The Rural Finance Project II (RFP II), funded by the World Bank (WB) and run by the Vietnamese Government and the Bank for Investment and Development of Vietnam (BIDV) which was in charge of management and re-lending, was put into operation on April 14, 2003. With a credit of 235 million USD, the Project has contributed greatly to the economic development as well as improvement of the living conditions of rural people.

Assisting in hunger eradication and poverty reduction

The Rural Finance Project II (RFP II) is a succession of the Rural Finance Project I (RFP I) with the target of supporting Vietnam’s efforts to eliminate hunger and reduce poverty, develop the rural economy, as well as improve the living conditions of people in rural areas via the feasible projects of individuals, households and businesses in all production and trading sectors. So far, the Project has been successful in reaching the target of providing credits to expand investment in rural areas. By September 30, 2009 the Project’s credit funds have created a list of investment of 870 million USD (13,785 billion VND), in which the WB fund is equivalent to 467 million USD (7,480 VND), accounting for 53.8% of the total investment; additional fund from credit organizations is 124 million USD (1,935 billion VND), accounting for 14.3%; and capital source from the sub-borrowers is 278 million USD (4,369 billion VND) or 31.9%.

According to a report on the Project’s results, 1 USD from the WB capital source creates 3.91 USD in investment in the rural areas, an increase of 1.51 USD compared with expectation when the project was assessed. Through the Rural Development Fund II (RDF II) and the Micro Loan Fund (MLF) – the two sub-credit funds, RFP II encouraged private investment by providing loans for nearly 500,000 feasible projects of individuals, households and private businesses in rural areas. With the medium- and long-term loans reaching 99.2%, the Project has achieved the target of providing loans for the farmers in the context that the Vietnamese banking system lacks these sources to invest for the rural development. The Project has improved the economic life of women since nearly 40% of the sub-borrowers are rural women, helping enhance the gender equality.

Promoting the development of the private economic sector

The Rural Finance Project II provided loans for people in the rural areas in 60 out of the 63 provinces and cities in the country, covering all economic sectors and branches. 30.1% of the loans were provided for trading and services activities; 28.9% for animal husbandry; 18.1% for farming; 6.4% for sea products and aquatic products; 4.1% for processing; 2.2% for handicraft industry; and 9.8% for other economic activities. There were no overdue debts from the participating financial institutions (PFI) and BIDV (the project manager). The average rate of overdue debts of the sub-borrowers and PFIs was very low (0.36% compared with 2% set for the last period target).

Apart from increasing investment in the agricultural private economic sector in rural areas, the funded sub-projects had positive effects on the non-agricultural activities, creating jobs and increasing income of rural people. The Project created nearly 275,000 jobs in the rural areas. On average, a sub-project (capitalized at 64 million VND or 4,050 USD) created 1.6 jobs, which shows that the Project’s capital source has a high coefficient of job creation. The rate of PFI’s withdrawal of capital from the sub-borrowers was high (over 99%), showing the effectiveness and capability of the Project to improve incomes. According to a survey on the Project’s impact on the sub-borrowers carried out in April 2010, RFP II had a positive impact on the financial access in the rural areas. Up to 39% of people who received loans said that through the Project, for the first time they could access the banking and finance services; 75% said they would not have implemented their business plan or would have had to reduce investment if they had not received loans from the Project; 64% said their personal saving had increased; and 91% said the loans had helped create jobs or increase family incomes.

The above achievements are attributed to 243 cars serving as mobile banks, bought with the Project’s capital, which brought the banking services to poor people in the remote and sparse areas where the bank’s branches have not yet been established. About one thirds of MLF’s capital source was used as loans in the northern midland and mountainous areas which have the highest rate of poor people in the country.

Enhancing the institutional ability of the financial institutions

The Rural Finance Project II has reached the target of increasing the competitiveness in providing the banking services in rural areas. Compared with the seven financial institutions participating in the Rural Finance Project I, the number of financial institutions participating in the disbursement of RFP II’s capital source has increased to 25 units. In RFP I, disbursement via the Vietnam Bank of Agriculture and Rural Development (AGRIBANK) accounted for 73% of RFP I’s capital source at the end of the Project on December 31, 2001. But in RFP II, although AGRIBANK was still in charge of the disbursement of the Project’s capital source, disbursement decreased to 34% at the end of the Project on September 30, 2009.

Participating in the Project, the PFIs must be subject to a strict selection process which examines their ability to reach the Project’s criteria. The selection criteria set out by the World Bank are based on the best practices and practical activities of the Vietnamese commercial banks. Those financial institutions which have not reached the criteria must build up an Institutional Development Plan (PDI) to set out measures and a roadmap to reach the selection criteria of the Project. Thus, joining the Project, the PFIs have undertaken their activities in accordance with international rules suitable to the general development orientations of the Vietnamese Government.

The Project shows that for the first time in Vietnam the commercial banks have matched the regulations on environmental protection to the conditions for obtaining loans. This has actively contributed to enhancing the rural people’s sense of participating in the environmental protection while they implement the production and trading project, an activity which does not receive due attention in the rural areas. Through the training courses funded by the Project, over 20,000 managers and specialized cadres of the banks were trained and re-trained during the time they participated in the Project, thus their professional skills were improved.

Affirming BIDV’s brand name

The decision of the Government and the World Bank to place RFP II in BIDV and entrust BIDV to function as a wholesale bank is an appropriate option because BIDV is one of the leading State-owned commercial banks in Vietnam , with over 50 years in operation and a large network. For many years it has been audited with international standards, has transparent practices and is not confined to providing information. BIDV leaders have pledged to follow and reach the targets of institutional development so as to implement effectively the distribution of the Project’s capital source.

To successfully fulfill the role of a distributor, BIDV has been successful in building and maintaining an independent management board of the Project, with a contingent of professional cadres who have high skills in managing international projects and establishing good relations with domestic and foreign partners. The Project Management Board is placed in BIDV’s Transaction Department III which has all functional rooms, approved by the World Bank. In particular, for the first time the Environment Room has been established in the system of functional departments and rooms of a Vietnamese bank, which is in charge of assessing and checking the measures on eco-environment protection as regulated.

BIDV’s success in the RFP II is also attributed to the direction and assistance from the Governmental offices and WB. The Inter-Branch Management Board of the Project has been established and headed by a Vice Governor of the State Bank, who gives guidance and timely assistance to solve the arising problems to ensure the target and process of the Project. The WB and banking cadres have provided effective assistance for the Project during its preparation and implementation periods.

After RFP I and RFP II, many farmers wish that other financial projects in rural areas will be carried out, actively contributing to rural economic development, hunger elimination and poverty reduction and improving rural environment. Among many ODA projects in Vietnam , RFP I and RFP II have been managed effectively, creating a basis for the Government and international financial organizations to select partners. After the success of RFP I and RFP II, the World Bank continued to select BIDV to function as a wholesale bank for the Rural Finance Project III (RFP III) capitalized at 200 million USD, raising the total capital of the three projects to 548 million USD. RFP III began to be disbursed in June, 2009 and so far over 50 million USD has been disbursed, continually contributing to building the rural areas more affluent and beautiful.

Story: Nguyen Hoang Thang

Photos: Tri Duc – Thao Nguyen – VNP file – BIDV filenbsp;