Increasingly, microfinance is proving to be the key that unlocks the potential of poorest in many developing countries, as shown in Vietnam where farmers have been able to raise the funds to expand and where mobile bankers now offer communities fair financing for their own fledgling ventures.

Between 1998 and 2001, a World Bank-assisted Rural Finance project provided nearly $650,000 to 250,000 rural Vietnam households. Almost a third of the borrowers were women.

The loans, averaging $360 each and provided through seven participating banks, were used to expand farm production, agricultural processing, and trading. To date, the repayment rate is 98 percent—very high compared to trends in the wider banking system.

"This project has brought valuable new financial resources to Vietnam to fight rural poverty," says Dr. Nguyen Van Giau, Deputy Governor of the State Bank of Vietnam. "Not only has it made the participating banks stronger, it has enabled thousands of farm households and small-scale enterprises to borrow small amounts at commercial rates and expand their businesses. Without the project, most of these borrowers would have turned to money lenders, whose costs are much higher."

99 percent of the borrowers increased their income significantly after borrowing.

The total credit provided by the Bank for this project was $110 million. The project has supported several financing initiatives, reflecting the various challenges facing Vietnamese communities. One of these is mobile banking, which provides services to remote areas without bank branches, using specially equipped vehicles. Since the inception of the program, each mobile bank visits an average of 62 remote locations monthly, adding more than 200 new savings accounts and more than 500 new borrowers every month.

Already, the benefits of mobile banking exceed the costs, highlighting the need to provide more and better banking services to people in remote areas who until now have had no formal banks to serve them. According to a study conducted by the Microfinance Resource Center of the National Economic University in Hanoi in 2001, 99 percent of the borrowers increased their income significantly after borrowing.




Reprinted with permission from the World Bank.

To read another Global Envision article about microfinance contributing to poverty alleviation see Poverty Alleviation Through Microfinance in China.