MINISTRY OF EDUCATION &TRAINING STATE BANK OF VIET NAM ACADEMY OF BANKING DUONG QUYET THANG POLICY CREDIT MANAGEMENT IN VIETNAM BANK FOR SOCIAL POLICIES TO MEET TARGETS OF POVERTY REDUCTION AND ENSURING SOCIAL SECURITY DEPARTMENT: FINANCE – BANKING CODE: 63.34.02.01 ABSTRACT OF PhD THESIS HANOI - 2016 THE THESIS IS COMPLETED AT ACADEMY OF BANKING Instructor: Assoc.Prof Dr Kieu Huu Thien Dr Nguyen Quang Thai The thesis was defended before the Assessment Council for PhD Thesis of Academy level at hour, 2016 at Academy of Banking The Thesis can be found at: - Library of Academy of Banking - National Library dated INTRODUCTION Rationale Entering the third Millennium, humanity witnesses thriving development of science and technology, but also faces an enormous challenge: Poverty After 12 years of construction and development, to accompany the poor and other social policy beneficiaries, VBSP has overcome many difficulties, affirmed its important role in poverty reduction and social security as a reliable address to provide credit to the poor and other social policy beneficiaries Despite significant achievements, poverty reduction is facing a huge limitation globally: unsustainable poverty reduction In Vietnam as well as all over the world, relapse into poverty is happening and poor group is still being added every year Facing the situation, the author chose the theme: "Policy credit management at Vietnam Bank for Social Policies to meet targets of poverty reduction and ensuring social security" as the subject of this doctoral thesis Literature Review Many studies in the world have discussed about microfinance and policy credit Authors representing research of this topic are: Frede Moreno (2004) “Good governance in microcredit strategy for poverty reduction: Focus on western Mindanao, Philippines”; Takyi, Emmanuel Ankrah (2011) “Micro-credit management in rural Bank: The case of Baduman rural Bank Ltd; Agba,A.M.ogaboh, Stephen Ocheni and Festus Nkpoyen (2014) “Microfinance Credit Scheme and Poverty Reduction among Low-Income Workers in Nigeria”; Mario Olivares and Sofia Santos (2009) “Market Solutions in Poverty: The Role of Microcredit in Development Countries with Financial Restrictions”; Janda K and P Zetek (2014) "Survey of Microfinance Controversies and Challenges" ; Wright, Graham (2000) "Designing Quality Financial Services for the Poor” Domestically, research topics related to the policy credit has been widely studied, but topics directly related to policy credit management to meet targets of poverty reduction and ensuring social security has still been in narrow range In summary, research topics have been in narrow scale or in some certain aspects, not many research has focused on the full range of contents related to policy credit management Furthermore, as objects of studies differ due to geographical and historical constraints and with many socio-economic fluctuations so far, researches have only solved a part of issues relating to microfinance Such solutions are not in uniformity to enhance the role of microfinance and policy credit to meet targets of poverty reduction and ensuring social security for Vietnam in current context Objectives The ultimate goal of this research topic is to propose measures to enhance policy credit management in order to better respond to targets of poverty reduction and ensuring social security in the period of 2015-2020 and beyond To accomplish the goal, the authors focus into the following: - Clarification of policy credit basic theory and specific contents of policy credit management The system of credit management process and criteria for evaluating the effectiveness of policy credit management and system of factors that affect its implementation Experience and international practice in policy credit management - Assessment of the status of policy credit management in VBSP, outlining achievements, constraints and reasons - Propose solutions and proposals to strengthen policy credit management in VBSP to meet targets of poverty reduction and ensuring social security Object and research scope: - Object: The research focuses on policy credit management in Vietnam Bank for Social Policies - Research scope: The research focuses on the period since Vietnam Bank for Social Policies’ establishment to the end of 2014 and in the whole network of Vietnam Bank for Social Policies Methodology The thesis uses the method of interpretation, analysis, synthesis, statistics, comparison, empirical method and survey Specific research methods applied are: Field observations to understand the status and impact of policy credit activities in VBSP; Get expert opinions through direct interviews and through workshops - symposiums; Analyze and synthesize data and forecasts New contribution of the research Theory: The thesis has codified and systematically analyzed forms of policy credit and contents, methods of policy credit management In practice: SPSS software is used to input data, analyze survey results, and quantify the influences of some factors to the implementation of policy credit management in Vietnam At the same time, one-way ANOVA is used test to confirm the assessment collected from surveyed households to be statistical significance Recommendations: enhance policy credit The Thesis has proposed measures to management in VBSP, and made recommendations to the Government, the Ministries, and the State Bank, local authorities, the Fatherland Front and mass organizations to create an environment as well as legal basis and to enhance capacity of VBSP in policy credit management Structure Besides the introduction and conclusion, the Thesis includes three chapters as follows: Chapter 1: Theoretical bases of policy credit management Chapter 2: Current status of policy credit management in Vietnam Bank for Social Policies Chapter 3: Solutions to policy credit management in VBSP to meet targets of poverty reduction and ensuring social security CHAPTER THEOREOTICAL BASES OF POLICY CREDIT MANAGEMENT 1.1 POLICY CREDIT 1.1.1 Concept of policy credit Policy credit means providing poor people with small loans to help them engage in productive activities or grow a small business According to European Commission (2000), microfinance concepts are understood in a broader sense: the provision of a wide range of financial services including savings, loans, payment services, money transfers and insurance to poor people, low-income households and small businesses According to Article 1, Decree 78/2002/ND-CP dated 04/10/2002 of the Government, social policy credit is defined as follows: " Credit for the poor and other policy beneficiaries means the use of State-mobilized financial sources to provide preferential loans for poor people and other policy beneficiaries in service of production, business, job creation and life improvement, thereby contributing to the implementation of the national target program on hunger elimination and poverty alleviation, and social security” 1.1.2 Features of policy credit Firstly, a credit institution designated by the State or established by the State to implement policy credit in the field of social security Secondly, the credit policy is the government's credit channel, operates not for profit purposes Thirdly, policy credit borrowers are the poor and other policy beneficiaries designated by the Government Fourthly, funds for policy credit is from the State budget, ie Funds from the State budget and derived from the State budget Fifthly, the Government or the person authorized by the Government shall make decision on interest rates, loan terms, loan procedures and approach to policy credit funds Sixthly, diverse lending methods 1.1.3 Types of policy credit - Based on the loan duration: 03 types, including short-term, medium - term and long - term credit - Based on the assurance to repay: 02 types, including unsecured credit and secured credit - Based on operation: lending to industries of national strategic importance; projects which is financially feasible, but require too much investment or too long repayment period; and lending to aim at reducing poverty and ensuring social security 1.1.4 Policy credit risks Policy credit risks are recognized under angles: objective risks and subjective risks Objective risks are due to objective reasons such as disasters, war, the borrower dies or missing and have no heirs or due to other unexpected incidents causing loan loss while the borrower has strictly follow policy regime Subjective risks are from both sides, the policy credit institution and the borrower 1.1.5 Roles of policy credit - Policy credit is a solution to reduce poverty and ensure social security in Vietnam - Secondly, policy credit contributes to economic development - Thirdly, policy credit contributes to the country's political stability - Fourthly, policy credit is to bridge and facilitate functions and tasks of mass organizations - Fifthly, policy credit contributes to strengthen the management role of local government - Sixthly, policy credit contributes to narrow the gap of socio economic development between regions in the country 1.2 POLICY CREDIT MANAGEMENT 1.2.1 Definition of policy credit management "Policy credit management is a process consisting of uniformly coordinated and linked activities from the central to grassroots levels of government, mass organizations, VBSP and borrowers in the policy credit sector aiming to reduce poverty, ensure social security at the lowest cost and highest efficiency" 1.2.2 Policy credit management Policy credit management must comply with basic contents, certain and tight processes The first content of policy credit management is policy credit funding management; secondly, policy credit management is to manage borrowers; thirdly, the loan conditions; fourthly, the credit limit or the loan; fifthly, the network administrator; sixthly, loan term and repayment period; seventhly, loan classification and risk provision Eighthly, loans security 1.2.3 Policy credit management methods From research review, some policy credit management methods can be listed as following: economic method; administrative method; education method; and analysis and statistical method 1.2.4 Criteria to assess the effectiveness of credit policy Social efficiency: Demonstrating in economic, political and social effectiveness The supreme goal of policy credit is hunger eradication, poverty reduction, socio - political stability and ensuring social security Policy credit is one of the solutions to thoroughly implement the National target program on hunger eradication and poverty reduction Economic efficiency: to consider from the perspective of cost savings for the State budget, mitigate damage leading to loss of capital, efficient use of funds from the state budget and mobilized funds for social security etc, 1.2.5 Factors affecting policy credit management - The socio - economic environment; - Financial capacity and risk management system; - The quality of staff and network organizational structure; - Information technology 1.3 INTERNATIONAL EXPERIENCE OF POLICY CREDIT MANAGEMENT Through the experiences of policy credit management in some countries in the world such as Bangladesh, India, Indonesia, Thailand, Japan, Euro zone and North America, some countries in South America and Africa to draw some lessons about policy credit management in Vietnam Firstly: Diversification of resources for poverty reduction targets Secondly: Harmonious combination between the resources of the public sector and private sector in poverty reduction credit activities Thirdly: Develop forms of poverty reduction support through microfinance institutions 12 borrowers among 10,000 microfinance institutions and banks around the world VBSP continuously develops and enhances cooperation with international organizations at home and abroad to implement various projects 2.2 POLICY CREDIT MANAGEMENT IN VIETNAM BANK FOR SOCIAL POLICIES 2.2.1 Policy credit management in Vietnam Bank for Social Policies 2.2.1.1 Management of funding sources for policy credit implementation VBSP funding sources consist of 05 sources: (i) Funding from the Central State Budget; (ii) Borrowings designated by the Government ; (iii) Fund mobilized and borrowed with market interest rate; (iv) Entrusted capitals from the local state budget, economic organizations and individuals; and (v) Other funds and capitals - Based upon the mobilization interest rate, there are two sources as follows: non-interest bearing funding and low-interest bearing funding - Based upon the mobilization term, there are two sources as follows: short-term funding and medium and long-term funding During early period of operation (2002-2006), the funding mobilized at the market interest rate accounted for higher proportion than the non-interest bearing and low-interest bearing funding From 2007 up to now, the non-interest bearing and low-interest bearing funding conversely has accounted for higher proportion When VBSP is on the way to stability and development, VBSP puts priorities to mobilize non-interest bearing and low-interest bearing sources to minimize the subsidies from State Budget as legislated 13 For the period 2003- 2010, VBSP focused on long-term funding, which was the largest proportion of the total capital (accounting for 87.67%) in 2010 From 2011 up to now, this proportion has been reducing insignificantly, still accounting for over 70% The medium and long-term funding is absolutely appropriate with VBSP medium and long-term lending to its borrowers, facilitate VBSP implement effectively policy lending and ensure the solvency 2.2.1.2 Lending management VBSP has tightly collaborated with socio-political organizations to successfully reach the goals assigned by the Government in focusing strong sources to make breakthroughs in poverty alleviation and social security; strengthen the quality and effectiveness of policy credit; separate policy credit from commercial credit; mobilize all forces of the society in poverty reduction and alleviation of money-lenders in rural areas As of 31st December 2015, total outstanding loans reached VND 142,528 billion, representing 18 times increase compared with the number of early operation in 2002 There are over 6,863 active borrowers with the average outstanding loans of VND 20 million each VBSP currently implements 20 policy credit programs with 27.9 million turns of borrowers so far As of 31st December 2015, the total overdue debt and frozen debt was VND 1,107 billion, representing 0.78% of the total (including VND 468 billion of overdue debt, VND 639 billion of frozen debt) 2.2.2 Methodology of policy credit management by Vietnam Bank for Social Policies Firstly, VBSP policy credit implementation is under the management and supervision of many relevant agencies 14 Secondly, VBSP policy credit implementation is under the systematic and unified management in the whole system Thirdly, VBSP performs the policy credit management under the mechanism of assigning planned credit targets Fourthly, VBSP performs the policy credit management under the supervision and monitoring 2.2.3 Effectiveness of policy credit management by Vietnam Bank for Social Policies 2.2.3.1 Social impacts - The target on the average rate of poor households having demand for policy credit and can access VBSP’s loans over the past five years (2010-2015) is 87% The rate reportedly is most likely to stably increase over the years - The rate of disadvantaged students in need of policy credit accessing VBSP lending is always over 90% and makes a breaking growth of almost 100% over the last two years In addition, the rate of migrants workers abroad in need of policy credit accessing VBSP lending is very high (90% in 2010 and nearly 100% in 2015) Noticeably the rate of post-rehabilitation persons having stable job and successful rehabited is over 80% and even nearly 90% by the end of 2015 2.2.3.2 Economic impacts The non-performing loan rate of VBSP is reportedly always below 1.4% over the last five years Accordingly the risk of funding loss is under good control and the secured and stable operation of VBSP is enabled, in contribution to cut down the operation cost such as cost for loans management and non-performing loan handling etc, The rate also reveals that VBSP provides policy lending to eligible 15 target groups, who invest borrowed money effectively and efficiently etc, 2.2.3.3 Field survey 1,433 households surveyed highly appreciate VBSP policy credit in production and business and life improvement Policy credit support in economic development, income improvement is the most highly appreciated (by 67.8% surveyed households) Besides policy credit support for housing is reportedly still insignificant (by 13.3% of surveyed households) The One-Way ANOVA presents the result of P