Towards a viable microfinance sector in Viet Nam: issues and challenges

Focuses on the microfinance organizations that have evolved in the semiformal sector as they are directly concerned with Decree 28. It presents the main achievements of this semi-formal microfinance sector in Viet Nam to date and the challenges it will face over the next five years. It also makes a series of recommendations to overcome these challenges, the majority of which concern the new legal and regulatory environment, access to capital, and capacity building issues.

This discussion paper has been written in the context of a project on the "Extension of Microfinance and Micro Insurance to Informal Women Workers" implemented, since 2003, by the ILO in collaboration with the Ministry of Labour, Invalids and Social Affairs (MoLISA) and several microfinance organizations and funded by the Government of France.

The discussion paper was motivated by two goals. First, as 2005 is the United Nations International Year of Microcredit, the ILO Office in Viet Nam marked the occasion by calling attention to the critical contribution that microfinance can make to the objectives of Vietnam's Comprehensive Poverty Reduction and Growth Strategy (CPRGS) and its Socio-Economic Development Plan; highlight the challenges facing the sector; and make recommendations on the expansion of the sector in the next five years.

Second, on 9 March 2005, the Government of Viet Nam enacted Decree 28 on the Organization and Operation of Microfinance Institutions. This decree creates a legal framework for microfinance activities and opens a window for the further development of this sector. However, this Decree also poses many new challenges for stakeholders. On the one hand, the degree of familiarity with microfinance varies greatly among policymakers and regulatory and supervisory entities (including the State Bank of Viet Nam), a situation which could affect the smooth implementation of the Decree. On the other hand, most microfinance organizations lack the technical skills and access to sufficient funding necessary for their transformation into legalized financial institutions and for the overall professionalization and expansion of the sector.