Microcredit for whom?
In the early 90s, access to the banks was almost reserved for a minority in Vietnam. This has changed, the people have almost all a land title now, which they deposit as collateral for bank loans.
Many people have borrowed large amounts of money with little hope to refund. We more than ever encourage savings and self-help as indebtedness generates a lot of misery.
But a minority still does not have access to bank credit, especially the very poor who have no land or very little. They resort to moneylenders unless they can borrow from the Bank for the Poor, through the Women's Union.
Banks lend less easily to small businesses if they have no land as collateral. For farmers another issue is a second line of credit: people may like to invest in another crop, fruit trees etc. without waiting to sell the pigs ...
Credit is an important part of the solution for families living in extreme poverty, but it must be accompanied by technical support, and sometimes social assistance too. Money without support may cause disasters because of alcoholism, domestic violence, health problems and disabilities, technical mistakes. Loans can then lead to despair for the very poor.
The different steps
In rural areas it can be chicken, ducks, pigs, a vegetable garden, orimproving the paddy...
It is important, for the first loans with the very poor, to choose low-risk, low-capital options, with quick and relatively safe returns. Profits may be modest, but the most important point is to succeed and to get out of the spiral of failure.
Mekong Plus and its partners insist on following adequate techniques to reduce risks of failure. Very practical training is offered, as well as regular on-the-farm follow-up. There are village workers in every commune.
As always we insist on local participation. The loan provided will not cover the full investment, community participation is necessary. This guarantees a good sense of responsibility.
As we target the extremely poor (people surviving with about 0,5$/day) we prefer small loans, short terms (5 months, the time till the harvest, or till the pigs are sold). Usually the first loan will be around 50 euros, next the amounts will increase by steps according to the reimbursement capacity of the household. The maxmum amount is today 200 euros. After 6 loan cycles the situation of the household has usually improved, income has doubled to about 1$/day. Mekong Plus will continue for a few more cycles and charge an interest rate equivalent to the rate of the Bank for the poor (in Vietnam presently 0,65%/month). If the family is still in a difficult condition we may decide not to charge interests.
On average, after 8 loan cycles (4 years), income have doubled or even trebled. This is based on the detailed evaluation of about 400 households every month. Unless the situation of the family remains critical (many children still at school, or some members requiring regular medical treatment etc.) we stop financial support but continue follow-up visits for a few more years.
If by bad luck new problems arise (major crop failure, or severe accident for a member of the family...) we resume support for a few more cycles.
We monitor the program continuously; every year we re-assess the situation for each household. On average we thus review every month about 400 cases and receive 900 refunds.
More than the refunds in full and in time, what matters is the impact on poverty. We measure how much profit has been generated through the investment. On average we observe an in crease of 25%/year in family income. Which means a fantastic "return on investment" as we spend 78 Euros/household/year all included, and the increase in income is 228 Euros!
Income is just one part of the picture: are the children all at school? Are there sick people in the family -medical expenses are often the main cause of falling into poverty. Maybe one need to repair the roof, or fix the house?
Most households are thus assisted for 4-5 years. We have a failure rate of less than 5%. Sometimes we just cannot make any impact. Much depends on the determination of the beneficiaries themselves.
However in some cases the income remains very low, and there are no prospects for substantial improvements. For example a couple of old people who raise children abandoned by their parents. Support is then continued so that at least the children could complete their education.
In total about 8.000 women have participated in the program. The reimbursement rate is almost 100%. More important, the success rate in reducing poverty is well over 80%!