Poor household access to financial services in ben tre province

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY TRAN NGOC TRA GIANG POOR HOUSEHOLD ACCESS TO FINANCIAL SERVICES IN BEN TRE PROVINCE BACHELOR THESIS MAJOR: FINANCE - BANKING CODE: 7340201 SUPERVISOR TRAN NGUYEN MINH HAI, MSc HO CHI MINH CITY, 2018 ABSTRACT The bachelor thesis is conducted with topic ―Poor household access to financial services in Ben Tre province‖ There are two main sources of financing which poor household access for their financial needs, including formal and informal financial institutions It is likely to be not easy for poor household access to formal financial source due to strict requirement of documents and poor household‘ limitation of financial knowledge The large proportion of the poor clients has been only joining the SPBV's lending programs or microfinance institutions in Ben Tre province Besides, they also access to informal financial services due to its convenience and flexible requirements, ignoring the fact that these informal financial activities are not guaranteed legally Based on the theoretical and empirical studies which are stake holder theory and theory illustrating the crucial role access to finance are addressed, the qualitative approach was applied in this study in order to (i) summarize of successful and notable experiences in the access to financial services of the poor in the world and lessons for Vietnam; (ii) review and analyze current situation of poor household access to financial services in Ben Tre; and (iii) recommend for the access to financial services of the poor households in Ben Tre Along with five chapters, this study shows the successful and notable experiences in the access to financial services of the poor in the world and lessons for Vietnam This study also analyzes current situation of access to financial services of the poor households in Vietnam and especially in Ben Tre and recommends required conditions to the poor household access to financial services in Ben Tre i STATEMENT OF ORIGINAL AUTHORSHIP The work contained in this thesis has not been previously submitted for a degree at any other higher education institution To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made Ho Chi Minh City, December 26, 2018 Author Tran Ngoc Tra Giang ii ACKNOWLEDGEMENT After four years studying at Banking University of Ho Chi Minh City, I gained a lot of knowledge and experience from talented, devoted and enthusiastic lecturers, who always support for students and education development Firstly, I would like to express my sincere gratitude to my advisor Tran Nguyen Minh Hai, Msc., Lecturer of Faculty of Finance, Banking University Ho Chi Minh City for the continuous support of my study and related research, for her patience, motivation, and immense knowledge Her guidance helped me in all the time of research and writing of this thesis My sincere thanks also goes to Le Hoai An, Msc., Lecturer of Faculty of Banking, Banking University Ho Chi Minh City for his dedicated teaching and sharing of valuable knowledge, skills and experience while I have studied at this university Last but not the least, I would like to thank my parents for supporting me spiritually throughout writing this thesis and my life in general Due to time constraints and practical experience, it is inevitable that certain mistakes will be avoided I look forward to receiving your comments and suggestions to improve my topic Best regards! iii LIST OF ABBREVIATIONS ADB Asian Development Bank BANSEFI Bank for National Savings and Financial Services BARD Bangladesh Academy for Rural Development BRAC Bangladesh Rural Advancement Committee CCF The Central People‘s Credit Funds CCT Conditional cash transfer programs CEF Caixa Economica Federal CEP Capital Aid Fund for Employment of the Poor CGAP Consultative Group to Assist the Poor FGD Focus-Group Discussions FWED The Fund for Women in Economic Development GDP Gross Domestic Product GSO General Statistics Office of Vietnam IFAD The International Fund for Agricultural Development IFC International Finance Corporation InM Institute of Microfinance MF Microfinance MFI-NGOs Microfinance Institution-NonGovernment Organizations MFIs Microfinance Institutions MFPs MicroFinance Programs MOF Ministry of Finance PCFs People's Credit Funds PESTLE Political, Economic, Social, Technological, Legal and Environmental POS Point of Sale ROSCAs Rotating savings and credit associations iv SBV State Bank of Vietnam SHG Self Help Group UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme VBARD Vietnam Bank for Agriculture and Rural Development VBSP Vietnam Bank for Social Policies VWU Vietnam Women‘s Union v LIST OF FIGURES AND TABLES Table Name 1.1 4.1 4.2 4.3 Page Summary of interviewees‘ background People with an account at a formal financial institution by education (in %) in 2017 Key characteristics of Vietnam‘s major financial service providers for the poor in 2014 Experiences of key providers in Ben Tre Figure Name 39 58 43 Page 1.1 Research framework of bachelor thesis 2.1 Poverty headcount Ratio in 2008 ($1.25 Per Day Poverty Line) 11 2.2 The link between typical financial needs and financial services 15 for poor households 2.3 Access to financial services 17 3.1 Poverty Status (Percentage) 20 3.2 Evolution of number of bank correspondents according to type 29 of activities 4.1 Urban & rural population in 2017 34 4.2 Economies with relatively low account ownership 39 4.3 The percentage of poor households, near poor households in Ben 40 Tre by their living areas 4.4 Poor household‘s access to financial services in Ben Tre 42 4.5 Poor households‘ sources of credit and savings in Ben Tre 44 vi CONTENTS ABSTRACT i LIST OF ABBREVIATIONS iv LIST OF FIGURES AND TABLES vi CONTENTS vii CHAPTER INTRODUCTION 1.1 Motivation 1.2 Research objectives and questions 1.3 Research scope and subject 1.3.1 Research subject 1.3.2 Research scope 1.4 Methodology 1.5 Research framework 1.6 Research contributions 1.7 Research compositions CHAPTER LITERATURE REVIEWS 10 2.1 Poor household 10 2.1.1 Definitions 10 2.1.2 Characteristics 12 2.2 Financial services 13 2.2.1 Definitions 13 2.2.2 Functions 14 2.3 Poor household access to financial services 15 2.3.1 Definitions 15 2.3.2 Measurement 17 2.3.3 Impacts 18 vii 2.4 Theoretical and empirical studies 19 CHAPTER POOR HOUSEHOLD ACCESS TO FINANCIAL SERVICES: CASE STUDIES IN Bangladesh and brazil 24 3.1 Bangladesh 24 3.1.1 Poor household access to financial services 24 3.1.2 Measurement 25 3.1.3 Impacts 26 3.2 Brazil 28 3.2.1 Poor household access to financial services 28 3.2.2 Measurement 30 3.2.3 Impacts 31 3.3 Lessons from experiences of Bangladesh and Brazil 31 CHAPTER Poor household access to financial services in Ben Tre PROVINCE 34 4.1 An overview of poor household access to financial services in Ben Tre province 34 4.1.1 Background 34 4.1.2 Macro-conditions to the poor household access to financial services in Ben Tre province 35 4.2 Measurement 38 4.2.1 Demand side 38 4.2.2 Supply side 40 4.3 Impacts 41 CHAPTER RECOMMENDATIONS AND CONCLUTIONS 47 5.1 Recommendations 47 5.2 Conclusions 48 REFERENCES 50 viii APPENDIX .56 APPENDIX 56 APPENDIX 58 APPENDIX 61 APPENDIX 64 APPENDIX 65 APPENDIX 66 APPENDIX 67 APPENDIX 69 ix Vietnam‘s Farmers Association website: http://vnfu.vn/index.php/introduction/252organization-andoperation-of-vietnam-farmers%E2%80%99-union-vnfu.html VBARD (2017), Agribank annual report 2017 Retrieved from http://www.agribank.com.vn/92/828/library/annualreport.aspx World Bank, (2013) ―Developing Countries to Receive Over $410 Billion in Remittances in 2013, Says World Bank‖ Press release in October 2, 2013 Retrieved from http://www.worldbank.org/en/news/press-release/2013/10/02/developing-countriesremittances-2013-world-bank 55 APPENDICE APPENDIX Questionnaire The author adapted a questionnaire developed by the Consultative Group to Assist the Poor (CGAP) with inputs from the International Finance Corporation (IFC) which was used to conduct research in Hai Duong and Long An province in 2014 due to its adequate and necessary content QUESTIONAIRE Section One: Personal information including questions; 1) Age:  18 – 25  26 – 35  36 – 50  51-64 2) Education:  Illiterate  Primary school  Junior high school  High school 3) Gender:  Male  Female 4) Marital status:  Single  Married but no children  Married with young children  Married with financially children 5) Position:  Agricultural  Handicraft-related  Unemployment 6) Income: ……………………………………………………………………… Section two: The poor households’ general attitudes towards financial services including questions: 56 7) What types of formal financial services you use, and from which type of institution (e.g., banks, VBSP, MFIs, PCF)? How you use these products? 8) What positive experiences have you had with your credit institution/MFI? What negative experiences have you had with that credit institution/MFI? Section Three: The poor households’ financial decisions including questions; 9) What information did you try to get from the credit institution/MFI when you want to borrow or open an account? 10) How you obtain this information (from a promoter, friend, the bank itself, newspaper, etc.)? 11) Do you make your final decision by yourself or you consult other people? Who helps you make your decision and how Section Four: The poor households’ sources of financing and their experience including questions 12) Do you maintain more than one loan at a time? With different institutions? 13) What were the terms of the loan? (Investigate details about quotas, early/late payment penalties, interest, service charges, security or mandatory savings, etc.) 57 APPENDIX Characteristics of key financial services providers in Ben Tre province In terms of formal institutions, VBSP is the largest formal provider of microfinance in the country, with an estimated million clients, according to (ADB, 2013) Furthermore, targeted policy lending with subsidized interest rates remains substantial in the country‘s microfinance sector through the operation of government poverty-reduction funds under the VBSP Although it is a bank, VBSP acts as a ―social policy lender‖ and is highly subsidized by the government to cover both its operational and financial costs (ADB, 2010) Mass organizations play a major role in financial inclusion in Vietnam and they are a very specific feature of the country‘s political and socio-economic landscape Mass organizations involved in financial services include the Women‘s Union with 15 million members and the Vietnam Farmer‘s Union with 10 million members (IFC, 2014) VBSP largely operates in about 99% of all the communes in Vietnam (ADB, 2010) A major finding of this research is that mass organizations, especially the Women‘s Union, play significant roles in informing clients about financial services and helping them resolve financial problems VBARD is the biggest state-owned commercial bank working in the rural and agricultural areas of Vietnam VBARD has always been at the forefront of implementing the guidelines, policies and programs of the Party, the Government and the State Bank, especially with the pioneering credit VBARD has become an important "intermediate" between the government's preferential credit policy to many poor households and other policy beneficiaries across the country, giving people across the country the opportunity to access The State's official capital, which contributes to fundamentally changing the quality of life of people living in agriculture and rural areas It is a major provider of microfinance in Vietnam (16% of all microfinance clients) and the second biggest microfinance provider in terms of outstanding loans (17% of all microfinance clients) (ADB, 2010) PCFs are present in 10% of the country‘s communes and serve almost million clients with savings and credit products Created in 1993 under the auspices of the SBV, 58 PCFs expanded quickly between 1995 and 1998, but 89 out of 977 of them closed down in 2002 due to sub-standard quality (ADB, 2008) The Central People‘s Credit Funds (CCF) transformed itself into the Vietnam Cooperative Bank in July 2013 It is a cooperative institution largely owned by the SBV and was established by the SBV and PCFs as an apex institution to support, improve, and strengthen the operations of PCFs The Vietnam Cooperative Bank has significant outreach but fewer low-income clients compared to other providers mentioned above It provides market-priced loans to PCFs and non-PCF clients (including individuals and enterprises) and is funded by local and international sources MFIs and MFI-NGOs have evolved but still remain small players in the market They account for less than % of market share in terms of outstanding loans of all the providers The government is still mainly a big player in delivery of financial services for the poor rather than other sustainable financial business geared toward the poor The dominance of the state-owned banks with subsidized interest rates have adequately kept the number of non-state microfinance lending such as NGO - MFIs and private-sector entities at low level Furthermore, the existing non-state MFIs are almost heavily involved with mass organizations, the most important of which is the Vietnam Women‘s Union (VWU), that have a close relationship with the government and are also subject to interventions by local government officials In addition, while the poor clients demand a wide range of products and services, especially more flexible loan structures, smallbalance liquid savings products, and low-cost insurance services, most providers are providing typically types of credit with mandatory savings Products such as voluntary savings and microinsurance are largely not available Informal providers also play an important role in financial inclusion in Vietnam and are probably the largest suppliers of financial services to the poor households Result of interviewing the poor households in Ben Tre also confirmed that people use ROSCAs and moneylenders in a significant way and that people save informally 59 Table 4.2 Key characteristics of Vietnam’s major financial service providers for the poor in 2014 Institution number of Outstanding loans ($ Est no of depositors clients (million) million) (million) 5,350 6.9 VBARD 1.5 1,390 1.1 PCFs 1.1 1,294 1.3 VBSP Source: ADB (2013); VBSP (2014); VBARD (2014); SBV (2013) The government's poverty reduction program still has certain limitations, which have not fully improved the incomes of poor households Poverty reduction is mainly implemented by government‘s subsidy The business models are effective not much, the number of poor households borrowing money from banks not utilize the efficiency of using capital Land exploitation and labor are still limited The poor have not developed their abilities and skills due to their lack of experience and knowledge, which are not properly applied between human capital and practical conditions The Poverty Reduction activities of the Commune Committee are not strong enough and not create the synergy to bring into full play the resources of the State, the society and the poor themselves Hence, households escaping from poverty is not really sustainable and easy to fall back into poverty (in the period 2011-2015, 1,634 households fall back into poverty), according to Commune Committee Ben Tre A notable exception is VBSP, which has launched savings product for their clients The product raises awareness of poor households and enhances saving habits However, the scarce availability of appropriate savings services for poor households leads to the consequence is that most poor people save in informal ways—by hiding cash under the mattress, buying animals or jewelry that can be sold off later, joining village savings circles, or giving money to neighbors for safekeeping The problem with these methods of saving is that they are risky—cash can be stolen, animals can get sick, the neighbor can run off They can also be fairly illiquid It is impossible to cut off the leg of a cow and sell it if only a small amount of cash is needed 60 APPENDIX List of financial products providing to poor people in Ben Tre province  Credit and savings Banks play a critical role in providing financial services for the poor in rural area The market leader, VBSP, has 18 different and highly subsidized ―loan products‖ for the poor and other beneficiaries in difficult areas (See Appendix 6) This offering is broad as VBSP serves as a conduit to implement policies from different ministries involved in the governance of VBSP itself 17 out of 18 products are targeted at the poor Each product is governed by a respective decision issued by the prime minister that highlights key beneficiaries, interest rate level, maximum lending amount, and other conditions The two largest mass organizations (the Vietnam Women‘s Union and the Farmers‘ Association) act as agents for VBSP and carry out many steps of VBSP‘s credit procedures.4 Clients interviewed appreciate the low interest rates but complain about eligibility criteria Some clients also appreciate the balloon repayment option Plus, another giant bank targeting to the poor clients in Ben Tre is VBARD which has been implementing policy credit programs (See Appendix 6) VBARD has deployed to 100% of the communes in the country, with 2.6 million debt customers In addition, VBARD has provided more than 200 banking products and services, contributing actively to the non-cash payment market, enhancing access to banking services for the economy, especially in agriculture and rural areas In addition, few commercial banks also have joined in this segment by providing some flexible products for target customers Particularly, Sacombank's small business loan products have been For example, lending to disadvantaged students in compliance with Decision No.157/2007/QD-TTg dated September 27, 2007 promulgated by the Prime Minister; Lending to businessmen in disadvantageous areas in Mass organizations are responsible for the following steps: disseminating information; selecting beneficiaries; guiding credit procedures; supervising disbursement; checking the use of the loan; and collect the interest The three main steps are carried out by VBSP district staff: contract signing; loan disbursement; and principal payment collection Source: VBSP answer to ADB Microfinance PPTA7499, April 2011 61 available in most markets in Ben Tre and Chau Thanh, Giong Trom, Ba Tri, Binh Dai, Mo Cay Nam and Mo Cay Bac This product is attractive due to its suitability of the retail business and helps the small shopkeeper avoid being dependent on the informal source PCFs‘ financial products mainly consist of loans with collateral and voluntary savings, and some PCFs offer money transfer services They not offer joint-liability group lending and the principal repayment can be balloon or by installments, depending on the loan agreement PCFs tend to serve a broad range of clients but are less popular with the poor because of their collateral requirements, according to the focus group discussions The structure of lending is relatively suitable to economic development conditions in the field of operation The share of agricultural production was 49.6%, services 16.6%, consumption 19%, other sectors 14.5%, according to Ben Tre‘s government website There are funds operating in 26 communes, wards and townships of districts and city in Ben Tre MFIs‘ product range is limited and not always flexible One of the biggest MFIs in Ben Tre is CEP and FWED which have provided the following financial products such as two types of loans for generating basic income (weekly loan repayments and monthly loan repayments); housing loan products; and loan for vocational education and training Loans range from to 24 months The average loan size of CEP was 17 million VND in 2017, according to CEP‘s annual report CEP offers compulsory savings linked to loan products, and only one MFIs which is CEP offer deposit mobilization from the public, including voluntary savings Aside from regular and emergency credit and savings products, most MFIs provide livelihood training and training on health care and family care to their clients  Other financial services Some formal institutions are starting to provide much-needed micro-insurance services It should be noted that this report does not cover insurance products extensively Several insurance products such as motorbike insurance and life insurance are relevant for low income clients There are a few companies offering both life and non-life insurance products appropriate for the low-income market For example, Bao Viet Life 62 offers life, livestock, and health insurance Prudential also offers insurance for women and children under 18 World Bank (2007) Semiformal MFI like CEP has partnered with the German Agency for Technical Co-operation to provide health insurance products for 1,500 clients participating in CEP program in Binh Chanh District and District but not available in other provinces, according to CEP‘s annual report The government recently completed the draft of the Decision of the Prime Minister on the implementation of the agricultural insurance support policy for 2018-2020 Regarding agricultural insurance premiums: The poor households (poor households according to criteria of income and poor households according to multidimensional criteria), near poor households working on agricultural production are supported 90% of agricultural insurance premiums However, the beneficiaries of insurance are limited, for example, as for Ben Tre province, the flavor object based on this policy for agricultural production is black tiger prawn, white shrimp, according to Ministry of Finance Vietnam Several providers offer money transfer services to the low-income segment Vietnamese banks offer a wide range of financial services, including money transfers, ATM services, foreign currency exchange, credit and debit cards, etc Money transfer operators such as Western Union and Money Gram provide cash transfers, often in collaboration with banks, other financial institutions, and post offices VBSP offers money transfer services to customers VBARD is well positioned to offer payment and remittance services Branchless banking is still underdeveloped Vietnam is still a cash and there is limited information on its outreach to the low-income population 63 APPENDIX The multidimensional poverty index The Global Multidimensional Poverty Index (MPI) was developed in 2010 by the Oxford Poverty & Human Development Initiative (OPHI) and the United Nations Development Programme and uses different factors to determine poverty beyond incomebased lists It replaced the previous Human Poverty Index The global MPI is released annually by OPHI and the results published on its website The global Multidimensional Poverty Index (MPI) is an international measure of acute poverty covering over 100 developing countries It complements traditional income-based poverty measures by capturing the severe deprivations that each person faces at the same time with respect to education, health and living standards The MPI assesses poverty at the individual level If someone is deprived in a third or more of ten (weighted) indicators, the global index identifies them as ‗MPI poor‘, and the extent – or intensity – of their poverty is measured by the number of deprivations they are experiencing The MPI can be used to create a comprehensive picture of people living in poverty, and permits comparisons both across countries, regions and the world and within countries by ethnic group, urban/rural location, as well as other key household and community characteristics These characteristics make the MPI useful as an analytical tool to identify the most vulnerable people - the poorest among the poor, revealing poverty patterns within countries and over time, enabling policy makers to target resources and design policies more effectively Souce: Human development report office 64 APPENDIX Multidimensional poverty measurement criteria According to Article of Decision 59/2015 / QD-TTg, there are provisions on multidimensional poverty measurement criteria applied for the period 2016-2020 as follows: Income criteria a) Poor standard: VND 700,000 / person / month in rural areas and VND 900,000 / person / month in urban areas b) Near poor standard: VND 1,000,000 / person / month in rural areas and VND 1,300,000 / person / month in urban areas Criteria for the level of lack of basic social service access a) Basic social services (05 services): medical; education; House; clean water and sanitation; information; b) Indicators for measuring the extent of lack of basic social services (10 indicators): access to health services; Health Insurance; education level of adults; school attendance status of children; housing quality; housing area per capita; domestic water sources; hygienic latrines / latrines; use of telecommunications services; assets for access to information And according to Article of this Decision, the standard of poor households, near poor households and households with the average living standard applied for the period 20162020 is stipulated as follows: Poor households a) Rural area: is a household that meets one of the following two criteria: - Having an average per capita income of VND 700,000 or less per month; - Having an average per capita income of over VND 700,000 to VND 1,000,000 and a shortage of 03 indicators measuring the level of lack of access to basic social services b) Urban area: is a household that meets one of the following two criteria: - Having average income per capita / month from VND 900,000 or less; 65 - Having per capita income / month of over VND 900,000 to VND 1,300,000 and a shortage of 03 indicators measuring the level of lack of access to basic social services or more Near poor households a) Rural area: is a household with per capita income per month of over VND 700,000 and VND 1,000,000 and a shortage of less than 03 indicators measuring the level of lack of access to basic social services b) Urban area: is a household with per capita income per month of over VND 900,000 to VND 1,300,000 and a deficit of less than 03 indicators measuring the level of access to basic social services Households have an average living standard a) Rural area: is a household with per capita income per month of over VND 1,000,000 and VND 1,500,000 b) Urban area: is a household with average income per capita / month over VND 1,300,000 to VND 1,950,000 APPENDIX Map of the Mekong Delta region Giong Trom Source: GSO (2017) 66 APPENDIX Credit programs of vbsp & vbard Credit programs of VBSP Poor Households Program Near-poor Households Program Just Escaped from Poverty Program Disadvantaged Students Program Job Creation Program Program for Business and Production Households Living in Extremely Disadvantaged Areas and Communes Safe Water and Rural Sanitation Program Program for Migrant Workers Abroad for Limited Terms Housing for the Poor 10 Program for Extremely Disadvantaged Ethnic Minority households in Cuu Long river delta 11 Small and Medium Enterprises Program (KFW) 12 Forest Sector Development Program (WB) 13 Extremely Disadvantaged Ethnic Minority Households Program 14 Housing Support Program for the Poor 15 Credit Program for Disadvantaged Ethnic Households in Cuu Long River Delta 16 Small and Medium Enterprises Program (KFW) 17 Program for Poor Households to Build Houses against Storm and Flood 18 Loans for Supporting Production and Job Change in according to Decision No 755 QD-TTg of the Prime Minister 19 Other loan projects (funded by foreign organizations) 20 Other lending (entrusted fund from local governments) VBARD has been implementing a range of policy credit programs Lending under the Government's Decree No 55/2015 / ND-CP dated June 9, 2015 on credit policies for agricultural and rural development; 67 Loans to households and individuals through borrowing groups / associations; Loans under the policy of support to reduce losses in agriculture according to Decision No 63,65,68 / 2013 / QD-TTg dated 14/11/2013 of the Prime Minister; Providing preferential interest rate loans to poor districts under Resolution 30a / 2008 / NQ-CP of the Government and Circular 06/2009 / TT-NHNN; Loans for construction of new countryside; Loans for livestock and poultry; Loans to replant coffee; Loans under Decree 67 on a number of fisheries development policies; Preferential credit for "Clean Agriculture", in which loans for new rural construction 68 APPENDIX VBSP’s interest rate Borrowers Interest rate Poor households Poor households 6,6%/year Poor households in 64 poor districts under the Government's Resolution 30a 2008 3,3%/year Near poor households Near poor households 7,92%/year New households escape poverty New households escape poverty 8,25%/year Students Students from difficulty background 6,6%/year Source: VBSP website 69 ... with topic ? ?Poor household access to financial services in Ben Tre province? ?? There are two main sources of financing which poor household access for their financial needs, including formal and informal... 31 CHAPTER Poor household access to financial services in Ben Tre PROVINCE 34 4.1 An overview of poor household access to financial services in Ben Tre province ... situation of access to financial services of the poor households in Vietnam and especially in Ben Tre and recommends required conditions to the poor household access to financial services in Ben Tre i