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VIETNAM ACADEMY OF SOCIAL SCIENCIES
Graduate Academy of Social Sciences

DANG THU THUY

FINANCIAL INCLUSION IN THE FORM OF
MICROFINANCE IN CHINA, BANGLADESH AND
PHILIPPINES – INTERNATIONAL EXPERIENCES AND
IMPLICATION FOR VIETNAM

Major : International economics
Code : 62.31.01.06

SUMMARY OF DOCTORAL DISSERTATION IN ECONOMICS

Hanoi – 2017

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Doctoral Dissertation is completed at
Graduate Academy of Social Sciences - Vietnam Academy of Social Sciences

Supervisiors:

1. Prof. Dr Nguyen Quang Thuan
2. Assoc. Prof. Dr Do Van Duc

Opponent 1: Prof. Dr Dang Thi Loan

National Economics University
Opponent 2: Assoc. Prof Nguyen Duc Trung
State Bank of Vietnam
Opponent 3: Ph.D Nguyen Thuy Duong
Banking Academy

This thesis will be defended at Institute Council at Graduate Academy of
Social Sciences - Vietnam Academy of Social Sciences.

Can be found at:
- Library Information Center of Graduate Academy of Social Sciences
- National Library of Vietnam

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INTRODUCTION
1. Necessity of the study
Financial inclusion in the form of microfinance is regarded as a
pratical task in expanding the approach of financial services to improve
livelihoods, poverty reduction for the citizen.
In Vietnam, financial inclusion in the form of microfinance is at the
early stage development. It earns initial achievements and contributes to
economic development, poverty reduction, and enhances the capital
accessibility of individuals, poor households as well as small enterprises.
Yet, microfinance accessibility in Vietnam encouters difficulties from

both providers and beneficiaries. Doing research on international practices
so as to find out solutions for Vietnam to accelerate microfinance
accessibility for the poor and small enterprises is necessary.
In recent years, countries in Asia-Pacific such as China, Bangladesh
and the Philippines regarded financial inclusion as one criterion to
achieve sustainable development. In China, financial reform played an
important role in the initial success of financial inclusion. The year 2005
marked a milestone in microfinance activity transformation in China. In
annual development plan, Bangladesh government highly appreciates
microfinance in achieving social economic growth, and benefits to citizen
and enterprise. The Philippines government established positive policy to
support microfinance operations effectively, provide small loans to the
poor and develop its economy.
China, Bangladesh and the Philippines are developing countries
with many similarities to Vietnam in microfinance development level.
Successful experiences and unsuccessful lessons from those countries are
very practical for development of microfinance system in general and
enhancing microfinance inclusion in our country in particular. However,
international researches on experiences from three countries of China,
Bangladesh and the Philippines in promoting microfinance inclusion to
find out lessons and solutions for Vietnam are incomplete, lack of details
and systematic. Therefore, the study, “Financial inclusion in the form of
microfinance in China, Bangladesh and the Philippines – International
experiences and implication for Vietnam” is very much needed.
2. Research objectives and tasks
2.1 Research objectives
The thesis aims at systematize theoretical and practical basis of
microfinance operations, analyze the situation of microfinance inclusion
in China, Bangladesh and the Philippines to find out lessons, directions,
solutions and recommendations for the improvement and development of

microfinance operations in Vietnam.
2.2 Research tasks

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To achieve the above objectives, the thesis should perform specific
tasks:
(i) Review of the published works related to the thesis, inheriting the
research findings and elucidating further the question.
(ii) Systematize the basics of microfinance operations, microfinance
inclusion.
(iii) Analyze the situation of microfinance accessibility in China,
Bangladesh and the Philippines in order to objectively evaluate the
situation as well as experiences of microfinance inclusion in those
countries.
(iv) Assess the development process and situation in Vietnam’s
microfinance inclusion through research model of relationship between
the outreach and sustainability of microfinance institutions (MFIs) in
Vietnam.
(v) From international experiences and current situation of
Vietnam’s microfinance inclusion, the thesis proposed orientations and
solutions to improve microfinance inclusion in Vietnam.
3. Subject and scope of research
3.1 Subject of research
Study subjects are the microfinance inclusion in China, Bangladesh

and the Philippines.
3.2 Scope of research
3.2.1 Space of study
Thesis assesses the current situation of microfinance operation in the
three countries of China, Bangladesh and the Philippines.
3.2.2 Time of study
Thesis studies microfinance system development of China, Bangladesh
and the Philippines during the period from 2010 to the end of 2014.
3.2.3 Content of study
Microfinance inclusion is understood in the following aspects: the
supply of products and services from the MFIs, the demand from
customers and the support from the Government. In the thesis, the author
chose to assess the microfinance inclusion from only providers of
microfinance products and services.
4. Research Methodology
4.1 Assessment of study
The author uses the approach of microfinance operations in the three
countries of China, Bangladesh and the Philippines in view of the overall
and perspective of each country with full of analazing, evaluating and
comparing according to specific criteria to draw lessons for Vietnam in
improving microfinance inclusion.
4.2 Method of study

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The thesis used a combination of qualitative research methods and
quantitative research methods. With these key objectives and specific
research, each research methods are applying, handling flexible and
appropriate.
Qualitative research methods:
 Methods of analysis and synthesis of theory: The author studies
incorporated by topic: financial inclusion, microfinance,
microfinance inclusion. Based on the aggregated analysis of each
topic, sorting the contents of documents, collected information in
a scientific way.
 Hypothesis method: The assumptions are based on the basis of
research on relationship between the outreach and sustainability of
MFIs.
 Comparative method: The thesis compares and assesses the
current situation objectively, finds out the experiences in
microfinance inclusion in China, Bangladesh and the Philippines
as a basis for analysis, evaluation, and comparison to contribute
the content of research.
Besides, the author uses quantitative research methods through
research model
 Data sources: The data are extracted from official sources: State
Bank of Vietnam (SBV), Vietnam microfinance working group
(VMFWG) and official website Mixmarket.
 Research model: The model of the relationship between the
outreach and sustainability of MFIs of Christen et al (1995), Thys
(2000) applied Ordinary Least Squares (OLS). This model was
tested and confirmed by Olivares Palanco (2005) that
sustainability affected the outreach of MFIs. Besides, other
factors also affected the outreach of MFIs such as: operating
time, the width of outreach, competitiveness, gender of customer,

credit methods. In this study, operation self-sufficiency (OSS) is
used as a variable for sustainability and regarded as the value
depends on the model. Operating times of MFIs (years), outreach
index and effective measures are three independent variables that
can affect the sustainability of MFIs. Research on outreach, the
author use two important variables to measure that: (i) the
number of active borrowers (the width of outreach) and (ii)
average loan per borrower (the depth of outreach). The effective
measures are (i) growth of gross loan portfolio, (ii) operation
expense, (iii) deposits/gross loan portfolio and (iv) portfolio at
risk > 30 days.
 The time of study: The author used research model at a time in

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2014 (cross-section model) to assess the microfinance inclusion
and OSS of MFIs in Vietnam.
 The number of selected MFIs: According to VMFWG (2015), the
number of Vietnam’s MFIs is 36 by the end of 2014. However,
the author selected 31 MFIs as observers because of these
institutions implement periodic reports accurately and honestly.
 Review the appropriateness of the model: The model is built and
tested the relationship between the outreach and sustainability of
MFIs. The author uses some test methods such as:
heteroscedasticity test, normality test and stability that test

whether there exists multicollinearity problems interfered with
the results of the model or not.
5. New proposals from the results of the thesis
(i) Systemize the theoretical basis of microfinance inclusion in
improving the quality of the life, poverty alleviation and socio-economic
stability.
(ii) Assess objectively of situation in microfinance inlusion of three
countries of China, Bangladesh and the Philippines.
(iii) Select group of assessing indicators of outreach: the width of
outreach (the number of borrowers, size of deposits and loans, number of
microfinance products and services…) and the depth of outreach (average loan
per borrower, borrower retention rate, the rate of customer out of poverty…)
(iv) Apply the model of the relationship between the outreach and
sustainability of MFIs of Christen et al (1995), Thys (2000) and Olivares
Palanco (2005) developed. The thesis uses and assess the factors affecting
OSS to independent factors in outreach.
(v) Propose some contributed views and solutions to promote and
improve microfinance inclusion in Vietnam in the coming years.
6. Theoretical and practical meaning of the thesis
6.1 Theoretical meaning
Based on the theoretical and practical study, the thesis brings new
academic contributions such as:
(i) The thesis studies microfinance inclusion and evaluates MFIs’
outreach for the target customers.
(ii) The thesis chooses and adjusts the assessment indicators of
MFIs’ outreach in two ways: (a) the width of outreach (operational
network, microfinance products and services, the number of active
borrowers) and (b) the depth of outreach (group of target borrower, size of
deposits and loans, borrower retention rate, and the rate of customer out
of poverty).

(iii) Applying the model bases on theoretical basis as well as
conforms to MFIs in Vietnam.

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6.2 Practical meaning
Besides theoretical meaning, the thesis also brought practical
meaning, such as:
(i) The thesis researches experiences in microfinance inclusion in
three countries in Asia: China, Bangladesh and the Philippines to
objective assessment of situation of microfinance inclusion in Vietnam.
(ii) The results of anlysis model are appropriate and meaningful for
assessing and finding an intimate relationship between the outreach and
sustainability of MFIs.
(iii) Based on assessments from international experiences and
research results, the thesis provides direction, solutions and proposals
aimed at improving microfinance inclusion in Vietnam in the next time.
7. Structure of the thesis
Beside the Introduction, conclusions and recommendations, list of
references, the thesis content is divided into four chapters, namely:
Chapter I: Overview of research related to the thesis topic.
Chapter II: The rationale and practice in microfinace inclusion.
Chapter III: The current situation and the experiences of China,
Bangladesh, and the Philippines on microfinace inclusion.
Chapter IV: Microfinace inclusion in Vietnam and solutions for

enhancing microfinace inclusion on the basis of lessons from China,
Bangladesh and the Philippines.
CHAPTER I: OVERVIEW OF RESEARCH RELATED TO
THE THESIS TOPIC
1.1 The situation of research
The research projects directly related to the subject that the author
can be classified into two main groups according to each research topic in
the country and abroad with the specific contents as: Group 1, consiting of
the studies on financial inclusion and Group 2, including the studies on
microfinace and microfiance inclusion. In group 2, the author will be
divided into three smaller problems with details: (i) assessing the
development of microfinace operations, (ii) microfinace development
directions and (iii) the relationship between the outreach and
sustainability of MFIs.
1.2 The agreed points and the problems needs in the further study
The research projects in the overview mentions situation of
microfinace inclusion in different sides in various countries are analyzed
and evaluated deeply. Howerver there are still research gaps that the
thesis can access as the tasks:
Firstly, the author will systemize some theoretical issues related to
financial inclusion, microfinance inclusion. The published research

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projects are also referring these problems, howerver, the contents are not

specific.
Second, the author is responsible for evaluting the microfinance
inclusion in three Asian countries: China, Bangladesh and the Philippines.
All three countries have practical models in private microfinace approach,
is the factual basis to study and give a suitable model for development of
microfinace industry in Vietnam. The thesis will evaluate the full details
of microfinance outreach in the three countries with selected contents,
assessing width and deepth outreach to highlight the situation of
microfinance inclusion in mentioned nations.
Thirdly, the author will focus on evaluating microfinance outreach
in Vietnam for five years (from 2010 to 2014). The thesis will be deeply
appreciated, honest and objective about the situation in Vietnam’s
microfinance inclusion in the past 5 years along with the lessons learned
from the three countries of China, Bangladesh and the Philippines to offer
recommendations help microfinance outreach in Vietnam toward longterm development and stability.
CHAPTER II: THE RATIONALE AND PRACTICE IN
MICROFINACE INCLUSION
2.1 Microfinance and MFIs
2.1.1 Microfinance
2.1.1.1 The history of microfinace development
Microfinance developed strongly in Bangladesh in the 1970s. Dr
Muhammad Yunus – Professor of economics at University of Chittagong,
had developed the idea of microcredit while studying the lives of the
poors in his homeland when they struggled in the famine in 1974. He
decided to establish an organization to help the poors in his countrt and its
name Grameen Bank. At this time, the modern microfinance was
officially born.
After the initial success of many organizations working in the field
of microfinance, the series of MFIs in the world also began to apppear.
The United Nation declared 2005 as “the year of Microcredit” and by

2006 the Summit on Microfinance announced its report with more than
3.000 MFIs and served more than 106 millions of the poors in the
developing countries.
2.1.1.2 The concept of microfinance
- According to The Consultative Group to Assist the Poor (CGAP):
“Microfinance is the provision of basic financial services to low-income
people including savings, credits, pensions, money transfers, insurance...”
- In view of Asian Development Bank (ADB). “Microfinance is the
provision of a broad range of financial servieces such as deposits, loans,

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payment services, money transfers and insurance to poor and low-income
households and their micro-enterprises.
Synthesis of the above concepts, we can understand that
“Microfinance is the provision of financial products and services to the
poors, low-income households to meet the customers’ demand and
investment for the business”
2.1.1.3 Impact of microfinance
Microfinance has a direct impact on individuals, households and
communities in many aspects. At individual level includes physical,
consciousness, awareness, relationships; At household level: economic,
livelihood strategies, internal family relationships; At community level:
the economy, society, culture, politics.
2.1.2 Microfinance institutions

2.1.2.1 The concept of MFIs
- According to the United Nations Environment Programme
(UNEP): “A MFI is an organization that provides financial services
targeted to the poor. While every MFI is different, all share the common
characteristic of providing financial services to a clientele poorer and
more vulnerable than traditional bank clients”
2.1.2.2 The main insitutions providing microfinance
Microfinance providers can be devided into three main categories:
(i) formal, (ii) semi-formal and (iii) informal.
2.1.2.3 The role of microfinance institutions
The MFIs’ operations play a dual role in both financial and social
sectors. In financial sector, the MFIs provide important financial services
(i) savings mobilization, (ii) reallocation of savings for investment and
(iii) creating favorable conditions for goods and services exchanges,
becoming a powerful tool to reduce poverty and increase income levels.
Other social sector, MFIs create opportunities for low-income people to
have access to financial services and to enhance their participation in
public activities. Basically, MFIs simultaneously perform two tasks:
financial intermediation and social intermediary.
2.2 Microfinance inclusion
2.2.1 The concept of financial inclusion
- CGAP (2011) defines financial inclusion as “a state in which all
working age adults, including those currently excluded or underserved by
the financial system have effective access to the following financial
services provided by formal institutions: credits, savings, payments and
transfer, and insurance”.
- According to World Bank (WB), financial inclusion defines as
“the use of formal accounts, can bring many welfare benefits to
individuals and businesses”.


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Synthesis of the above concepts, we can understand that financial
inclusion as effective access and use of financial services such as credits,
savings, payments and transfer, and insurance provided by formal
institutions of all working age adults.
2.2.2 The concept of microfinance inclusion
- “Microfinance approach is a development approach that provides
financial as well as social intermediation. The financial intermediation
includes the provision of savings, credit and insurance services, while
social intermediation involves organising citizens’ groups to voice their
aspirations and raise concerns for consideration by policy makers and
develop their self-confidence” (Robinson. 2002)
- Moreover, Conroy (2002) stated that microfinance is the provision
of a broad range of financial services such as deposits, loans, payment
services, money transfers, and insurance to poor and low-income
households and their small enterprises”.
Thus, we can understand the microfinance inclusion is “the
customers – poor peoples, low-income households, and small enterprises
can access or be provided basis financial services by MFIs”
2.2.3 Benefits of microfinance inclusion
(i) Microfinance is an important tool in poverty reduction strategies.
MFIs improve access and provision of financial products and services
effectively to customers such as savings, credit and insurance to help poor
people increase their income and manage risk better….Microfinace

services improve the allocation of resources, promoting the market, in
other words, and microfinance promotes economic growth.
(ii) Microfinance helps to provide effective financial services and
products to support the poors, low-income and disadvantaged people in
society.
(iii) Microfinance contributes to the overall development of
financial system through financial market intergration.
2.2.4 Factors affecting the sustainability of microfinance institutions
The microfinance operations depend on many internal and external
factors.
(i) Internal factors: MFIs’ business development stretagies, the
varity of products and services, distribution channels to meet the needs of
the market and target customers, financial strength and human resources.
(ii) External factors: Policy environment, economic environment,
political environment, social environment, information technology
environment and customer factor.
2.2.5 Criteria for evaluating the microfinance accessibility
Synthesis of views and evaluation criteria of many scientists in
many prestigious organizations, the author would chosse the criteria,

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evaluation methods be used throughout this thesis. Evaluation method of
microfinance inclusion will be based on two aspects: (i) width and (ii)
depth.

Table 2.1: Criteria for evaluating the microfinance accessibility
Method of
evaluation

In width

In depth

Content

Criteria

 Operation network

 Number of operating MFIs

 The diversity of
services
 Scale of supplied
financial values and
number of active
borrowers

 Target customer group
(social performance
indicator)
 Scale of deposits and
loans











Aim/subjet
Supplied products and services
Number of active borrowers
Number of loans oustanding
Gross loan porfolio
Number of deposit accounts
Deposits
Percent of female borrowers

 Avarage loan balance per borrower
 Avarage loan balance per borrower/GNI per
capita
 Avarage deposit balance per depositor
 Avarage deposit balance per depositor/GNI
per capital
 Borrower rentence rate  Percentages of existing borrowers continue
to use MFI’s products and services.
 Borrower rentence rate = Number of active
customers at beginning of period + number
of new customers at the end of period.
 Rate of customer out of  Percentage of customer using microfinance
poverty

products and services out of poverty
(according to the World Bank's poverty line
of $ 1.9/day in 2011 PPP dollars)

Source: Author compiled from documents of Hulme and Zeller.

2.3 Practical basis in microfinance inclusion
Currently coutries over the world is applying many of the
development microfinance models, such as: (i) the Grameen Bank model,
(ii) Bank Rakyat model, (iii) the village banking model, (iv) Swayam
Krishi Sangam model.
2.3.1 Grameen Bank model
2.3.2 Bank Rakyat model
2.3.3 The village banking model
2.3.4 Swayam Krishi Sangam model
2.3.5 Evaluation and selection of models in Vietnam from the
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operational model from international microfinance models
The operating microfinance model has similarities, in line with each
organization in Vietnam. Profitability of microfinance activities
contribute to capital growth, increase the number of customers to
microfinance services, thereby contributing to poverty reduction, increase
incomes, improve social welfare for the poors.
Based on the evaluation of advantages of each model is applied in

the countries and the results from the testing phase in Vietnam in recent,
the author suggest some effective models for Vietnam in the current
period are as follows:
(i) First of all, the models provide savings and deposits for poor
women, such as funded non government organizatons (NGOs) through
Women Union. These models designed to international practices toward
OSS. These models are inheritance from the Grameen Bank model and
Swayam Krishi Sangam model with some changes to suit Vietnam’s
condition. Group lending (Grameen Bank model) and continue to be
applied in the rural areas have had such positive results, such as Thanh
Hoa Microfinance, Tym Fund.
(ii) Secondly, the models provide savings and deposits associated
with other activities such as education, health, housing, clean water and
environment…These models are commonly supported by international
donor organizations, aimed at short-term social purposes. Also, the
Vietnam Bank of Social Policies (VBSP) applies Bank Rakyat model in
its operations. Being the government’s credit provision facility and
offering subsidies with policy purpose, VBSP is fully sponsored by the
government, duty free, ringfenced from the state budget, and free from
insured deposits.
(iii) Thirdly, the interference models between Grameen Bank model
and Bank Rakyat model. These models are cooperation among social
organizations and commercial banks.
CHAPTER III: THE CURRENT SITUATION AND THE
EXPERIENCES OF CHINA, BANGLADESH AND THE
PHILIPPINES ON MICROFINACE INCLUSION
3.1 Overview of microfinance institution system in China, Bangladesh
and the Philippines
3.1 The development of microfiance institution system in China,
Bangladesh and the Philippines

3.1.1 The period of formation and development of microfiance institution
system in China, Bangladesh and the Philippines
- MFI system in each coutry has different formation and
development. In China, the development of the microfinance industry has

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divided in four stages: (i) Stage 1 (1994-10/1996), stage 2 (10/19962000), stage 3 (2000-2005) and stage 4 (2005 up to now).
- Similarly, the development of the microfinance sector has
undergone four distinct phases: (i) action research phase in the 1970s, (ii)
micro credit development phase in the 1980s, (iii) consolidation phase in
the 1990s and (iv) expansion phase from 2000 onwards.
- Also in the Philippines, the development has separated into five
phases: (i) phase 1 (1970s – 1980s), (ii) phase 2 (late of 1980s), (iii) phase
3 (1990s), (iv) phase 4 (2000s) and (v) phase 5 is current
3.1.1.2 Main microfinance institution
- The microfinance service providers in China are including three
basic groups: (i) microfinance for the public interest, (ii) microfinance for
solidarity and (ii) microfinance for commerce. Microcrofinance suppliers
in China can be categorized into eleven different types: (1) MFIs
established as NGOs for the public interest, (2) subsidized microcredit
projects for poverty alleviation developed by state-owned banks such as
the Agricultural Bank of China (ABC) and the Agricultural Development
Bank of China (ADBC), (3) farmers’ microcredit projects implemented
by Rural credit Cooperatives (RCCs), (4) microcredit projects

implemented by urban commercial banks and guarantee companies, (5)
credit-only microcredit companies (MCCs)  -   pilot project of the
People’s Bank of China (PBC), (6) village/township banks  - pilot
project of the China banking regulatory Commission (CBRC), (7) Rural
mutual credit cooperatives (RMCCs) (CBRC pilot project), (8) lending
companies established by commercial banks (CBRC pilot project), (9)
subsidized microcredit projects for poverty alleviation implemented by
rural financial institutions, (10) microcredit project implemented by the
China postal savings Bank (CPSB) and (11) microcredit projects
implemented by commercial banks.
- In Bangladesh, microfinance system is divided into four basic
groups: (i) NGOs, (ii) specialized banking institutions (Grameen Bank),
(iii) private commercial banks and (iv)microcredit programs at the
Government agencies.
- The system of microfinance institutions in the Philippines
classified into three main groups: (i) banks, (ii) credit cooperatives and
(iii) NGOs.
Table 3.1: The microfinance institutions’ total assets, debt to equity ratio
in China, Bangladesh and the Philippines (2010-2014)
Unit: million USD

Criteria
Total assets (USD)

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2010
2011
2012
2013

2014
China
24,410 38,430 45,586 33,085 11,118


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Debt to equity ratio
Total assets (USD)
Debt to equity ratio
Total assets (USD)
Debt to equity ratio

12

17.41
Bangladesh
3,928
3.88
The Philippines
976
4.46

13.66

12.72

3.13

1.59


3,812
3.77

4,539
2.92

5,584
3.13

3,440
1.53

1,028
3.87

745
3.98

749
4.17

1,005
3.64

Source: Mix market (2014)

3.1.1.3 Similarities and differences of microfinance institution system in
China, Bangladesh and the Philippines
MFI system in China, Bangladesh and the Philppines has many
similarities. These countries are considered as the leading country in

microfinance sector in Asia and around the world. The main objective of
the microfinance industry in the three countries head to the social mission,
poverty reduction, social-economic stability and community development.
Besides the similarities of microfinance systems in the three
countries, there still have differences in each MFI system. Author selected
China because this country orientated to harmonious socialist, in line with
Vietnam Government’s stretagies in the next stage. Both Bangladesh and
the Philippines are the two leading countries in microfinance so that their
experiences help Vietnam’s microfinance industry.
3.1.2 Legal framework and regulations related to microfinance activities
in China, Bangladesh and the Philippines.
Understand the importance of the regulations on microfinance,
policy makers attempted to learn, analyze and make more rational policy
to develop microfinance in line with the conditions of each country. In
2006, Bangladesh government established Microcredit Regulatory
Authority (MRA) - special inspection and supervision agency for NGO
MFIs. Since then, the MRA is responsible for making policy regulations
and guidelines to support sustainable development of this financial sector.
Bangladesh Bank encourages and promotes formal banking institutions
toward the poors, low-income customers or links with NGO MFIs.
Similarly, CBRC and the PBC together with BSP and Commission
Philippines Securities and Exchange (SEC) have regulated a series of
policies aimed at promoting microfinance successfully. The effective
policies will create more business opportunities for new financial
intermediaries as well as promote business innovation.
3.2 The current situation of microfinance inclusion in China,
Bangladesh and the Philippines.
3.2.1 Overall of financial inclusion in China, Bangladesh and the
Philippines
3.2.1.1 Demand of financial services

According to CGAP (2012), those who are: (i) limited in accessing
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financial/banking services or (ii) using unsuitable services could be
devided into 3 groups: (a) households in rual areas, (b) low-income
people, and (c) small- and micro-sized enterprises.

Chart 3.1: Financial inclusion in China, Bangladesh and the Philippines
(2014)
Sourse: Universal financial acess (WB) (2014)

Despite difficulties in acessing financial services, demand of this
group is rather high. As of December 2014, number of adults was more
1,141 million, whereas more 240 million people (above 21.1%) could not
access to official financial services. The ratio of adults in Banladesh who
was unable to access to official financial services was much higher
compared to Chinan, reach more 77 million (69.1%). Sinilarly, in the
Philippines, number of adults was 66,3 million, whereas 45,5 million
(68.7%) could not acceess to basic financial services.
3.2.1.2 Supply for financial services
MFIs in China always try their best to access and provide customers
with suitable products and services.
Tabble 3.2: Basic data of provided financial service in China, Bangladesh
and the Philippines (2010-2014)
China


The criteria
Bank branches
per 100,000
adults
Bank branches
per 1000 km2
CU&FC
branches per
100,000 adults
CU&FC
branches per
1000 km2
MFI braches
per 100.000
adults
MFI braches

Bangladesh

The Philippines

10

11

12

13


14

10

11

12

13

14

10

11

12

13

14

n.a

n.a

7.7

7.8


n.a

7.4

7.6

7.8

8.1

n.a

31.4

33.7

19.3

22.4

23.6

n.a

n.a

9.1

9.2


9.59

59.0

61.8

64.7

67.5

70.4

15.7

16.2

17.2

18.3

19.5

n.a

n.a

5.5

4.8


4.36

16.9

18.0

17.7

20.9

22.8

8.2

9.2

12.8

14.7

17.6

n.a

n.a

6.5

5.7


5.18

13.9

15.3

14.6

18.9

20.6

4.5

3.5

5.5

6.9

8.4

n.a

n.a

n.a

0.7


0.79

3.3

6.3

7.4

12.7

26.3

4.0

6.0

n.a

n.a

n.a

n.a

n.a

n.a

n.a


n.a

15.3

21.2

27.4

24.2

30.2

11.0

17.6

22.7

26.3

28.7

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per 1000 km2
Number of
ATMs per
100.000 adults

Number of
ATMs per
1000 km2

14

24.7

30.2

37.5

46.7

55.0

2.0

3.6

4.8

6.3

9.2

15.4

17.2


19.3

22.4

23.6

28.8

35.5

44.2

55.3

65.4

16.2

19.1

46.9

52.0

79.3

31.4

35.7


41.0

48.7

52.6

Note: CU&FC branches: Credit Union and financial cooperative branches; ATM: Automated teller machine

Source: IMF, Financial Access Survey và ADBI (2014)

3.2.2 Situation of microfinance inclusion
Microfinance inclusion in China, Banladesh and the Philippines was
analysed based on two criteria: (i) width, and (ii) depth.
3.2.2.1 China
 Width of microfinance inclusion
a. Operation network
Microfinancial services supply institution network established in
China developed rapidly with target customers were mainly the poor, lowincome household. This network in cities, provinces in China included
banking sector and non-banking sector.
b. Diversity in services
MFIs in China provided a plenty of microfinance specific products
and services for their customers to support their customers (individuals
and enterprises) to do business, alleviate poverty. Examples of products
and services are agriculture loans, individual loans, enterprise
management services...
c. Size of financial supply and number of MFIs
The width of microfinance inclusion in terms of service value and
number of customers in China was rather high in 2014. From 2010 to
2014, number of customers involved in microfinance activites steadily
increased and reached 31,933,678 customers with outstanding loans of

5,524,526,294 USD at 2014-end. Besides loan activities, MFIs also
focused and on mobilized 3 billion USD from residents.
Table 3.3: Loans, deposits of China’s microfinance institutions (20102014)
Year
2010
2011
2012
2013
2014

a

Number of
borrower

Number of
loans

12,496,198
12,574,691
12,539,106
21,877,930
31,933,678

12,501,666
12,672,196
12,608,976
21,880,890
31,876,304


a:

Loan
portfolio (in
USD)
1,124,657,820
1,219,745,027
2,808,759,744
4,156,806,700
5,524,526,294

Number of
deposits

Deposits
(in USD)

183,428
687,641
1,013,484
1,763,836
2,637,836

262,420,158
1,003,128,480
1,684,600,610
2,234,382,837
3,874,031,020

From 2010 to 2013 (up 30th September); 2014 (up 31st December)

Source: Mix Market (2010-2014)

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15


Depth of microfinance inclusion
a. Target customers
MFIs focussed mainly on women. At 2014-end, the ratio of women
compared to total customers borrowed from MFIs in China was 76.4%.
From 2010 to 2014, the ratio of woman customners increased from
53.48% to 76.4%.
b. Size of loan and deposit
Average outstanding loans and deposits is an indicator to evaluate
the eco-social situation of each customer. Mix and WB also use their
criteria to evaluate target customers of financial institutions based on the
value of average outstanding loans and deposits of each customer in
relation to countries’ average GNI per capita. The lower the indicator, the
deeper the microfinance inclusion. Based on data from Mix market, China
in 2014, average outstanding loan and deposit per customer compared to
CNI per capital were 18.76% and 4.12% respectively.
According to Mix market and WB:
- Target market: low-income customer (average outstanding loan per
customer/GNI per capital < 20%, and average outstanding loan per
customer < 150 USD)
- Target market: medium low-income customer (average

outstanding loan per customer/GNI per capital ≥ 20% and ≤ 150 %)
- Target market: high-income customer (average outstanding loan
per customer/GNI per capital ≥ 150% and ≤ 250 %)
- Target market: small enterprise customer (average outstanding
loan per customer/GNI per capital > 250 %)
c. Borrower rentence rate
MFIs in China tried their best to maitain number of borrowing
customers. The customer maintaining ratio doubled from 56.01% in 2010
to 107.53% in 2014. Thus, beside attracting new customers, MFIs in
China also paid much attention to maitaining old customers.
d. Rate of customer out of poverty
Based on poverty standard with income of 1.9 USD/day according
to 2011 PPP propsed by WB, number of the poor in China declined
sharply. According to annual report, number of customer rises out of
poverty was 3,9 million whereas number of customer rises out of poverty
as a result of using microfinance services was more than 1 million (25%)
in 2014-end. Although total number of customer rises out of poverty in
2014 remained modest, the ratio of customer rises out of poverty as a
result of using microfinance services increased by 5% compared to 2013.
3.2.2.2 Bangladesh
 Width of microfinance inclusion
a. Operation network

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16


In 2014-end, 4 big MFIs: Grameen Bank; BRAC; ASA and Buro
Bangladesh dominated microfinance market in Bangladesh. From 2010 to
2014, number of NGO increased by nearly 20%, number of branches also
increased with the similar rate. This was to conclude that Bangladesh
government’s policy and strategy to promote number of MFIs and
improve the quality of services proved to be efficient.
b. Diversity in services
Microfinance products and services for poor and very poor
customers in Bangladesh were mainly agriculture loans and business
loans.
c. Size of financial supply and number of MFIs
MFIs in Bangladesh expanded in terms of size and service value.
Although number of customers of MFIs in Bangladesh decline, the
customer quality improved.
Table 3.4: Loans, deposits of Bangladesh’s microfinance institutions (20102014)
Loan
Number of Number of
Number of
Deposits
Year
portfolio
borrower
loans
deposits
(in USD)
(in USD)
20,367,254
788,768,294
2010 21,318,062 20,924,544 2,600,803,564
19,808,785

880,207,560
2011 22,005,189 21,009,466 2,860,674,570
21,445,265
1,022,006,628
2012 23,767,596 22,359,724 3,779,047,764
22,534,748
1,027,077,114
2013 24,454,217 22,691,975 4,524,030,175
23,541,186
1,979,477,608
2014 26,045,758 25,512,322 5,782,158,276
Source: Mix market (2010-2014)

From 2010 to 2014, number of loans increased by nearly 20% while
outstanding loans incearsed sharply year by year. MFIs in Bangladesh
diversified their customers and aimed at real customers and loans to boost
economic growth. Besides, number of deposit accounts and deposit
mobilization in MFIs also increased steadily.
 Depth of microfinance inclusion
a. Target customers
At 2014-end, the ratio of women compared to total customers
borrowed from MFIs in Bangladesh was 90.71%. From 2010 to 2014, the
ratio of woman customners remained above 90%.
b. Size of loan and deposit
According to Mix and WB standards, MFIs’ target customers in
Bangladesh were poor and very poor people. Based on data from Mix
market in Bangladesh, in 2014, average outstanding loan and deposit per
customer compared to CNI per capital were 21.99% and 7.79%
respectively.
c. Borrower rentence rate


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17

Customer maintaining ratio of MFIs in Bangladesh always remained
above 65% in the period of 2010-2014. This ratio rose from 67.39% in
2010 to above 85% in 2014-end. To remain high customer maintaining
ratio, Bangladesh government and MFIs offered policies that harmonized
benefits from institutions and customers, created some accessible, userfriendly integrated service packages.
d. Rate of customer out of poverty
According to annual report, at 2014-end, number of customer
benefited from efficiently using loans from MFIs to do business and rose
out of poverty was 6,8 million (account for 34.5% total number of people
who rose out of poverty in Bangladesh).
3.2.2.3 The Philippines
 Width of microfinance inclusion
a. Operation network
MFIs in the Philippines becane a financial services supply network
for target customers. From 2010 to 2014, number of instutution decreased
by 30% due to government policy to reduce the size, improve quality and
efficient of MFIs.
b. Diversity in services
MFIs in the Philippines provided financial solutions, created jobs
and develop community. Products and services provided by these MFIs
enabled customers to do business via loans, deposits to avviliate poverty:
microfinance loans, micro-agricultural loans, micro-housing loans, microdeposit mobilization.

c. Size of financial supply and number of MFIs
At 2014-end, total number of microfinance customers in the
Philippines was above 20 million with outstanding loans of more 3 billion
USD, deposit mobilization was more 2 billion USD. After 5 years, total
mobilized deposit rose 35% from 1,543 million USD in 2010.
Table 3.5: Loans, deposits of the Philippines’ microfinance institutions
(2010- 2014)
Yeara
2010
2011
2012
2013
2014

Number of
borrower
13,083,323
15,224,677
17,671,617
19,281,398
20,315,313

Number
of loans
3,432,429
3,594,240
3,004,667
2,588,397
3,876,992


Loan portfolio
(in USD)
2,538,164,662
2,786,115,891
3,339,935,613
3,721,309,814
3,555,179,775

a:

Number of
deposits
3,900,260
4,429,552
3,700,592
3,487,482
4,732,766

From 2010 to 2013 (up 30th September); 2014 (up 31st December)
Source: Mix Market (2010-2014)

 Depth of microfinance inclusion
a. Target customers

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Deposits
(in USD)
1,543,832,114
1,476,793,669

1,360,714,509
2,198,079,372
2,133,107,865


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18

From 2010 to 2014, the ratio of woman customners remained above
90%. That is to say, womam customers in the Philippines received special
attention from MFIs and got effectively access to financial products and
services.
b. Size of loan and deposit
According to Mix and WB standards, MFIs’ target customers in the
Philippines were also poor and very poor people. Based on data from Mix
market in the Philippines, in 2014, average outstanding loan and deposit
per customer compared to CNI per capital were 5.36% and 3.06%
respectively.
c. Borrower rentence rate
Similar to Bangladesh, customer maintaining ratio of MFIs in the
Philippines always remained above 65% in the period of 2010-2014.
Thanks to effective activities of MFIs, customer maintaining ratio in the
Philippines rose to nearly 75%.
d. Rate of customer out of poverty
According to BSP report, at 2014-end, number of customers who
used loans from MFIs effectively was 7,9 million compared to 15,8
million poor people (based on WB poverty standard) in the Philippines
(accounts for abover 40%). Thus, the Philippines government’s efforts to
alleviate poverty had positive signals.

3.3 Experiences on microfinance inclusion in China, Bangladesh and
the Philippines
3.3.1 Experiences of success
3.3.1.1 China
Necessary actions and detail strategies improved microfinance
inclusion in China should be regarded as useful experiences in enhancing
the financial inclusion ability: (i) Encourage capital market involve in
microfinance activities, (ii) upgrade traditional organization model, (iii)
develop rural cooperation financial sector based on market efficiency, (iv)
encourage process and product improvement for better accessment, (v)
establish special large-sized funds, (vi) cooperate between banking
activities and microfinance activities, (vii) promote microinsurrance
service, and (viii) improve training ability.
3.3.1.2 Bangladesh
Bangladesh government promulgated microfinance development
strategy for each period to improve microfinance activites between MFIs
and low-income people, SMEs, such as: (i) use microcredit in poverty
alleviation, (ii) hand over authority to women, (iii) “export” microfinance
inclusion model of MFIs in Banladesh.
3.3.1.3 The Philippines
Government and MFIs in the Philippines brought microfinance

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19

products and services to customer via modern information infrastructure,

such as: loan settlement, loan disbursement, deposit mibilization.
Moreover, some MFIs in the Philippines equiped online or sofware tools
which were similar and user-friendly with the aim of: (i) attract new
customers, (ii) improve economic efficiency for MFIs, and (iii) better
services for old customers.
3.3.2 Experiences of failures and causes
3.3.2.1 China
Microfinance activity in China was in developing process, thus it
cannot avoid potential risks. Risk management in MFIs were regarded as
unsuccessful issue in China in order to improve microfinance inclusion as
well as maintain sustainable operation of MFIs.
Main causes of potential risks in microfinance in China were: (i)
lack of fund and distribution channel, (ii) interest rate and duration for
microcredit were not flexible, (iii) credit ranking system was not
believable enough, (iv) avalization mechanism for microfinance activity
was not strong enough, (v) lack of monitoring activity for agricultural
microcredit.
3.3.2.2 Bangladesh
The lack of loan controlling system in MFIs resulted in overlap
loans to customers which affected deposit mobilization and loans from
MFTs.
Main causes for overlaping loans in MFIs in Bangladesh were: (i)
under-control operation environment and increasing demand in
microcredit market, (ii) loan supply from MFIs surpassed real demand of
customers, and (iii) microfinance was regarded as action plan for poverty
avelliation.
In summary, overlaping under-control loans in some MFIs in some
areas in Bangladesh reduced the microfinance inclusion for a number of
low-income people.
3.3.2.3 The Philippines

Main obstacle in improving microfinance activity in the Philippines
was political intervention and lack of customer credit information.
Main causes of microfinance inclusion in the Philippines
deterioration were: (i) politicens in the Philippines thought the
microfinance inclusion potential might benefit them in politic activities,
(ii) the lack or incomplete of customer credit information might result in
overlap loans like Bangladesh.
In general, politic intervention and the lack of correct credit
infornation were unsuccessful lessions for improving microfinance
inclusion for the poor in the Philippines rural areas.

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20

CHAPTER IV: MICROFINANCE INCLUSION IN VIETNAM AND
SOLUTIONS FOR ENHANCING MICROFINACE INCLUSION
ON THE BASIS OF LESSONS FROM CHINA, BANGLADESH
AND THE PHILIPPINES.
4.1 Microfinance inclusion in Vietnam
4.1.1 Overeview of microfinance in Vietnam
In Vietnam, there are three sectors to provide microfinance: (i) formal:
commercial banks, VBSP, Cooperative Bank, official microfinance
institutions, (ii) semi-formal: semi-formal microfinance institutions,
microfinance programs in Vietnam Women's Union at district/province level,
and (iii) informal: relativies, friends, shopowerners and merchants.
Poverty avelliation rate in Vietnam tends to slow down. Total

population of Vietnam is around 93 million, whereas 70% population is
living in the countryside, 15% population is ethnic minority with limited
ability to access to financial services. Besides, operation network of credit
institutions is not large enough to provide services to the poor in rural areas.
People’s awareness about benefit of modern financial products and services is
limited.
4.1.2 Legal framework and regulation on microfinance activity
Current legal framework with specific features related to microfinance
set a background for sustainable microfinance development in Vietnam,
established a fair business environment for microfinance activity. Legal
framwork for such issue is divided into 2 sectors: (i) formal sector, and (ii)
semi-formal sector.
4.1.3 Current microfinance inclusion in Vietnam
4.1.3.1 Width of microfinance inclusion
a. Operation network
Microfinance service supplying network in Vietnam is mostly based on
financial institution. VBSP is the largest credit suplier for poor and lowincome customers. People’s credit funds were upgraded to Cooperative Bank
in 2013 with the aim of supporting credit funds. In late 2014, three official
institutions (TYM, M7MFI và Thanh Hoa MFI) were officially transformed
from semi-formal microfinance instituties.
b. Diversity in services
Microfinance institutions in Vietnam supplied a plenty of products and
services to customer to support business activities and aveliate poverty. Main
products and services are: (i) financial products and services: microcredit,
deposit, payment, microinsurrance, and (ii) non-financial products and
services.
c. Size of financial supply and number of MFIs
Number of customers, size and of services supplied by microfinance
actitity in Vietnam showed the breath of microfinance inclusion in finacnial


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21

sector. Along with global and regional trends, microfinance activity in
Vietnam is developing gradually.
Table 4.1: Loans, deposits of Vietnam microfinance institutions (2010-2014)
Number of
Number Loan portfolio Number of
Deposits
Yeara
borrower
of loans
(in USD)
deposits
(in USD)
2010
2011
2012
2013
2014

637,562
974,472
1,284,374
1,427,361
1,534,774


532,370
863,726
1,139,837
1,239,873
1,423,183

113,374,387
182,371,873
276,373,373
305,736,836
359,799,780

436,937
737,837
831,371
1,139,381
1,213,381

109,383,371
121,373,837
169,373,373
217,383,372
283,993,885

a

: Excluding VBSP and Coopbank
Source: Mix market (2010-2014)


4.1.3.2 Depth of microfinance inclusion
a. Target customers
In Vietnam, woman is target customer of MFIs. The ratio of woman
customners accounts for 86.94% compared to total customers in Vietnam. In
some institution (TYM as an example) all customers are women.
b. Size of loan and deposit
According to Mix and WB standards, MFIs’ target customers in the
Vietnam were also low- and very low-income people. Some MFIs started to
focus on low-medium-income customers.
c. Borrower rentence rate
MFIs in Vietnam always maintain this ratio. Customer maintaining
ratio of MFIs rose from above 65% in 2010 to 85% in 2014. According to
VMFWG, in some official MFIs, this ratio was much higher, such as 115%
for TYM, 86% for M7MFI, 100% for Thanh Hoa MFI. High customer
maintaining ratio is the result of specific strategy in customer relation, legal
support for customer who used products of MFIs.
d. Rate of customer out of poverty
In recent years, Vietnam was paid much attention for its achievements
in poverty avelliation and living standard improvement. According to WB
poverty standard, number of the poor in Vietnam declined form 4.2 million in
2010 to 2.8 million in 2014. Number of customers who rose out of povery
thanks to loans from MFIs was 1.1 million (nearly 40% total number of
people who who rose out of povery in Vietnam).
4.1.4 Analysis of microfinane inclusion in Vientam (econometric model)
Model to analyse the relationship between microfinance inclusion and
self sustainability of MFI developed by Christen et al (1995) and Thys (2000)
based on ordinary less square. Then, the model was tested and confirmed by
Olivares Palanco (2005) that the sustainability affect microfinance inclusion
of MFIs and other factors (type of institution, operation time, width of
inclusion, customer gender, credit providing method) also had impacts on

microfinance inclusion.

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22

Table 4.2: Descriptive statistics
N.of observation
Mean
Median
Maximum
Minimum
Std.Dev.

OSS
31
132.8065
126.0000
200.0000
70.00000
29.17010

Age
31
0.877419
0.700000
2.300000

0.200000
0.671173

Borrower
31
2414.154
43.21000
68630.42
1.300000
12299.50

Average
31
0.555806
0.250000
7.870000
0.080000
1.375899

Growth
31
31.41742
26.14000
126.4100
-6.430000
30.91151

Operation
31
13.20645

12.40000
29.60000
2.500000
6.004439

Deposit
31
0.262258
0.170000
0.980000
0.000000
0.254280

PAR
31
0.581935
0.020000
5.680000
0.000000
1.197721

Source: Author's research (2016)

The following regression model will be used:
Yi = β0 + β1X1i + β2X2i + β3X3i + β4X4i + β5X5i + β6X6i + β7X7i + Ɛ i (1)

4.1.5 Analysis of microfinance inclusion in Vietnam
4.1.5.1 Achievements
Despite slow speed of developing in quantity of customers and new
MFIs in Vietnam financial market, MFIs in Vietnam gained certain

achievements: (i) the sustainable operation ratio was always remained at
rather high number, (ii) MFIs always focused on initial target customers,
(iii) MFIs activity was more and more professional, and (iv) customers
were commited and loyal to MFIs,
4.1.5.2 Main causes of difficulties.
Microfinance inclusion of custiomer still encouters some
difficulties: (i) unclear development strategy of some MFIs in Vietnam,
(ii) limited in products and services with low quality, (iii) limited human
resource, and (iv) inadequate policy and legal framework.
4.2 Compare microfinance inclusion of Vietnam with China,
Bangladesh and the Philippines
China, Bangladesh and the Philippines are three countries with
relatively vibrant microfinance operations in the Asia - Pacific. With
specific characteristics, each country has its strengths and weaknesses.
MFIs in China, Bangladesh and the Philippines, with long historical
experiences, attracted a large number of customers, enabled low-income
customers to use microfinance as effective methods to improve their lives,
did business activities and rose out of poverty.
Besides, in order to compare the microfinance inclusion in the four
countries, index average loan per customer as well as the average savings
balance per customer should be used. These two indicators measure the
depth of micrifinance inclusion.

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a


23

: Included in VBSP và Coopbank

Source: Mix market (2010-2014), CMFWG (2010-2014)

Chart 4.1: The number of customers using microfinance products and
service in China, Bangladesh, the Philippines and Vietnama (2010-2014)
4.3 Objective, view and necessity to develop microfinance in Vietnam
Main objectives of microfinance in Vietnam are: (i) establish a suitable
legal framework for microfinance operations, (ii) improve policy-making
capacity of authorities, (iii) improve operation capacity of MFIs, (iv)
communicate and improve common knowledge about the role of
microfinance, and (v) recommend specific solutions which enable sustainable
microfinance operation.
4.4 Orientation to improve microfinance inclusion in Vietnam
With the purpose of improving the accessibility, maintaining the
sustainability of microfinance systems, Vietnam Government also proposed a
development roadmap with 5 points: (i) establish suitable legal environment, in
accordance with particularities of microfinance operations, (ii) improve policymaking capacity of management agencies through microfinance staff and
nexpert training activity, (iii) improve capacity of MFIsin terms of assistance
in personnel training, preferred fund seeking; implement training programs to
support governance capacity building to certify depth- and breadthsustainable development, (iv) communicate and improve common knowledge
about the role and impacts of microfinance, enhance the popularise the
experiences and effective models microfinance operations and (v) implement
other supporting measures such as facilitating the funding for microfinance
operations, forming training centers in microfinance, supporting the formation
of microfinance Association. Five development points are expressed through
three issues: microfinance sector, microfinance institutions and clients of
MFIs.

4.5 Solutions to microfinance inclusion in Vietnam
4.5.1 For management agencies: (i) Establish effective regulatory framework
to develop the microfinance sector in a sustainable way, open more new

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