Rural financial services

Thirty-two years old Nguyen Thi Hoa is a member of a self-help group in Kim Binh commune in the Chiem Hoa district of Tuyen Quang. Her husband owns a small piece of land (one-fifth of a hectare), which is worked by husband and wife together. Nguyen Thi Hoa obtained a VND 2,000,000 bank loan through the IFAD-supported self-help group and used it to purchase a buffalo. Previously, they had been obliged to borrow or loan an animal for ploughing, which often meant that they were unable to plough as and when they wished. Having their own draught animal had the effect of increasing their yield of paddy from 600 kg to one ton, putting an end to the seasonal food shortages to which the household had been liable. The buffalo is now pregnant. Nguyen Thi Hoa is not worried about repayment of the loan, and she feels that her status both within the family and in her village has improved as a result of her membership in a self-help group. Her aspiration is to educate their two young daughters, build a bigger house, install electricity, and purchase a television.

The Country Programme Review and Evaluation (CPRE) concluded that rural credit can be a powerful tool for poverty reduction in Vietnam and the IFAD-supported projects have made important advances in the delivery of micro-credit at the community level. In each province where IFAD has been involved, a co-management credit delivery framework has been promoted, including major partners such as the Vietnam Bank for Agriculture and Rural Development (VBARD), the Vietnam Board Poor (VBP), Vietnam Women's Union (VWU), the Farmers' Associations (FA) and the projects. The VWU and FA organise savings and credit groups (SCGs) and collect interest, with the groups undertaking joint liability for defaulting members. However, the credit programme has faced serious structural and procedural problems that restricted its impact on project beneficiaries significantly. In Ha Giang, administrative problems initially delayed the flow of credit, but the VBARD has now agreed to channel credit from its own resources. In Quang Binh, the VBARD is reluctant to channel credit to the poor, in particular to those without land titles. For borrowers who are able to give security, the procedure for asset verification is time consuming, requiring certification by three agencies i.e. VWU, VBARD and Commune Peoples Committee. Even in Tuyen Quang, where the flow of credit to the poor from VBARD has been good, the group capital was not enough to meet the short term or medium term consumption/production credit needs of their members on a sustained basis. Attempts to satisfy more households have resulted in a thin spread of credit in some communes and only very few beneficiaries have been able to obtain a second loan from either the groups or the banks. The cumbersome processing procedures, the high cost of making small loans, the collateral requirements and the perceived high risks of small loans inhibited the involvement of commercial or state banks in lending to poor farmers at a large scale. Although, VBARD has over 2600 branches throughout country and is the only bank in 20 out of the 61 Vietnam provinces, its branches are mostly positioned in the proximity to district centres. Therefore, a significant percentage of rural households depend on informal sources for credit, paying higher interest rates than those charged by formal financial institutions.

An important lesson from the CPRE is that the rural disadvantaged communities in Vietnam have accepted widely the savings and credit concept and have overcome the barriers of working jointly in groups, which they see as a valid instrument for improving their welfare. The social pressure as a guarantee for small loans is proven to be so strong that it has not only made it possible for poor households to access credit, but also provided collateral. Recovery rates are very high. The micro-credit loans were overwhelmingly invested in animals (pigs and buffaloes) that are of indigenous breed and managed according to traditional practices. The household's food supply situation improves as the profits are used to buy food, and children are sent to school. Credit also adds value through the utilisation of waste and scavenged feed by animals and contributes indirectly to the protection of the environment, because as people earn enough they limit the collection of firewood from forests for sale in the market.

The CPRE concluded that subsidised micro-credit runs the risk of being rationed and availed of largely by clients with easy access to VBARD and VBP branch network, which have a limited presence in remote rural areas. Thus, subsidised credit effectively reduces, rather than enhancing the access of the poor to micro-credit. It implies also low deposit rates that discourage savings mobilisation and investments, which are central to establishing a sustainable rural financial services. A viable solution for such remote areas lies in credit retailing by financial intermediaries, but below market interest rates do not provide the necessary spread margin to such intermediaries to cover even their operating costs, much less the costs of social intermediation, such as group formation and training of beneficiaries.

IFAD's experience in others countries in Asia illustrates that the poor are indeed bankable, if only they are provided with appropriate services and instruments to participate in micro-finance activities. The CPRE is confident that models applied by IFAD for grassroots-based credit schemes can be fruitfully applied in Vietnam as well. More specifically, once savings and credit groups have operated successfully for a sufficient period of time in Vietnam, groups of similar operational capabilities could be merged into a larger ‘federation'. Such federations can contribute to enhancing the availability of resources, lower transaction costs of credit operations, improve sustainability, and provide greater capacity to federation members to negotiate with banks and provincial and district authorities about their social and economic requirements. The formation of federations should be accompanied by training and the development of an appropriate legislative and regulatory framework.

The CPRE also shows that the coalition with the VWU and FA has generated added value in a cost-effective manner and benefited the rural poor. Mass organisations and NGOs, with hands-on experience in mobilising and empowering rural communities and women specifically, could supply technical support and provide a link between the private sector and the rural communities and facilitate the use of modern technologies with the view to optimising costs and promoting sustainability of financial services.

Gender mainstreamining

Thirty-six years old Truong Thi Tron comes from a Nung family of an average economic background. She lives in a two-roomed tiled house in Vinh Quang town of Houng Su Phi district in Ha Giang, and has studied up to 7th grade. She is a member of the Women's Union and of one of the four savings and credit groups established in the locality under the auspices of the IFAD supported project. She contributes VND 2,000 per month to her group and has taken out a bank loan of VND 3 million for the expansion of her rice dumpling business. She now sells 30 kg of rice dumplings daily, compared to 20 kg before, and her profits have increased. Unfortunately, she was unable to attend the training in business skills provided by the project, as the sessions clashed with her peak working hours. Her chief aspiration is to be able to provide a good education for her children.

The Country Programme Review and Evaluation (CPRE) acknowledged the central role of women in development activities in Vietnam, in particular in agriculture, livestock development, forest management and rural marketing. The projects supported by the Fund contributed in different ways to addressing the gender-specific causes of poverty. However, the CPRE concluded that the overall livelihoods of women requires further improvement and support, as there still exists significant inequality in the distribution of power within the household in terms of decision-making, work load, nutritional status, opportunities for capacity building and training, representation in development institutions and access to productive assets, such as land, credit and education.

The CPRE established that the credit and savings programme promoted by IFAD was an important instrument in contributing to the empowerment of underprivileged women. Their participation in credit-related development planning and implementation has enabled them to increase their knowledge, asset-base and income-generating opportunities, as well as enhance their status and role within the family, and strengthen their overall ability to cope with poverty and related difficulties. Bank loans taken were used for the building of asset, such as the purchase of buffaloes, pigs and other livestock, as well as purchase of farm inputs. On the other hand, internal group loans were mainly used for family emergency and consumption purposes. Advancements were also made in the reduction of women's workload by improving access to drinking water, promoting the use of coal instead of wood fuel, and introducing improved technologies for seed broadcasting and the preparation of animal feed. A further important element has been the creation of mechanisms for allowing women's voices to be heard in village-level decision-making and recource-allocation processes. Some of these mechanisms include the participation of women in Participatory Rural Appraisals, activity user groups and savings and credit groups, as well as Village Development Boards.

The degree of access of poor women to project resources of different components has varied. It has been higher with respect to credit (more than 90% in Tuyen Quang and 62% in Quang Binh) and income diversification, followed by agricultural extension and sand dune fixation, and lower with respect to roads and bridges, irrigation, forestry protection, animal husbandry and education programmes. The earlier project policy to lend exclusively to women's groups in the villages gave impetus to women's group formation. Statistics suggest that the proportion of women participants in all PRA exercises is between 40 and 50 percent of the total. An innovation in Quang Binh is the practice of carrying out PRA in separate men's groups and women's groups so that women's specific needs may easily surface and be clearly understood. There was a consensus at the CPRE workshop that women's priorities and requirements often differ from those of men, and there is a pressing necessity that efficient instruments be devised to enable a concise articulation of women's concerns in development plans.

The inequality between men and women remains an issue of concern. The CPRE workshop discussed the need for policy shifts to redress this situation. In this regard, one area that was considered important was the need to provide women with more secure access to assets, such as land and housing. IFAD experience from other countries illustrates that 'asset security' contributes to the empowerment and food and nutritional security of women, and enables them to more effectively participate in development programmes, such as credit and savings activities. For example, secure land tenure would allow women to offer it as collateral for credit, which in turn would facilitate them to engage in micro-enterprise or other income-generating activities. Land security would also encourage agriculture-related investments, thereby increasing productivity and availability of food, both in terms of quality and quantity. Finally, asset security also empowers women's status within the family and society, as they would no longer be financially dependant on their spouses.

An area that the CPRE workshop considered crucial for the overall advancement of women is the participation of women in key institutions that are primarily involved in rural development activities. Currently, women's representation in the Provincial Peoples Committees and Project Co-ordination Units ranges from 18 percent in Ha Giang to 26 percent in Quang Binh, with their representation being higher in administration and accounts than in management and decision-making functions. In Tuyen Quang province, the director of the IFAD-support project and the head of the Farmers' Association are women. A woman is also the head of the Women's Union in the same province. However, women's representation at the District Implementation Units is lower than at the provincial level in all projects. Many activity managers of credit/income diversification programmes and 30-50 percent of those involved in the agricultural component of the IFAD-promoted projects are women. In Ha Giang, all education volunteers were women, but only 10 percent of human and animal health volunteers.

Decentralisation and bottom-up development

In Khuon Khoai village in the Yen Nguyen commune of Tuyen Quang Province an IFAD-funded micro-irrigation scheme was constructed and the concrete-lined irrigation channels now supply irrigation water for 34 hectares of land. A construction company had designed and supervised the work of construction but the villagers, who were organised into a water users association, had dug and lined the channels themselves, with the materials supplied by the Government. A conversation with a 50-year-old farmer involved in the construction and maintenance of the irrigation scheme revealed that, thanks to the water user association, the irrigation fee payable under the new scheme had not increased. The fee was payable in cash, although maintenance work was remunerated at the rate of VND 10,000 a day and this sum was deducted from the irrigation fee. It was the firm opinion of the farmer that the villagers would have even been capable of undertaking the design and construction, if the initial capital had been made available to them.

A strategic focus of IFAD supported projects in Vietnam has been to promote decentralisation and a bottom-up approach to development. The Country Programme Review and Evaluation (CPRE) concluded that decentralisation and participation has led to the empowerment of rural people, providing them an opportunity to identify, plan, implement and evaluate their development works and activities. Operational decentralisation and the development and strengthening of grassroots institutions have been major determining factors in empowering local people and communities to take charge and be the prime drivers of their own development. The CPRE further established that better results have been achieved in those provinces where the capacity of local institutions is stronger, and where a more effective coalition exists among community-based organisations, mass organisations and commune, district and provincial-level institutions.

Decentralisation and devolution of authority and responsibility for local development to local governments and institutions constitutes an essential element of good governance and has the comparative advantage of responding more immediately and effectively to the priorities and needs of local people. All IFAD-supported projects have promoted a decentralised way of operations, with planning, implementation and supervision responsibilities being delegated to implementing agencies at provincial and district levels. However, the CPRE workshop discussed that further results may be achieved if delegation of such responsibility is accompanied by a concurrent devolution of financial authority. The workshop also underscored the need for adequate training at lower levels, in areas such as technical and financial management and control, prior to implementing financial devolution of authority on a wider scale. One example that was discussed was the possibility of greater delegation of financial powers to Commune Development Boards (CDBs) for issuing of contracts with respect to village level micro-schemes, provided the concerned CDBs have sufficient capability to take on such functions.

IFAD-supported projects have promoted the institutionalisation of the Participatory Rural Appraisal (PRA) approach to project formulation, planning and implementation, as well as supervision and evaluation. For example, PRAs have also been used to classify households into four or five wealth categories based on their own criteria, that has been used as the main targeting instrument in the project areas. The mass organisations, such as the Vietnam Women's Union and Farmers Associations contributed to the formation of ‘activity user groups' and self-help groups, which are involved in micro-irrigation and drinking water schemes, access to credit, road programmes, sand dune fixation, forest protection and agricultural extension activities. These groups proved to be instruments that facilitated the active participation of rural people in development initiatives and provided them an opportunity to be trained, to gain confidence and be the owners of their decisions and advancement. More recently, Community Development Funds (CDF) have been introduced in IFAD-financed projects to encourage bottom-up development and to introduce flexibility in meeting the evolving requirements of communities during implementation. However, the CPRE workshop participants highlighted that need to reflect on the post-project management modalities of CDFs.

Forestry and environment protection

Fifty-two year old Tran Cam lives with his wife and two children in a coastal village of Le Thuy district in Quang Binh province. He has four ‘sao'(in central Vietnam, each ‘sao' is equivalent to 500 sq.m.) of agricultural land, a small fishpond, ten hens, and four pigs. One of these pigs was purchased with the wages that Tran Cam earned from planting and looking after two hectares of sand dunes under the IFAD-supported sand dune fixation programme. His sow gave birth to piglets. There was also something left from the wages and this went to obtaining fertiliser, which has increased the yield of Tran Cam's plot of land. He has so far received VND 3 million for the initial planting, and VND 800,000 for the first year maintenance. He feels that his family's living conditions have directly improved through his participation in the sand dune fixation programme, and considers himself lucky to have been amongst the ten families selected by the villagers for being issued with a protection contract. Although still poor in comparison with other families in the village, his household no longer faces the seasonal food shortage, which had been a regular feature of their lives. He believes that if the families involved in protection of the newly-planted casuarina carry out their job properly, the plantation will within five years provide an effective defence against sand storms and the movement of dunes.

There was no forestry component in the Tuyen Quang project, but its work complemented and aided the process of re-greening, by contributing to food security and thus relieving the pressure on the forests. The process of forest allocation is well advanced in most districts, and farmers are able to meet their fuelwood demands from their own forest plots, allocated on a 50-year lease basis. The most obvious indication of improved security of tenure (and therefore of longer-term planning) has been the widespread planting of fruit trees (oranges, plums, logan), some of which, such as cinnamon, require ten years or more before the first harvest

Various efforts by international agencies in recent decades to use tree planting to counter the gradual intrusion of sand dunes into areas of cultivated land along the 20 km coast of Quang Binh have met with little success with survival rates of 10 % or less. Such is the shortage of combustible material in the coastal region of Quang Binh that primarily de-branching for fuel wood has destroyed the young casuarina trees. Experience shows that for as long as there is such an acute shortage of fuel, the depredations will continue in all areas except where existing trees are understood by the local villagers to be performing a vital role as a physical barrier against the sand or in the creation of micro-climatic enclaves. ‘Even in areas seemingly most under threat from the movement of sand dunes in the coastal area south of Dong Noi, new houses are being constructed. The inward-facing slopes of the nearest dunes are covered with a variety of native trees and bushes, of which the species Ta Dai is the most prominent. The villagers fully recognised the importance of this vegetation and all of them reacted strongly to the suggestion that this vegetation might be under threat from fuel wood collection. It was true that fuel wood as in very short supply (and an army of small boys were on hand to grab up even tiny sticks that were unloaded with the soil brought in for the purposes of improving and extending the adjacent highway) but it was unthinkable that anyone would cut wood from the crucial barrier behind the houses. Those dunes had not moved for as long as anyone could remember, and the construction of new dwellings hard up against the dunes was proof of the villagers' confidence that this would continue to be the case The wide-rooting native trees such as Ta Dai provide the very best protection against sand dune movement, but they are very difficult to cultivate and take many years to become established. However, these dense natural barriers do provide a model for what must be sought in other areas of the sand dunes.' (From an interview with local inhabitants conducted by the Evaluation Mission).

Guided by experience, the IFAD supported project planted 2,700 ha of casuarina in twelve southern communes of Quang Binh, in densities of 3,300 and 5,000 seedlings per hectare, on the basis of an agreed plan that aimed to promote the emergence of micro-climates that would allow both cultivation and settlement. Such plantations were undertaken in a participatory arrangement with people living at the local level and their communities. That is, a self-management board within a co-management framework has been set up in each commune for promoting the sustainable utilisation, management and conservation of forests. In this context, for example, seedlings were produced by the farmers, who themselves carried out all planting and maintenance work. Early indications are that their active participation would materially add to the longer term protection of the young trees. During the CPRE workshop, it was highlight that since forest lands are owned by the state, mechanisms need to be developed to encourage farmers to continuously engage in forest protection work.

Similarly in Ha Giang, efforts are being made to develop participatory protection models and issue forest protection contracts to farmers. In certain parts of the northwest mountainous region of Ha Giang, a destructive cycle of flash flood and drought has been initiated. In parts of Xin Man (in the west), the erosion of steep slopes is serious enough to cause repeated landslides on newly constructed roads, which is beyond local capacity to repair. Conditions in these areas require urgent attention on the part of both government and international donors to reverse deforestation. ‘Foresters pointed out that the great majority of deforestation in the area had been carried out by outsiders, either for military or commercial purposes, and that up to thirty of forty years ago the forests had in fact been well cared for by local people, who fully appreciated the value of extensive and healthy forests in terms of micro-climate and the prevention of erosion. The strict measures adopted by the Government had, it was agreed, been important in the re-greening of the province but eventually the ownership and guardianship of the forests should be returned to the local communities themselves. If the forest protection contracts were seen as a step towards this, then the sustainability of the process would be ensured'. In the absence of drastic measures to address the fuel situation, the government's intention of preventing the expansion of shifting cultivation and further migration may prove to be more difficult than anticipated, and large populations of H'mong farmers could become environmental refugees.

Participatory adaptive research and extension

After leaving the army, Hiep Nguyen Duc and his wife initially opted for an urban existence but soon found that urban life was hard and unrewarding and decided to move back to the land, settling in an area where they had neither friends nor family. When Hiep Nguyen Duc first took over his small plot of land, the vegetation consisted of little more than the pernicious weed imperata cylindrica, which required laborious clearing by hand in order to make way for crops, mainly rice, potatoes and maize. This he planted with bamboo, mangletia and other endemic hardwoods. When mature, the bamboo is sold for pulp, fetching around VND 8,000 for a five-metre length. Over the years, and with the help and advice of the agricultural extension service supported and improved under the operation of the IFAD supported project, Hiep Nguyen Duc has diversified his production to include bananas, grapefruit, mangoes and plums. The most recent addition has been lichees, for the planting and care of which the assistance of extension officers has been invaluable. The planting of fruit trees and of hardwoods reflects the family's security of tenure and Mr. Hiep looks on the granting of the land title as the most significant moment in his life as a farmer. Hiep Nguyen Duc also possesses two buffaloes and a pig of the improved breed introduced under the auspices of the IFAD supported project. With the proceeds of their increased agricultural production, Mr. Hiep and his wife have been able to build a fine clay and timber house with high thatched roof and carved roof beams

The IFAD supported projects, with the Tuyen Quang project playing a lead role, using participatory rural appraisals (PRAs) assessed the problems and needs of rural households for technology support and built a responsive, problem-solving and demand-driven research and extension system that has been acknowledged as being a model. This model has been replicated in other provinces of the country. Through participatory research in farmers' fields and training, the Extension Service succeeded to improve capabilities and find solutions to the problems and respond to the needs in location specific contexts. The Extension Centre became the flag bearer of decentralisation and participation and the extension staff became the key facilitators of most project activities. Excellent linkages have been established amongst research, extension and farmers through which farm households provided to both researchers and extensionists local knowledge and feedback on the effectiveness of the innovations and technologies being tested. Backed by a system of participatory adaptive research, the Extension Service has provided enormous training to members of Village Development Boards, PRA facilitators, ordinary farmers, and their own extension staff and generated appropriate technical packages and messages that had a significant impact on both agricultural production and poor rural households. Extension messages were disseminated though testing and demonstrations in farmer fields, farm visits, leaflets and provincial media.

Experience shows that changes in markets and technology have largely by-passed uplands in Vietnam as elsewhere in East Asia. Upland communities are generally settled in remote, less productive areas with difficult terrain, poor infrastructure and lower accessibility to the market economy and off-farm work. The successful integration of agro-forestry and livestock into cropping systems in the uplands by the participatory extension service, interacting with rural households, has validated the relevance of both the PRA methodology and of multi-disciplinary and farming systems approach to developing sustainable livelihoods, rather than optimising land-based production in the short-term.

Increases have been achieved in crop yields and in forest cover with more forest areas remaining intact. Similarly, improved veterinary outreach has reduced mortality in pigs and poultry and led to improved growth rates. Healthy dual purpose chicken provide a regular source of cash income to poor households and the agricultural extension department in Tuyen Quang is now promoting a poultry model that uses the Chinese Tamhoang dual-purpose breed, which produces more and heavier eggs than the local breed. The improvement of traditional feeding systems is an area that deserves more attention, with greater focus on local feed resources, because crop residues and other organic materials in areas of denuded hillsides are also used as fuel. In Quang Binh province, the extension services have also made advances in fish rearing, the establishment of fish and shrimp hatcheries and the prevention of disease and treatment. Experience shows that from a hunger and poverty eradication perspective, access to micro-credit and preventive livestock vaccinations command very high priority for most of the poor households. Commune-level PRA has identified many development problems that need to be researched and find sustainable solutions, including varieties of potatoes, maize, soybean, hybrid rice and fruit trees.