[Vnbiz] Inflation and the poor (formerly: June trade deficit down)

[Tran Dinh Hoanh]

Dear anh Ken,

Thanks for the information about CEP (Capital Aid Fund for Employment of the
Poor -- Quy Tro Von cho Nguoi Ngheo Tu Tao Viec Lam) http://www.cep.org.vn .
This is very good.  CEP has been around since 1991, using the Grameen Bank
model of microfinancing.  17 years of experience.  Very professional.  It
even has one of  the top international accounting firms as its
auditor--KPMG.  This is very good.  So we don't have to build something from
ground zero for the current urgent matter.

I hope that the Prime Minister office will talk to CEP and that MARD will
take the initiative to ask CEP to quickly expand to the North and throughout
Vietnam.  And MARD should stay out of microfinancing (except in area where
MARD already has something going and no organization like CEP is present).
Anh Ken is correct that no government-run program will be as good for
microfinancing as Grameen-modeled organizations.  So I hope that instead of
turf competition, MARD will care enough abut the country to knock on CEP's
door and ask it to help.

And we need to find some Worldbank loans and/or international development
assistance fund to establish this program, so that we don't add more
inflation.

Have a great day!

Hoanh
___________________________________
-
On Sun, Jun 29, 2008 at 11:50 AM, Ken Liffiton <ken at liffiton.com> wrote:

> [ Vietnam Business Forum ]
>
> Dear Anh Hoanh + CACC,
>
> Vietnam already has a system similar to the Grameen Bank of Bangladesh,
> but it's not yet widespread.  CEP is by far the country's largest
> Grameen Bank style microfinance institution, and it currently serves
> over 80,000 poor clients in all districts of TPHCM (Cu Chi to Can Gio).
> I visited them a couple of years ago and was impressed with their
> operations.  See: http://www.cep.org.vn
>
> CEP operates based on the Grameen Bank model, and they are working to
> replicate their model as a network of separate microfinance
> organizations across all provinces of Southern VN.  They have so far
> have started programs in Long An and Vung Tau:
> http://www.cep.org.vn/?page=replication
>
> I agree that the government's banking-for-the-poor efforts have not been
> effective; IMHO, it's never a good idea for any country's government to
> run a microfinance program.  There is a very good chance that a
> government-run (or heavily subsidized) program won't aim to become a
> self-sustaining business.  As a result, it may:
>
> 1. Charge below-market rates on loans,
> 2. Fail to pursue full repayment of loans,
> 3. Operate inefficiently, and
> 4. Use loans for local political gain.
>
> Lower rates and lax repayment policies may be good for the poor who
> receive them, but such practices make it unprofitable for others to
> enter the field and spread microfinance to even more of the poor.
> Meanwhile, for all of the reasons above, a government program may
> regularly require additional capital to stay afloat, rather than taking
> on new financing only to expand its reach.
>
> I think that for microfinance to succeed, it needs to be operated
> separate from government, and with a market-based orientation.  CEP, for
> example, technically falls under the Labor Union but operates with a
> sufficient degree of autonomy to optimize its decision-making.
>
> In Vietnam, we can do a simple comparison of government vs.
> non-government microfinance activities.  Let's look at 2007 financial
> performance for CEP versus the government-subsidized VBSP (Vietnam Bank
> for Social Policies).  As reported by each insitution on www.mixmarket.org
> :
>
> Return on Assets: CEP 8.2%, VBSP -2.7%
> Return on Equity: CEP 15.8%, VBSP -9.39%
> Operational Self-Sufficiency: CEP 156%, VBSP 72.65%
>
> The percentage of CEP's loan portfolio that is more than 30 days in
> arrears is around 1%, and they rarely have to write off loans.  VBSP
> does not report such figures.
>
> CEP is serving the poor in a market-based, sustainable manner, while
> VBSP is not.  VBSP has produced negative returns over the past several
> years, charges below-market rates, and (anecdotally) may exhibit some of
> the other symptoms I outlined above, including loans to non-poor people
> attracted by the subsidized interest rate.  So, we have a subsidy
> problem in the microfinance sector as well.  Perhaps a non-subsidized,
> streamlined version of VBSP could be the answer, but how do you reach
> that goal from the current situation?
>
> In my opinion, CEP are the ones to talk to if you want to spread Grameen
> Bank style microfinance across Vietnam in a sustainable manner.  To
> start, on their website and mixmarket.org you'll find full details of
> their operations, audited financial statements, and a detailed,
> up-to-date business plan.  I've done a fairly simple examination of the
> problem here, but CEP clearly knows how to run such a program and
> understands many of the more detailed issues involved.
>
> - Ken
>
> Tran Dinh Hoanh wrote:
> > [ Vietnam Business Forum ]
> >
> >
> >
> > ------------------------------------------------------------------------
>  >
> > Dear Brother Duc & CACC,
> >
> > Thank you for the good note, brother Duc.  The SOE issue is really a
> > pain in the rear.  I started to talk about that issue at least as
> > early as 1992, and we will have to work on that issue for quite some
> > time.  But, you have touched another issue dear to my heart -- the
> > effect of inflation on the poor.
> >
> > The poor is so close to my heart and I never forget them.  But during
> > the entire process of solving this inflation crisis, since March until
> > now, I've rarely mentioned the poor, other than reminding
> > the government of emergency support for the poor when needed once in
> > awhile.  The reason of my relatively silence is that an inflation
> > crisis is a different problem from social security for the poor.
> > Although these two problems are tied together in consequences, i.e.,
> > high inflation hits the poor the most, they are really two different
> > problems.  If we dump them together, we will confuse ourselves so much
> > and all economic policies will be wrong and the main problem, i.e.,
> > inflation, will be worsened.  This is not farfetched theory.  Many
> > developing countries around the world have made this mistake.  When
> > there is high inflation, of course, the poor get hit the most; the
> > government, instead of focusing on solving inflation, spends more
> > money to help the poor and therefore make the inflation worse, until
> > the entire economy collapses.  That is why I have deliberately avoid
> > talking about the poor even though I've been think about them every
> > day and my heart hurts.
> >
> > But, now that the inflation crisis has lessened and may be on the way
> > out soon, for the last several days I have started to send private
> > notes to some friends in Vietnam about the situation of the poor.
> > Good ESP, brother Duc.  I know that food price has been increasing so
> > high that many urban and rural poor can't even afford enough food on
> > the table.  And the price of imported fertilizers and animal
> > foodstuffs have increased tremendously that farmers can't afford them
> > anymore.  So how do we solve this issue?
> >
> > Right now, we know that there is rice subsidy and price control in
> > place; but this system doesn't work because food prices, including
> > rice, has risen continuously.  This tells me that food, especially
> > rice, is being smuggled out of the country and the current market
> > price is the free market price.  It means, the government is spending
> > money on subsidy and price control for nothing.  But this is also a
> > good thing, because if food price is truly free market price, then
> > probably it will not increase much more because the global food
> > crisis has been abated greatly (and lifting subsidy and price control
> > would be painless).
> >
> > And we don't want more subsidy and price control on anything for the
> > poor, because these things don't work.  Goods will simply be smuggled
> > out of the country, supply will be short inside the country, and the
> > price will just rise.
> >
> > So, for now I am thinking about two major things the government can do:
> >
> > 1.  An intensive system of micro-financing to lend money to farmers
> > for agriculture activities, be they fertilizer for the filed or
> > foodstuff for chicken.  I have the feeling that the banking system in
> > place under the Ministry of Agriculture and Rural Development (MARD)
> > is not good enough for this purpose.  I have the feeling that MARD's
> > banking system works too much like a commercial bank and not very
> > effective in managing microcredits.  We need to have a system similar
> > to the Grameen Bank of Bangladesh (Dr. Muhammad Yunus, founder of
> > Grameen Bank has won the Nobel prize in 2006).  I think the VN
> > government should talk to Grameen Bank immediately to gain expertize
> > on running a nationwide microcredit system effectively.
> >
> > The money used for this microcredit system should be taken from some
> > Worldbank (emergency) agriculture loans so that Vietnam doesn't simply
> > print more VND that will worsen inflation.
> >
> > 2.  In addition to that, the current VN social security system though
> > local women's unions and local authorities at village level seems to
> > be very good in helping the very poor when they are in need.  The
> > government can rely on this system and support it, to make sure the
> > most desperate cases of the poor will be taken care of decently.
> >
> > But these two things will not cover many urban poor who are simply
> > floating out there without a village or a "phu+o+`ng" structure to
> > support them.  I know that many urban poor do not have any kind of
> > community structure around them.  They just float around in the city.
> > How do we help them?  I don't know.  Still thinking.  I hope that
> > whatever services they are doing in the city increase in price, so
> > that they ride the inflation storm OK.
> >
> > I'm still thinking.  Please chip in to help me out.
> >
> > Have a great day.
> >
> > Hoanh
> --
>


>
> Tran Dinh Hoanh, Esq., LLB, JD
> Washington DC
>
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