Credit Support Fund – new model in microfinance activities

Vietnam Women’s Union is a pioneer organization in Vietnam’s microfinance (MF). It all started from integrated credit projects carried out in the late 1980s. Up to now, WUs at all levels are managing over 350 programs/projects – mainly financed by NGOs with different social purposes – providing credit and saving services for women throughout the country to develop household economy.

However most of VWU’s microfinance programs/projects have limited funds and operate in small geographical areas with unsustainableloan interest rates. Most of their staff are VWU employees working part-time for projects, which in the long term will hinder the programs/projects from expanding operation areas and recruiting more members. In the last 5 years, a number of programs/projects started transforming into micro-finance organizations (MFOs) operated by law. These programs/projects need support to overcome their difficulties, i.e.small loan fund and limited management and operationcapability.

On the other hand, investors and donor who want to invest in MF programs/projects need an intermediary organization to link them with customers to minimize fund loss risk, reduce costs whendividing the capitalinto different small projects and still ensure the effective supervision.

From this reality, VWU has piloted a new MF model, which is to providing credit and technical assistance to MF programs/projects for their sustainable operation and achieving the long-term social goals. This model was called Credit Support Fund, operated in the framework of the Vietnam-Belgium Credit Project.

The beneficiaries of the Fund are MF programs/projects/organizations managed or operated by the Women’ Unions at all levels and are plannnedto become MFOs operated by law. MF programs/projects are required tosubmittheir financial reports and detailed business plans to borrow from the Fund. Loan size will depend o­n the capacityassessement carried out by the Fund staff.

The Credit Support Fund has the following products:

- Organization Development Loan: loan term ranges from 12, 24 or 36 months; principal is paid quarterly with grace period from 9 to 18 months. Loan interest rate is the standard discount rate, the longer loan term, the higher the discount rate is.

- Liquidity Loan: loan term 6 or 12 months; principal is paid o­ne time in the end of the term. Loan interest rate is standard rate, not be discounted.

- Customer capacity support: training courses and counseling for customers of the Fund and those Women’s Unions’ MF programs/projects which are in need of upgrading their MF operationto become professional.

After nearly two years of pilot, the Fund has provided 10 loans with the total amount of 36 billion VND to 8 MFOs managed by provincial and district Women’s Unions. This loan is serving 9,000 women borrowers, helping them develophousehold economy.

VWU International Relationis Dept.