November 22, 2017 19:53

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The lack of legislation for Microfinance Institutions in Agriculture

21:19 | 26/03/2017

VCN- Vietnam is an agricultural country but people and businesses in this industry always lack financial resources to develop.

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People in remote areas often need capital for production. Photo: Tran Viet

Therefore, in order to promote financial resources effectively and allocate it for remote areas, the role of MFIs is very necessary. But now, these organizations are not fully aware to develop effectively and actually.

Potentials

In fact, the credit for rural agriculture has been paid special attention by the leaders of Government and State Bank at all levels with many preferential and incentives policies and mechanisms for both borrowers and lenders. Most recently, the Prime Minister has proposed a credit package of about 100,000 billion vnd by mobilizing capital from commercial banks to provide loans to support businesses, agricultural projects applying high technology and clean agricultural products with preferential terms than normal loans.

With strong financial resources, many banks immediately launched credit packages in accordance with the above requirements such as Agribank with a credit package of 50,000 billion vnd for clean agriculture, LienVietPostBank with a credit package of 10,000 billion for high-tech agriculture and etc.

However, the issue is the way for people and businesses to approach the credit capital resource above, because the farmers and businesses in this field often suffer from risks of weather disasters and small scale production, etc. In particular, the transfer of financial resources to each village in remote areas are still difficult for banks. Hence, experts emphasize the importance of Microfinance Institutions.

According to the State Bank of Vietnam, Microfinance Institutions are the credit institutions types that mainly implement a number of banking activities to meet the demands of low income individuals and households and small businesses. Over the past years, the poverty alleviation, and rural and agricultural development were implemented effectively due in part to the great contribution of microfinance.

For this issue, Mr.Pham Xuan Hoe, the Deputy Director of the Banking Strategy Institute said that Microfinance Institutions help bring finance to remote and isolated areas and the poor people in society, so it is especially important in the process of agricultural and rural development in Vietnam. Moreover, according to experts, the effective performance of these organizations contributed to develop capacity, create jobs and knowledge for farmers and enterprises, and improve gender equality in production and business.

It can be seen that these organizations are not new with development over 20 years, but currently, Vietnam has only five licensed microfinance organizations, while Vietnam has more than 12,000 communes, and about 1,200 People's Credit Funds. Mr. Pham Xuan Hoe also pointed out that the activities of these organizations are facing many difficulties in the legal area that the upper levels implement synchronously to promote development, but the awareness of the lower levels have still restrictions.

Where there are Microfinance Institutions, there is a reduction in black credit

In the meeting on finance for agriculture and rural areas held by the State Bank of Vietnam and the Vietnam Microfinance Working Group, representatives of the Agriculture Bank of Malaysia presented their initiatives on the Agribank agent banking system for rural areas. Thanks to smooth development conditions, this system helped financial organizations approach the market and customers that have not been exploited yet in rural areas, with comprehensive, simple and highly effective solutions

In Vietnam, the network of microfinance institutions was implemented effectively. Ms. Le Thi Lan, the Director of the Community Finance Resource Center (CFRC), said that where microfinance is deployed, black credit is reduced. However, the number of these organizations in Vietnam is still small due to a lack of capital resource to implement and the legal framework is not suitable, most of the legal conditions still are "form of commercial banks", there are no specific terms and principles for Microfinance Institutions.

A representative of a Microfinance Institution shares that the current Credit Institutions Law stipulates that the performances of financial institutions under socio-political organizations and non-governmental organizations must be managed in accordance with the provisions of the Prime Minister. But so far, the Government's regulations are still in the period of amendment and supplement causing difficulties for the operation of financial institutions.

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Due to these difficulties, Mr. Pham Xuan Hoe said that the State needs to amend the legal corridor and facilitate the operation of microfinance institutions. Moreover, the State needs to have better propaganda policies to change the awareness of all levels, and facilitate the management and development of these organizations better. Currently, Microfinance Institutions are still assessed for high interest rates, while these institutions often operate in remote areas, so operating expenses will be higher. Moreover, farmers and agricultural enterprises need the financial resources in a timely fashion, so interest rates are not a major issue.

Agreeing with this opinion, Ms. Le Thi Lan proposed to have policies to create capital resources and improve the financial capacity of the Microfinance Institutions such as: approach foreign capital, borrow capital from domestic enterprises and the policies on access to land, and technical support for these organizations to develop more effectively.

By Huong Diu/Ngoc Loan