for poor households and other policy beneficiaries at VBSP Ha Nam have achieved good results in meeting the poor households' loan requirements, contributing to improving the living standards of poor households in Ha Nam province Therefore, finding solutions for poor households is critical and important not only for VBSP Ha Nam but also for the whole VBSP system The thesis “Evaluation of the credit policy for poor households in the Vietnam Bank for Social Policies – Ha Nam Branch” acquiring appropriate research methods has completed the following main contents: 82 Firstly, after systematizing basic theoretical issues on poverty, credit for poor households, the need for poverty eradication, indicators of credit efficiency, it is concern that the objective perspective is required in order to provide more preferential credit to poor households Secondly, to analyze and evaluate the performance of loans for poor households at VBSP Ha Nam and at the same time point out the shortcomings and causes of poor households in Ha Nam Thirdly, based on the operational objectives of the Social Policy Bank of Ha Nam province, the dissertation proposes some solutions and recommendations to the State, the headquarter of Vietnamese Bank Social Policy, to the Party Committees at all levels in Ha Nam province in order to contribute to the improvement of preferential credit for poor households; Despite a lot of efforts, due to time constraints and limited resources, the thesis is inevitability of shortcomings so that I am looking forward to the comments of scientists and people who are interested in the topic, in order for improving the content of this research 83 REFERENCES Report on results of activities of VBSP Ha Nam province from 2012 - 2016 Nguyen Thanh Cai (2000), Solutions to Improve the Effectiveness of State-funded Credit Investment in Thua Thien Hue Province, Scientific Thesis, Vietnam State Treasury in Thua Thien Hue Province Le Thuc Duc, Nguyen Thang, Hoang Thi Thanh Huong (2005), "Factors Behind the Poverty Rate of Provinces, Where Factors Really Are Important," Journal of Economic Research, (Vol.322 ) Kim Thi Dung (2005), "Rural Agricultural Credit: Current Status and Proposals", Journal of Economic Research, (No 330) Nguyen Thi Hang (2002), Poverty reduction in our country today, National Political Publishing House, Hanoi Nguyen Van Lam (2004), "Poverty and Development with the Fundamentals of Capital for the Poor," Journal of Economic Research, (No 309) Social Policy Bank (2016), 10-year summary report of Social Policy Bank of Ha Nam Ha Nam Department of Labor, War Invalids and Social Affairs (2016), Report on the results of the survey on poor households in the period 2012-2016, Ha Nam province Trang Tran (2011), Poverty eradication in Tan Son district, Phu Tho 10 People's Committee (2016), Analysis of population and population dynamics in 2012-2016, Ha Nam province 11 People's Committee (2016), Report on implementation of the national target program on hunger elimination, poverty reduction and employment, 2012-2016, Ha Nam province 12 People's Committee (2016), Poverty reduction strategy for the period 2012-2016, Ha Nam province 13 The Economic and Social Commission for Asia and the Pacific (ESCAP) in 1993 introduced the definition: "Poverty is a situation in which a part of the population does not enjoy and satisfy the needs of the people Society admits depending on the level of 84 socio-economic development and local customs and habits (Ministry of Labor-Invalids and Social Welfare (1994), "Conference Report on Poverty Reduction in the AsiaPacific Region, Bangkok, Vietnam") 14 At the international summit on micro credit, "Poverty is an urgent need of the times" and has introduced the general concept of poverty as follows: Poverty is a living standard Below the poverty line of each country from the bottom up (Ministry of LaborInvalids and Social Welfare (1994), "Conference Report on Poverty Reduction in the Asia-Pacific Region, Bangkok, Vietnam") 85 INTERVIEW FORM FOR POOR HOUSEHOLDS Date of interview: Place of interview: Interviewer: A General Information of the interviewee: 1, Full name: ………………… Age: …, Gender: Male: Female: 2, Permanent address: ………………………………………………… 3, Educational level: …………………… B General Information of the household Place of settlement: Commune:……………………District Main source of income: Breeding: Farming: Trading: Others: Total number of members: …………………person Total number of labors: ……………… person Land area in 2016 Total area Criterion m2 Including Fixed Bid Rent a Housing and garden b Annual cultivation land c Fruit tree planting land d Water surfaced land e Others Total area Production materials No Assets Tick X Cattle Pig Ploughing tools Wagon Pesticide spray Plucking rice machine Others Total value 86 Quantity (piece) Value (1000 d) Consumption materials Quantity No Assets Tick X Colored television Black and white television Video player Radio Telephone Motorbike Bicycle Tea table Electric fan 10 Bed, closet 11 Rice cooker 12 Others (piece (1000 ) d) Total value A Investment and lending status Is your household a member of social union? Yes: No: If yes, which one? People’s credit fund: Veteran Union: Farmer Union: Youth Union: Woman Union: Other (specify): Are you lending money from the bank? Yes: No: If yes, which sources? 87 Value Credit institutes Yes/No If yes(no) then why? Note Vietnam Bank for Agriculture and Rural Development Vietnam Bank for Social Policy People’s Credit Fund Friends, Relatives Others Note: If lending money or not, then specify the reason, it can be: (1) Lending demand (5) Lending procedure (2) Lending term (6) Information of the loan (3) Lending conditions (7) Other (specify) (4) Interest rates Lending status of poor households Real Amount Sources Lending needed amount (1000d) (1000d) Vietnam Bank for Agriculture and Rural Development Vietnam Bank for Social Policy People’s Credit Fund Friends, Relatives Others Loan terms 88 Term (month) Interest rate (%/month) Under year: From to year: Over years: Lending objectives? Farming: Consuming: Breeding: Repaying debt: Developing small scale handcraft: Other (specify): Trading: Who is the manager/decider of the loan? Husband: Wife: Children: The current outstanding loan: (1000 d) Including: Overdue debt: (1000 d) Reasons for overdue debt: C Opinions of the household If you have loans at VBSP, then give your opinions about the way the loan is accessed: Loan level? Very low (1) Low (2) Normal (3) High (4) Very high (5) Low (2) Normal (3) High (4) Very high (5) Interest rate? Very low (1) Loan term? Very short (1) Short (2) Normal (3) Long (4) Very long (5) Issues when lending money? Very Criterion difficult Difficult Procedure, documents Building Relationship Lending conditions Bank officers attitude 89 Normal Favorable Very favorable After disbursement supports? Criterion Very Inefficient Normal Efficient inefficient Very efficient Loan management consultancy Business plan consultancy Interest rate Use loan supervision supports Others (specify) D Outcomes of lending money at VBSP Income status of your household during recent years? Criterion 2014 2015 2016 Note Total Income (1000 d) After lending, can you specify your opinion on the following criteria: Criterion Very Unchanged Change Change a lot unchanged Your income status Employment status Newly purchased material H Expectation of interviewed households Are you having demand in lending money in the near future? Yes: Expected lending amount: ……………….…… (1000 d) Objectives of the expected loan? Farming: Consuming: Breeding: Repaying debt: Developing small scale handcraft: Others (Specify): Trading: 90 No: Can you specify your current difficulties, especially when taking loan for producing and trading and propose some solution (if any)? Thank you very much! For your healthiness and happiness! 91 ... and Ha Nam province, I conduct the research ? ?Evaluation of the credit activities for poor households in the Vietnam Bank for Social Policies – Ha Nam Branch? ?? to be my main topic for master thesis... households in VBSP Ha Nam Therefore, the thesis "Evaluation of the credit policy for poor households in the Vietnam Bank for Social Policies – Ha Nam Branch" aims at filling the gaps 1.2 Fundamental... gateway to Hanoi Ha Nam is bordered by Hung Yen and Ha Tay province in the north, Binh Binh province in the east, Hoa Binh province in the west, Nam Dinh and Ninh Binh provinces in the south The topography