Where Vietnam’s poor go to borrow

In Dien Bien Province, a group of Thai ethnic minority women run a small bank that fills a huge credit gap in Vietnam’s economy.

“I’d like to borrow VND7 million [$314] to buy pigs,” said Diep, a farmer and member of Vietnam’s Thai ethnic minority group in her early forties.

“Does anyone have any objections?” asked the chair of a meeting of 32 women sitting cross-legged along the floor of the wooden stilt home, dressed in the group’s traditional attire: a long tight skirt and blouse that, taken together, resembles the Vietnamese ‘ao dai’.

The assembly didn’t hesitate to approve the loan application, unanimously. Diep, or 12 as indicated by her name tag, got the money she needed within 10 minutes. Starting August 24, the group gave her six months to repay the sum at 1.5 percent monthly interest.

“The current balance is VND1.7 million,” the two treasurers announced, before placing the bank’s total holdings into a box sealed by three locks - an act signalling the end of the meeting.

While a hair knot on top of their heads indicates that they’re all married, over the last four years, they’ve formed a family of their own, formally known as the Village Savings and Loan Association (VSLA).

The women prefer to call it the Women’s Savings Group for the sake of convenience and simplicity. They’d also rather go by the number on their name tags because “it’s easier than remembering each others’ names”, according to Vu Dinh Loi, director of the Dien Bien Province Center for Community Development, which has supported VSLA from the start.

Hua Na Village sits in the remote commune of Thanh Nua in Dien Bien District, Dien Bien Province, a place perhaps most famous for the defeat of a French garrison in 1954 that effectively brought an end to colonial rule in Vietnam. Today, Dien Bien’s rugged terrain remains dotted with rice paddies. Members of the Thai ethnic minority community continue to reside in wooden stilt homes though some have moved to concrete houses and the odd motorbike or television set marks the passage of time.


The Thai women watch a video of their dance performance after a VSLA meeting in Hua Na Village, Dien Bien Province, on August 24, 2016. Photo by VnExpress/Lam Le

Many of the VSLA’s shareholders did not attend school and have practically forgotten their ABCs, since their everyday lives mostly revolve around farming and raising kids.

As such, meetings follow a simple logic. Members of the group buy shares at meetings held on the 7th and 24th of every month. The value of these shares is then lent to members who need to invest in a new barn, buy pigs, pay school fees or cover emergencies, like hospital bills.

Each member of the bank casts a vote to elect a designated chairwoman, bookkeeper, two treasurers and three key holders. Every time they meet, each member has to buy from one to five shares, valued at VND50,000 apiece. The bank also maintains an emergency fund using VND2,000 contributions, every time they meet.

Everything is recorded in a book, where a stamp corresponds to a single share.


A Thai woman studies her accounts book with shares she's bought in the VSLA in Hua Na Village, Dien Bien Province. Photo by VnExpress/Lam Le

By the year end, all loans must be paid back and the proceeds divided among the shareholders. Then a new cycle begins. Some have chosen to use the profits to buy assets, while some have actually reinvested their profits in the year that followed.

Should any member fail to buy shares multiple times or fail to repay a loan without an “acceptable” excuse, they would face eviction.

Those present at the meeting told VnExpress International that no member had ever failed to repay a loan. The group’s emergency fund sits ready to cover their first default. Meanwhile, the group has yet to deny a loan, though they limit applicants to borrowing no more than five times the value of their shares.

This group is no exception. Over the past four years, the model has proven extremely popular in Dien Bien.

“In 2012, we set up the first VSLA,” said Vi Thi Phong, the chairwoman of Thanh Nua Commune’s Women’s Union. A year later, the commune had 12 VSLA groups, each with about 25 shareholders.

This year, there are 21.

Are they just naive?


A Thai woman buys shares at the VSLA in Hua Na Village, Dien Bien Province. Photo by VnExpress/Lam Le

Vietnam’s poor have a hard time accessing credit.

Illiteracy, a lack of tangible assets and the remoteness of Dien Bien’s mountains make the idea of a formal loan nearly impossible. Similar situations can be found across the country where, in 2014, only 31 percent of all adults and 19 percent of the poor had a bank account, according to World Bank Financial Inclusion Data (Findex).

While 20 percent of Vietnam’s poor took out loans from a financial institution, only 9 percent actually reported having any savings.

Findex reported that a third of Vietnamese adults borrowed from friends and relatives, the quickest and most trustworthy source of funds.

It takes a village

Extending that trust to an entire village continues to prove a challenging feat. During last month’s VSLA workshop in Dien Bien Province, Women’s Union delegates from throughout the region couldn’t help but question the viability of the model.

"How can you guarantee someone won’t run off with all the money? Or that they will repay their loan?"

Cambridge University Economist Partha Dasgupta says the answer to building sustainable communities lies in trust and credibility. Unless people trust one another, they won’t cooperate in the first place. But trust itself requires a solid foundation. Dasgupta argues that five factors can make trust and promises credible: mutual affection, a pro-social disposition, incentives, external enforcement and reputation.

Most of the Women’s Union reps present at the conference saw the answer in the three locks. Coincidently or not, women traditionally manage household finances in Vietnam.

This may explain why “similar models conducted in Vietnam and even in Africa have seen mixed gender groups and male-only groups falling apart where all-female groups succeed,” said Vu Lan Huong, project officer at CARE International in Vietnam.

Since 1991, Care has facilitated the establishment of savings and loans communities across Africa, Latin America and Asia, with 12 million members to date.

Starting in 2010, CARE has helped create 515 VSLAs in Vietnam, and 85 to 95 percent of them have continued to operate after the project ended. VSLAs have failed in urban communities where members often switch jobs and locations or in village communities where the few literate group leaders left in pursuit of factory jobs.

The model builds upon women’s established family role, but it also provides new incentive to save.

“Prior to that, it was common for women to say: ‘I’m too poor to save’,” said Loc. “Now, they think about saving first and spending later.”

Plus, it is so much faster and easier to get a small loan from a VSLA than it is at a local bank; the money actually stays within the community and so no one minds that the interest is higher than what’s offered by the Vietnam Bank for Social Policy, the official state provider of micro loans at heavily subsidised interest rates.

In these remote communities, distance also means a lot.

“The bank is too far away and they ask for a lot of complicated documents and collateral, which I don’t have” said Lo Thi Tam, a 37-year-old mother of two, who’s been a member of the VSLA in Hua Na Village for four years.


Lo Thi Tam, a member of the VSLA in Hua Na Villange, Dien Bien Province, Vietnam on August 24, 2016. Photo by VnExpress/Lam Le

According to Loi, after its first year, each VSLA member in Dien Bien managed to save between VND3.5 million and VND4 million. The sum may be small, just enough to invest in the next crop, but the changes it has brought are visible. As one woman put it: “It’s not possible to save money for no reason.”

Trust in the system ultimately rests on the three key-holders; should any member wish to rob a “VSLA bank”, she’d have to get all three key holders and the box keeper on board.

When it comes to disputes, contracts don’t enter into things. Instead, VSLA meetings are vocal, visual and democratic, Loi said. All the rules are discussed, set and memorized by the members.

Every sum contributed, lent and returned is done in front of all members, counted and confirmed vocally and in writing by two treasurers.

Such high reliance on common memory is manageable because the groups are kept small, with usually no more than 25 members.

“We all trust each other. We live in the same village and everybody knows what’s going on in other families,” said Tam.

After all, the families live very close to each other on the same hill, Loc said, adding that similar projects have failed in remote Kho Mu and Mong ethnic communities where getting from one household to another can take hours.

The role of men

It would be naive to say that the VSLA model is the perfect recipe for success. But the Thai women’s case tells us that what was and perhaps still is the biggest obstacle for the VSLA has also helped the groups stick together.

Before the VSLA, each woman’s life centered around her family, particularly her husband. They didn’t attend village activities and all major decisions were made by husbands, including when and whether his wife could leave the home.

So it came as no surprise that many men in the community initially viewed the VSLA as an opportunity to gossip and avoid housework.

Interviews by Care International in Vietnam have shown that the Women’s Union had to visit each household and explain the project to each woman’s husband before they could join.

Only after the women came over with their first year-end profits which they then used to buy things like TVs did the men approve.

“Whenever I’m at a VSLA meeting, my husband takes care of the house and the kids,” said Tam from Hua Na Village. She is not alone. Some women now have a greater say in family matters since their economic status has improved.

Both men and women consider improved household incomes and well-being key results of the microfinance program, but men put a greater emphasis on this. Meanwhile, women put a higher priority than men on improving their knowledge, skills, confidence and increased solidarity, according to the results of a CARE survey.

Tam says the biggest difference in her life following the CARE program is the chance to discuss her problems with other women. She finally has a place to simply ask what to do when her child falls sick. Prior to that, she could only exchange a few sentences with other women when she bumped into them in the village.

Perhaps that’s why the VSLA has proven so popular. The women wanted a group of their own where they could socialize, and the saving and lending was just an extra incentive. After all, the earnings are limited by the small size of the loans.

“The VSLA is just a stage in the long process of escaping poverty,” said Huong. “This model matters not simply because it makes people save, it’s a platform to empower women with better social, negotiating and budgeting skills.”

A way to help women, and their families, help themselves.

But the road ahead remains a rocky one. A 2015 report by CARE Australia says that in some cases: “VSLA is being largely controlled by men rather than the women members themselves”.

There’ve been cases of husbands telling their wives how much money they should borrow prior to the meeting, or even the wife reporting live to her husband on the meeting via phone for instructions on how much to borrow.

The independence the program extends to its shareholders varies from house to house.

The way forward

Tam dreams of saving VND100 million for a new home. If she only relies on the VSLA, it will take her at least 30 years to save that sum at the present rate.

Many of Vietnam’s poor continue to borrow from moneylenders known for charging exorbitant interest rates, often higher than 100 percent per year, according to the Vietnam Microfinance Working Group.

The government is well aware of the dangers associated with moneylenders. In its plan to implement microfinance development by 2020, it states it will “build and develop a safe and sustainable microfinance system to serve the poor, low income and micro and small enterprises”.

Microfinance institutions (MFI) play a crucial role here as they can provide bigger loans than the informal VSLA without requiring collateral as they are allowed by law to raise funds from outside the community. However, because of strict requirements, only two licensed MFIs currently operate in Vietnam. The largest one, TYM, which is overseen by the Women’s Union, has over 100,000 members in 12 provinces and can offer loans of up to VND30 million.

Elsewhere in the world, the rise of microfinance has created more debt problems, where the poor often use loans to finance consumption.

Although this phenomenon is not common in Vietnam thanks to the close monitoring of the Women’s Union and commune leaders, the International Finance Corporation (IFC) has reported anecdotal cases of poor borrowers taking larger and larger loans to cover principal spending.

“Offerings of formal financial products for low-income people are still limited to credit,” said the IFC in its Responsible Finance in Vietnam report. Most respondents of the IFC’s survey said they preferred to keep their savings at home because the amount is insignificant and they want to have cash ready for emergencies.

This points to the need for a flexible savings scheme for the poor. Alongside the VSLA, TYM has created voluntary and compulsory saving schemes for its members, and the Women’s Union is running a 2012-2017 savings scheme of its own. But in 2012, MFIs', licensed and non-licensed, share of the microfinance market was only 4.8 percent compared to the Vietnam Bank for Social Policy’s 65 percent share, according to the IFC report.

“Studies have shown that what the poor need more is not access to credit but actually the ability to save,” said Huong.

Loc's Center for Community Development is planning to pilot a scheme similar to VSLA with the poorest communities in Dien Bien. Instead of cash, which many of them don't have, they'll use cattle.

By Lam Le / VnExpress