Microfinance in Vietnam is largely the domain of formal State financial institutions. More than 90% of microfinance in Vietnam is provided by the State, through the Vietnam Bank for Social Policies, the Vietnam Bank for Agriculture and Rural Development, and to a lesser extent through other Government programs and funds.
It is estimated that non-state semi-formal microfinance providers in Vietnam (Non Governmental Organizations (NGO) and Micro Finance Institutes (MFI)) serve less than 500,000 clients, which is a very small level of outreach compared to the 7 million clients served by the Vietnam Bank for Social Policies and a total population in Vietnam that is nearing 90 million. The non-state microfinance sector consisting of basic credit and savings institutions, is relatively underdeveloped compared to the state sector in Vietnam and the microfinance sectors in neighboring countries. There is currently no active regulation for microfinance in Vietnam and existing non-state institutions can only mobilize savings from their clients that receive the institution’s loans and so this limits the current applicability of different savings products. However, looking forward in the next 2 years, regulation should be in place that provides microfinance institutions with a stronger legal position and greater flexibility in regard to product development.
Demand for savings products
There is certainly a demand for savings products in Vietnam to offset the costs of large expenditure items. In the Vietnamese culture the younger working generation should take care of the older non-working generation. The idea of an individual saving for their own retirement by contributing to a pension scheme is not something that people ordinarily would consider saving for. There is a demand for a supplementary pension scheme for the less poor, such as workers that earn low but regular salaries in factories and processing zones. However, developing a pension product for this market sector would be difficult due to presence of the existing state pension scheme.
The Vietnamese State pension scheme
Currently the state pension scheme in Vietnam, which is called ‘social insurance’, is administered solely by the Government’s Social Insurance Agency (SIA). This is a scheme that is compulsory in the state sector and compulsory in the non-state sector with the exception of small businesses that commonly choose to ignore this requirement. It is a standard pension scheme whereby a small fixed percentage of the worker’s salary is paid to the SIA on a monthly basis. Upon reaching retirement age the worker is able to receive the money that they have contributed in either a lump sum, or if they have contributed for over 20 years then they can choose to receive a pension for life.
Both state and private sector employees can also choose to contribute to non-state life insurance type schemes that provide either lump-sum or pension type payments, though this is usually something that is not common among lower income earners. For example, in general anyone working in the formal sector will contribute to the SIA, but very rarely do they possess the means to contribute to other pension or life insurance schemes. It is also unlikely that anyone working in the informal sector as self-employed laborers will contribute money to the SIA and hence they will not receive a pension when they retire. Since Vietnam is a socialist country with strong trade unions and a state that has always had an involvement in providing for workers groups, any area of formal employment in Vietnam has access to SIA and state pensions. Consequently, a micro pension scheme could only be targeted at those without formal employment.
The vast majority of older people in Vietnam are cared for by their families, whether they receive a pension or not. The state pensions are insufficient to live from and so the additional support of the family is required. Older people without pensions that are extremely poor can get assistance under other government programs, though these programs are not well resourced. Although there is a clear need for pensions in Vietnam, the Pension & Development network believes that the focus should lie firstly on the development of longer-term contractual savings products. There is certainly a need for savings products for poor and low-income people that provide either an annuity or lump-sum amount once they reach the age of retirement.