Vietnam Bank for Social Policies- Green credit development: Remarkable contributions and lessons learnt from microfinance

Spending 14 operation and development years, Vietnam Bank for Social Policies is recognized as “the green bank”, providing credit programs for poor households, near-poor households, micro-enterprises etc. to improve business and production and business which are green growth-oriented in rural, remote areas.

The forestation development project has helped covering more than 70,000 hectare forests in the central coast of Vietnam.

After more than two decades  since international integration, Vietnam’s economy has been particularly recognized as one of the most successful developing countries in the world. However, Vietnam also has faced the danger of environment including biodiversity loss, deforestation, air pollution or GHG emission. Therefore, the economic  achievements of Vietnam are under threat in recent years due to climate change and at risk of being reversed if the worst scenario occurs. To solve this urgent problem, the Government has constantly implemented several measures to mitigate the damage caused by natural disasters and accelerate the environment protection. The Vietnamese government has responded by developing the Vietnam Green Growth Strategy as stated at the Prime Minister Decision No 1393/QD-TTG. Approved in September 2012, the Green Growth Strategy aims at increasing the resource-efficiency of the economy, and increase sustainability while achieving development and economic objectives. Vietnamese government also built Vietnam Green Growth Action Plan in 2014.

 In particular, the “green” credit policy in the banking system is considered as one of the effective financial measures. 

Spending 14 operation and development years, Vietnam Bank for Social Policies is recognized as “the green bank”, providing credit programs for poor households, near-poor households, micro-enterprises etc. to improve business and production and business which are green growth-oriented in rural, remote areas.

Forestation sector development: covering more than 70,000 ha forest during 10 years

After more than 10 operation years, the project of forest sector development in VBSP has contributed to improving the socio-economic life of residents in project areas, poverty reduction, job creation as well as fight against climate change, food security, creating incomes and economic development for households.

The Forest Sector Development Project in the frame of the Forest Sector Development Program cooperates between Government of Vietnam and his partners and sponsors. Project contains two elements: (i) Development of production plantation forest in some Central provinces of Vietnam; and (ii) Vietnam Conservation Fund (VCF). At the beginning, project operated in four provinces: TT Hue, Quang Nam, Quang Ngai, and Binh Dinh; and the extension period added two provinces Thanh Hoa and Nghe An. Total area plan of the project is established about 70,300 ha production plantation forest. The Project objective is to manage plantation forest sustainably and effectiveness and biodiversity conservation in the special use forests (SUFs) and to enhance the forestry contribution to the deduction of poverty in Vietnam and the global environment protection.

At the beginning of the project in 2005, Vietnam’s forest cover had decreased from 14.3 million ha in 1943 to 10.7 million ha. After decades of deforestation, the country had 7-8 million unused forest land that is degraded and denuded. About 25 million forest dependent poor and ethnic minority groups used forests for subsistence livelihoods, energy and safety net in times of hardship. In parallel with the degrading of  forest land resources and loss of biodiversity, the demand for both subsistence and industrial forest products has increased due to rapid population growth and economic development.

The poor results of the plantation sector were caused by: inadequate incentive framework; insufficient market orientation; heavy top-down planning; weak extension capacity; limited technological and managerial capacity; and inadequate investment. Insufficient land was available for planting by the non-state sector exacerbated by delayed allocation of land use rights certificates and insecure forest land tenure.

The VBSP’s approach in supporting the Government to address the above challenges included policy and administrative reforms, institutional and capacity strengthening, and provision of financial incentives for good forestry practices. The project enhanced the contribution of plantation forests to rural livelihoods by supporting: Policy and legal reforms to provide an investment and market environment that promoted commercial tree growing by investors, including households, communities, and the private sector; Clarification of the role of State Forest Enterprises and non-state sectors in commercial forestry, including for provision of market-driven extension services; Acceleration of the processes for land classification, issuance of land use rights certificates; Strengthening of forest management capacity in all aspects of smallholder plantation forestry; Introduction of financing and technical support mechanisms for communities and smallholders in transparent and cost-effective ways; and Improvement in the international competitiveness of the forest industry to pay market prices for wood grown by investor households. The project is the first, and to date, the only one in Vietnam, using the approach of on-lending to small-holder plantation which proves to be much more sustainable, compared to the country’s traditional approach of subsidizing plantation.

Remarkable Results

Being implemented from 2005 to 2015, VBSP achieved the following outcomes:

More than 43,000 households, mostly from poor and near-poor households, in central Vietnam have received access to micro finance and technical support to cultivate over 76,500 hectares of forest.

The project funded efforts to survey land and facilitated the issuance of land use right certificates for about 35,000 households, covering 66,000 hectares. Farmers use the certificates to apply for low-interest loans from the project’s fund managed by the Vietnam Bank for Social Policies.

A pilot area of 850 hectares received the International Stewardship Forest Certification for meeting strict international technical, social and environmental standards. The price of certified timber is 20% to 30% higher than non-certified timber of the same type.

More than 400 km of access track have been upgraded, which has lowered transport costs, significantly increased labor productivity and income as well as generated more employment for local people.

The project has also supported the construction of 86 fire watchtowers and 102 information boards across the project area to raise public awareness on forest protection and minimize risks of forest fires and damages.

The project also funded efforts to survey land and has facilitated the issuance of land use right certificates for about 35,000 households.

The FSDP has reinforced regulations and capacity for protecting biodiversity in Special Use Forests, including several areas that are internationally recognized for their ecological importance.

Customer success stories from the forestation development project

As a beneficiary of the project, in 2005 household Hồ Văn Ngọc, living in hamlet 5, Tiên Ngọc commune, Tiên Phước district, Quảng Nam province, borrowed 50 million VND from VBSP to plant 5.2 hectare  of acacia trees. He said: “In the past my family was very poor, doing a lot of hiring work all year but not enough to feed 5 mouths. Since my household accessed the forestation credit in VBSP to plant acacia trees. In 2013, the acacia tree harvest brought me enough incomes to repay debt for the bank and cover expenditure for family. Now my family is near-poor. However, to lift from poverty in a sustainable manner, I decided to borrow 125 million VND from VBSP for forest investment. I hope my family change life thanks to forest development”. Ngoc said more, after 5-7 years, the acacia tree harvest brought about an income of VND 70-80 million/hectare after deducting costs, the net profit will gain from 7-10 million VND/ha.

Another successful example is household Cao Dua, Farmer, Xuan Loc Commune, Phu Loc District, Thua Thien Hue Province” Our family has 4.2 hectares of plantation in total. After 5 years receiving a loan from the project, we could earn from VND 90 to 100 million per ha after deducting investment costs such as seedlings, fertilizer, interest rate. We could not only pay back the loan principal but also had enough money to build a new house and afford some modern appliances. “

Chairperson of People’s Committee in Tiên Ngọc commune, Mr.Huỳnh Tấn Xuân shared: Stem from poor soil areas, annual crop yield is low but since conducted the FSDP project, a lot of households have known how to shift plants for developing forest economy. They applied the model of forestry and agriculture combination to increase the forestation area in first years by way of interspersed planting short-day trees. They utilized preferential credit effectively and efficiently, therefore their living standard is increasingly improved. Sustainable forestation activities have contributed to natural preservation and likelihood development for local residents, orienting to the green economy development.

VBSP build over 8 million constructions of clean water supply and rural sanitation

The credit program of clean water supply and rural sanitation (CWSRS) provided by VBSP is one of the green credit channel which contributes to conducting the policy of environmental protection and improving the living standard effectively and efficiently. The preferential credit of VBSP has supported millions of households access to clean water with more than 8 million CWSRS constructions to be built and in use.

Achieved results

After 12 operation years, as of 31th October 2016 total loan revenue reaches VND 40,561 billion with more than 5 million turns of borrowers. Total loan collection reaches VND 16,919 billion, total outstanding loans reaches VND 23,631 billion with more than 2.5 million customers. Up to now, more than 8.7 million RWSS works are built to respond with the demand of rural households, of which there are 4.4 million RWSS works and 4.3 million sanitation works. The overdue debt is only 0.16% in total loan portfolio.

Program’s impacts

Over the past twelve years, the credit program on water supply and rural sanitation has supported millions of households in the whole country to access loans for investing, upgrading and renewing more than 8 million RWSS constructions in accordance with the RWSS national standard.The RWSS program brought about essential effectiveness on the environment and living standard for residents in locality, responding with the campaign on building new rural areas for community health.

Customer success stories

In previous years, the household of Nguyen Huy Thinh in hamlet 1, Nghi Hop commune, Nghi Loc district (Nghe An province) regularly used unsafe well water due to environmental pollution such as dirty water resource from rivers, lakes, animal waste and sewage etc.

In the past year, Thinh borrowed 12 million Vietnam dongs from the RWSS credit program in VBSP. Adding with his own funds, he built a synchronous and closed construction of RWSS which includes bathroom, toilet, water purification tank, water tank to ensure enough living water for the whole family. Moreover, he developed an economic VAC model, biogas system to take advantage of animal sewage for produce gorillas.  

Not only in Nghe an, right in Quang Binh, the local authority also concerned on the community health, especially in rural and remote areas. For instance, over 63% households accessed RWSS loans in the mountainous district of Minh Hoa. Since developing the WSRSS construction, residents have used safe water instead of using unsafe water from rivers or ravines in the past.

Coming to Yên Sơn district, Tam Điệp city, Ninh Bình province where exists more than 80% of rural households use hygiene water and toilets. Many husbandry facilities are invested and built the clean and safe waste treatment system, contributing to implementing the environment criteria in the new rural construction.

The credit program of clean water supply and rural sanitation (CWSRS) provided by VBSP is one of the green credit channel which contributes to conducting the policy of environmental protection and improving the living standard effectively and efficiently. The preferential credit of VBSP has supported millions of households access to clean water with more than 8 million CWSRS constructions to be built and in use.

Moving forward

With the significant contribution to the gree credit growth over past years, It is expected that in early in 2017, procedures will be filled for VBSP to join in implementing the credit component of the biogas value chain (build biogas).

on 5/10/2016, the ADB, the project management unit of “Low Carbon Agricultural Support Project” and Ministry of Agriculture and Rural Development (MARD), the State Bank of Vietnam (SBV), the Ministry of Finance have signed a Memorandum approved in principle the proposal for VBSP to join in credit component of of the biogas value chain (build biogas) of the project. Currently, Ministries and agencies are completing procedures for VBSP to take part in the project. It is expected that official procedures will be carried out in the early of 2017.

The compatibility of VBSP’s admission to Low Carbon Agricultural Support Project 

In the credit component for biogas value chain, the project will (i) provide credit through inancial institutions to support the expansion and improvement of infrastructure for biogas value chain management until 2018; (ii) Ensure that women will be given priority in borrowing and open bank accounts in financial institutions upto 2018; (iii) Supervise disbursement of promoting the development of the carbon market for completed biogas plants through financial institution until 2018.

Currently, the project provides credit through two financial institutions for farmers and agricultural enterprises to build biogas works including related items such as water supply, sewerage system, biology gas tunnels, gas pipeline, devices using gas, environments processed items, storage items, transportation and processing of waste residue to make organic fertilizer …

However, after a period of implementation, disbursement of financial institutions, for biogas value chain is a very little. The reason is that such financial institutions are suitable for lending large-scale loans only, while demand for small loans (from VND 10-20 million) is huge, and access to project’s small-scale loans is very difficult. In accordance to Decree 55/2015/ND-CP of the Government dated 09 09/6/2015 on mechanism to ensure lending fund for all commercial banks, Article 9 of this Decree regulates “The customers get loans without security assets must submit to the lending credit institution a certificate of land use rights or document certifying by CPC that land use rights has not been issued for his/her non-disputed land”. According to the provisions of Decree 55/2015 / ND – CP, all customers borrowing at commercial banks are required to submit red books. Meanwhile a number of households and businesses have already submit their red books for other loans, thus, they cannot access additional loans. Some households do not want to submit red book for just small-scale loans.

ADB assessed that VBSP has a nationwide network with branches in 63 provinces and cities. In 10 provinces participating in the project, VBSP has provincial branches, district transaction offices and transaction points at communes, therefore, very convenient for project disbursement and policy dissemination to the farmers.

VBSP collaborated with four mass organizations in lending, the Women’s Union, Farmer’s Union, War Veterans Association and the Youth Union. This is the advantage to entice the participation of women and farmers in the project and communicate of the project information to people.

In particular, VBSP applies lending mechanism for microfinance, which does not require collateral by red books but only basing on trust secured by local governments and mass organizations. This is a necessary condition to provide access to credit sources of small-scale farming households. On the other hand, according to ADB, VBSP has experiences in disbursing small loans for biogas projects without collateral in the program of safe water and rural sanitation, thus, disbursement of projects fund will be quickly and easily. Furthermore, the project funding is medium and long term funding which is convenient for disbursement for the purposes of the project. Loan amount without collateral up to VND 50 million is an advantage to quickly disburse project loans.

The VBSP’s credit programs have contributed remarkably to environmental protection, natural resources and energy efficiency improvement; environment quality enhancement and human health protection, towards the sustainable development. To enhance green credit growth in Vietnam, VBSP expects to boost alliance and cooperation with international organizations to provide credit granting to projects and production and business activities which are environmentally and socially friendly; contribute to the implementation of green growth targets of the business community, thereby, achieve the green growth and sustainable development goals.