RURAL AND MICROFINANCE IN THE LOWER MEKONG REGION
Policies, Institutions, and Market Outcomes
Binh T. Nguyen and Robert Vogel
Asian Development Bank
© 2011 Asian Development Bank
All rights reserved. Published in 2011.
Printed in the Philippines
ISBN 978-92-9092-228-5
Publication Stock No. BKK102560
Cataloging-In-Publication Data
Nguyen, B. and R. Vogel.
Rural and microfinance in the Lower Mekong Region: policies, institutions, and market outcomes.
Mandaluyong City, Philippines: Asian Development Bank, 2011.
1. Rural finance. 2. Microfinance. 3. Lower Mekong Region. I. Asian Development Bank.
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Foreword
The Asian Development Bank (ADB) recognizes rural and microfinance as one of the potent tools for improving the lives of the poor and marginalized and promoting economic growth, as part of its overarching goal to reduce poverty in Asia and the Pacific. To support the growth and development of institutional microfinance operations in its developing member countries, ADB has been on a constant search for the most effective and efficient interventions that could be implemented. In 2000, ADB published its Microfinance Development Strategy focusing on (i) creating a policy environment conductive to microfinance, (ii) developing the financial infrastructure necessary to deepen and broaden microfinance services and the participation of private institutions as microfinance service providers, (iii) building up viable microfinance institutions, (iv) supporting innovations that ensure that microfinance services reach certain categories of the poor who tend to be excluded because of risk-return considerations, and (v) supporting social intermediation.
Over the past 2 decades, the rural and microfinance landscape in the three Lower Mekong Region countries of Cambodia, the Lao People’s Democratic Republic (Lao PDR), and Viet Nam has undergone significant changes. The sector is seeing steady progress in liberalizing the legal and policy environment, improving the supportive financial infrastructure, and increasing the quality and outreach of products and services. The central bank is assuming a clearer role as regulator, while the sector is becoming more viable with the participation of both banks and nonbank financial institutions in providing microfinance to the poor. In Cambodia, from mostly small nongovernment organizations supported by international donors in the early 1990s, the sector now includes 21 formally registered microfinance institutions (MFIs) that together have an outstanding portfolio of about $300 million in microloans to nearly 1 million clients. In the Lao PDR, the sector is undergoing unprecedented reforms with the leading Agricultural Promotion Bank (APB) undertaking fundamental institutional and operational changes to becoming a market-based, state-owned rural banking institution. At the same time, grassroots MFIs in the Lao PDR are growing in both number and assets, having at the time of this study 23 registered MFIs serving about 15,000 rural clients. In Viet Nam, unlike the other two countries, the sector has traditionally been dominated by state-owned banks receiving government subsidies for policy lending. The outreach in Viet Nam has been remarkable with more than 10 million clients and total loans outstanding over $7 billion. However, the sector’s sustainability and efficiency have always been an acute issue of debate among stakeholders. The government recently recognized new developments in microfinance and the increased role of privately owned MFIs and has allowed them to register as a formal part of the country’s finance sector.
This publication contributes to ADB’s search for sustainable and efficient models of institutional microfinance. It reviews microfinance operations in Cambodia, the Lao PDR, and Viet Nam over the past decade, focusing on the policy environment, institutions, and market outcomes. It compares the similarities and differences among the countries and highlights challenges and constraints and possible future development patterns for each country. In conclusion, the study recommends broad measures to address the particular sector development needs of the three countries. It is hoped that this study can provide a reference guide for policy makers in government as well as bilateral and multilateral development agencies in choosing which measures are needed to expand and deepen the reach of rural and microfinance services to ensure a robust and sustainable development of the sector in the region.
The study was prepared under the supervision of Jaseem Ahmed, director, Financial Sector, Public Management and Trade Division of the Southeast Asia Department. Binh T. Nguyen and Robert Vogel are the authors. Jenny Mendez-Santos provided secretarial assistance, and Benny Rayco edited the paper.
Kunio Senga
Director General
Southeast Asia Department
Acknowledgments
This study is the product of a team effort. Much of the credit for its material goes to our local collaborators in each country: Dinh Thi Minh Thai in Viet Nam, Somphone Sisenglath in the Lao Peoples Democratic Republic (Lao PDR), and Hoy Sophea in Cambodia. These colleagues not only provided important insights into the operation of rural and microfinance in their respective countries but also helped secure meetings with key government officials and representatives of domestic and international nongovernment organizations and financial institutions, and provided essential interpretation and translation in these meetings. They also helped gather data through a review of pertinent government documents and records and the conduct of the survey, both in the distribution of the survey instrument and in follow-ups to obtain further information. In addition, we would like to thank Timo Hogenhout for his invaluable insights, information, and updates for the Lao PDR chapter and for his consultation on our behalf with the stakeholders in the Lao DPR to finalize the chapter.
We greatly appreciate the courtesies and assistance provided by government officials and representatives of microfinance institutions, research institutions, mass organizations, and donor agencies whom we met or interviewed and who supplied us with the essential information for the report along with their particular insights into the operation of rural and microfinance in their respective countries. They were generous in the time they made available to us and in the openness and frankness with which they answered