Vietnam's New Law on Microfinance: On the Way to An Enabling Environment

Publication Date: 2005
Published by: Microfinance Regulation and Supervision Resource Center
Document Type: PDF

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The microfinance regulatory scenario in Vietnam

This paper discusses Vietnam’s new law on microfinance. It explains the background and operations of microfinance in Vietnam, and lists the following constraints to development:

• Prevalence of subsidized lending;
• The historical lack of a conducive legal framework;
• Absence of infrastructure.

The paper describes the development of the new law on microfinance in Vietnam and assesses it as follows.

• It allows the establishment of independent microfinance institutions (MFIs);
• It is restrictive in key areas like ownership structure, scope of operations, etc;
• The legal capital requirement is low for commercial banks, but too high for non-deposit taking MFIs.

It lists the following challenges that will hamper the development of regulated MFIs in the country:

• Effective supervision;
• Lack of vision;
• Confusion about ownership and governance;
• Lack of human resources, prudential regulations and institutional capacity.

The paper concludes with the following recommendations for the development of microfinance:

• The government should:
  • Play the role of a facilitator;
  • Allow private sector active engagement;
  • Exclude non-deposit taking MFIs from capital requirements and prudential regulation.
• Donors should develop:
  • Capacity for effective supervision;
  • Wholesale microfinance facilities or guarantee funds;
  • A cost-recovery training facility.
• Microfinance practitioners should:
  • Work closely with regulators;
  • Get the private sector involved;
  • Upgrade technology.

The paper concludes that transformation and commercialization are expected to have a positive impact on MFIs. This process will be hastened by the participation of regulators and practitioners.