Informal Credit Market and Microfinance - "Microfinance Sector in Vietnam"

This paper summarizes the microfinance sector in Vietnam and also discusses the experience of the Vietnam Bank for the Poor (VBP) in dealing with issues that the sector faces in the country. The paper analyzes:

• Poverty situations in Vietnam ;
• Microfinance infrastructure in the country;
• Government policies in microfinance;
• Lessons learned from the experience of VBP.

The author observes that:

• Institutional structure for microfinance has improved and the formal financial sector has been expanded to include microfinance;
• Suppliers of microfinance services have increased in number;
• Informal financial sector still makes up a large share of the credit market;
• Poor households have to rely on informal sources, rather than formal ones, to meet their credit demand.

The author makes the following recommendations for future government policy:

• Liberalizing the interest rate policy;
• Creating an enabling environment for microfinance institutions;
• Allowing microfinance institutions to decide their own level of outreach, trade off risk and return.