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Credit union calls for interest rate subsidy
People’s credit funds at the grassroots level are proposing the Government to add them to the list of companies and banks that are part of the new interest rate subsidy programme.
These organisations are worried clientele will be lost to commercial banks providing interest rate subsidies, if they cannot also provide loans with the same interest rate benefits.
"It is unfair to people’s credit funds at the grassroots level," said deputy director of My Hoa People’s Credit Fund in the southern An Giang Province’s Long Xuyen City Ngo Phuong Hien.
Decision 131 by the Prime Minister on subsidising interest rates for institutions and individuals to help them carry out production and business plans states that State-owned banks, joint stock banks, joint venture banks, foreign bank branches, wholly-foreign owned banks and the Central People’s Credit Fund are eligible to join the interest rate subsidy programme. Grassroots people’s credit funds, however, are not mentioned.
The decision stipulates that banks and the Central People’s Credit Fund will apply their normal rates when signing loan contracts, but will discount a yearly 4 per cent or monthly 0.33 per cent off the interest payments.
Founded in 1998, the An Giang People’s Credit Fund now has 8,700 members. Most of them are small traders and farmers.
There is a growing number of commercial banks with a variety of promotional services in the area already threatening An Giang People’s Credit Fund, and Hien is concerned that this situation will only get worse without the competitive advantage the banks are being granted.
Director at the Lien Nghia People’s Credit Fund in Central Highland Lam Dong Province’s Duc Trong District Le Van Hanh also shared the same plight.
"I hope the Government will provide us similar support," Hanh said. "We need support in whatever form it might come."
The subsidy is designed to provide enterprises and individuals who need capital as a result of the global economic crisis to remain in production, reduce prices to attract consumers and create jobs.
"So why shouldn’t farmers, small traders and households, who are borrowing money at grassroots people’s credit funds, be able to benefit from the programme?" asked director of Blao People’s Credit Fund in Lam Dong Province Huynh Van Hai.
There are more than 1,000 grassroots people’s credit funds with 1.2 million members nation-wide. Most of them are farmers, small traders and households.
The network has been successful in mobilising on-site capital to meet the demand for loans for production, trade, services development and livelihood improvement, contributing to alleviate poverty and usury mitigation in rural and mountainous areas.
What do experts say?
An expert at the State Bank of Viet Nam, who asked to remain anonymous, said small traders, family production units and farmers living in rural and mountain areas should be given priority in the interest rate subsidy programme.
"It is they who are the most seriously affected by the economic crisis," he points out.
The expert said he did not know why policy makers did not add the credit funds into the list of those eligible for the stimulus programme.
A senior official at the People’s Credit Funds Association, who also refused to provide his name, confirmed that people’s credit funds which rely for their operations on mobilising capital may face serious trouble, if all their customers go elsewhere to take advantage of interest subsidies.
The association has sent a document to the governor of the State Bank of Viet Nam, requesting the Government that people’s credit funds be allowed to take part in the subsidy programme.
Improving credit funds
The State Bank of Viet Nam is the governing agency responsible for providing training for the establishment and development of people’s credit funds and creating the legal framework for these organisations. It has done so in 54 cities and provinces throughout the country since 1993. Yet, there are many problems in the credit fund system.
"They have not yet had enough condition to develop steadily," said the anonymous bank expert.
Limited finances, small operational size, poor banking products and services, weak management skills are major challenges for people’s credit funds at the grassroots level.
The Development International Desjardins (DID), an NGO, has pledged to continue its support in helping these credit funds modernise their operation and provide better services to clients in rural areas.
DID and the State Bank of Viet Nam signed to carry out the project in Ha Noi yesterday, with the sponsorship worth more than US$3.6 million from Bill and Melinda Gates Foundation.
Eight credit funds in former Ha Tay Province, HCM City, An Giang and Lam Dong will be selected to implement the first phase of the "Rural-Urban Interconnectivity to Help Fight Poverty" project which will be finished in 2010.
Partners to the project hope to expand the pilot models to another 120 grassroots funds in the second phase of the project once it succeeded.
"The project is practical and useful for the people’s credit funds, especially in the context of increasingly competitive monetary credit market in Viet Nam," says deputy governor of the State Bank of Viet Nam Tran Minh Tuan.
By creating interconnectivity between grassroots funds using resources from the Central People’s Credit Fund as a moderator, DID hopes to increase banking activities among the poor with diversified financial services and help credit funds interact with each other to share capital.
VietNamNet, Viet Nam News
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