ADB, Japan provide $1.5 million grant to Vietnam’s Microfinance programs

Microfinance Focus, Oct. 6, 2009: The Asian Development Bank (ADB) and Japan will provide $1.5 million to Vietnam to help bring its unregulated microfinance programs into the formal sector, to boost services and provide increased financial support for the poor.

The Japan Fund for Poverty Reduction, financed by the Government of Japan and administered by ADB, is extending the $1.5 million grant to help the Government of Vietnam formalize the country’s microfinance sector. Up to five microfinance programs will be helped to develop the capacity to join the formal sector. Staff training and supplementary matching funds will be provided to enable targeted institutions to deliver modern, diverse financial products and services.

The government, supported by previous technical assistance from ADB, has developed a new legal framework that paves the way for informal operators to enter the regulated sector, helping to make the industry more diverse, viable and sustainable.

“The Government recognizes microfinance as a potentially important means for poverty reduction, especially in rural areas, and is seeking to develop a robust sector with diversified, formal microfinance sources and strong private sector participation that can offer sustainable and affordable financial services to the poor,” said Binh Nguyen, Finance Specialist (Rural and Microfinance) in ADB’s Southeast Asia Department.

Staff of the targeted programs will be given training on compliance with the new regulations and on international best practices for market-based microfinance. Key government officials will also receive industry awareness training and, to improve capacity, State Bank of Vietnam supervisors will be trained in sector monitoring and supervision. Assistance will be given to the programs to strengthen and upgrade information systems, to expand services and branches, and to improve operational capabilities including credit procedures and risk management.

By entering the formal sector, microfinance providers will be able to tap voluntary savings which provide a low cost funding source, helping them retain clients and reducing credit risk. Microfinance organizations with diverse stakeholder ownership, as well as privately-owned operators with a strong social commitment will be given preference when choosing target groups to support. The assistance is earmarked to last two years with the State Bank of Viet Nam the executing agency.

The government will provide counterpart funds of about $150,000 with participating microfinance institutions supplying matching funds of $800,000 equivalent, meeting the JFPR total cost of $2.45 million, said a statement.

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