Microfinance in Vietnam and My Failure

I have decided to quit my volunteering post at MACDI. My real problem was that I just didn’t have enough work to do. I don’t think they’ll miss me. I always have a sense of disappointment when I quit something; be it karate or volunteering. I must have failed somewhere but that’s not really important at this point. I’m going to fill up a lot of this newfound free time with meeting with more Vietnamese people to do language exchanges. The language exchanges are probably the most interesting thing I’ve done here. I really value the time I spend talking to Vietnamese people and learning their language. I also really like teaching Japanese; a lot more than teaching English. For me the English language is not a subject of study. It’s just how I communicate. I have been unable to dissect it in my head in the same way that I’ve done with Japanese and Vietnamese.

So, microfinance… Microfinance in Vietnam is very different from other parts of the world. More than three quarters of the microfinance activity here is done by public sector. It is very difficult to open and operate a private microfinance institution. There are steep capital requirements which most startup companies can’t afford and there are many other regulations they have to adhere to. The government-run microfinance institutions also charge a subsidized interest rate that is far lower than the market rate. This makes it very difficult for the private microfinance industry. The conventional wisdom among economist is that private businesses function more efficiently than state run enterprises. In a lot of ways I see their point. As we are seeing now in Europe, governments can be very irresponsible with their finances. Aside from the mismanagement there is also the problem of corruption. Vietnam, like most Southeast Asian countries, has major problems with corruption. The government really just puts itself in the way of businesses and private citizens to extract more money. I think it has been the major issue holding the Philippines back from developing economically as we all want it to. Vietnam has the same stubborn problem of corruption with the government and police. There is a lot to be said about corruption and I think it is a very important issue to debate. One thing that is for sure is that it is not a cultural thing. This is a fact of life and part of the human condition.

So what are the upsides of the Vietnamese microfinance system? Well the average people do spend considerably less on interest than their contemporaries in other parts of the world. Mr. Yunus’s goal was to help impoverished people improve their own lives without just receiving hand-outs. If poor Vietnamese can get access to cheap microloans from their government than I don’t see anything wrong with that. There have been plenty of examples of market failures and microfinance done wrong; like what happened in Andhra Pradesh. Really the mission of microfinance is to help poor people; not make them poorer. Has the Vietnamese microfinance program had success in last two decades? In the beginning of the 1990s almost half of Vietnamese people were living in poverty. Now that number is around 12%. That is some major improvement but I don’t think the microfinance program was the game changer that was the turning point in Vietnamese history. Vietnam has developed off the backs of hard working people and new private business opportunities that government decided to tolerate. I’m sure plenty of Vietnamese have bettered their lives due to the fact they had access to affordable credit but I think having a job or an education opportunity is more valuable than being able to borrow $100 with cheap interest.

The government of Vietnam has all the same problems that governments face. There is mismanagement, corruption, nepotism, etc. At the same time, their track record recently is quite good so you have to give credit where credit is due. I do believe that the microfinance institutions will probably have long term financial sustainability issues and the government will have to be gradually pushed out. The government should of course still be involved with regulating the industry. It’s important that there’s oversight but the distinction between hindering and effective regulation is very hard to draw.

Vietnam still has major problems with poverty, especially with the ethnic minorities. The recent development of Vietnam has not benefited all people in Vietnam equally; far from it. These are serious issues and I’m sure the government will take some action. Whether or not it will be the right course of action is anybody’s guess but I’m sure the Vietnamese people will weather the storm like they have the last hundred years.