Climate change, environment pollution and depletion of natural resources have a serious impact on the human being life. Therefore, green growth has become a top concern of countries in the world. In Vietnam, the National Strategy on Climate Change and updated scenarios responding to climate change is receiving special attention from the Government. The Government has issued a National Strategy for Green Growth and a National Action Plan for Green Growth in 2014-2020 with the goal of accelerating the economy efficient use of resources, reducing greenhouse gas emissions, responding to climate change, contributing to poverty reduction and creating a driving force for sustainable economic growth.
One of the important points for implementing the National Green Growth Strategy in Vietnam is the banking industry. Accordingly, the banking system will determine investment funding for green growth projects. It plays an important role in supporting industries for sustainable economic development. Thus, green credit policies are the key solution to the success of economy.
Contribution to green growth strategy
Over 15 establishment and development years, Vietnam Bank for Social Policies (VBSP) is in the top microfinance provider in Vietnam, serving nearly 7 million household clients, 80% of whom living in rural, remote and mountainous areas. VBSP always focuses on providing policy credit for the poor, the near-poor and other vulnerable groups to invest and improve business and production projects effectively and efficiently towards sustainable poverty reduction, environment protection, climate change and green growth. To date, VBSP has established 63 provincial branches, 629 district transaction offices, approximately 11,000 transaction points at commune and around 200,000 savings and credit groups at village and hamlet. VBSP enables financial inclusion of the poor and other disadvantaged groups through grassroots networks, appropriate infrastructure, socialized procedures and skillful employees.
Transaction at commune transaction points covers over 85% of the total transaction value of customers with VBSP, contributing to enhance access to preferential credit services for the poor and other vulnerable groups; reducing transaction costs of the borrower; Exercising democracy, publicize the use of policy credit funding and enhance the direction of local governments and socio-political organizations in monitoring, supervising and assisting borrowers to use loan effectively.
In addition, in order to reach customers at the villages, VBSP collaborates with mass organizations to set up and manage the Savings and Credit groups. This is gathering of poor, near poor households and other policy beneficiaries who have demand for loans from VBSP for production, business, job creation and livelihood improvement. The group members also provide mutual assistance in production, business and life and supervise each other in borrowing, using loans and repaying the bank.
Up to now, total asset of VBSP reaches approximately USD 8 billion; total outstanding loans reaches USD 7 billion, serving over 21 credit schemes for targeted groups; the bad debt ratio is only 0.43%. It makes contribution to massive social progress, especially reducing the country’s poverty rate from 20% in 2004 to 4.5% in 2015.
Right after the Prime Minister approved the National Green Growth Strategy in 2012 and the National Bank of Vietnam issued Directive 03/CT-NHNN to request credit institutions to promote green credits and social and environmental risk management in credit supply, VBSP immediately implemented actions for green growth, climate change, environment protection and poverty reduction.
In business process and credit manuals, VBSP always focuses credit analysis with ensuring factors on environment protection and social performance. Loan programs must bring about evaluation reports on environment impact, absolutely eliminating loan projects that affect seriously on environment and society. VBSP also launches communication and capacity building for staff on green credit banking, raising awareness of effective use on energy savings, natural resources and environment protection; pro-actively seek cooperation and mobilize resources from international organizations for conducting green growth projects.
In addition, VBSP implemented some credit programs related to forestation, forest restoration and environment protection such as: Forest rehabilitation & sustainable forest management funded by the German Reconstruction Bank (KfW6) within the UN-REDD program; Forest Sector Development Project (FSDP) funded by the World Bank (WB); Coastal wet land development project (CWPD) funded by DANIDA; Clean water supply and rural sanitation program; lending program for productive forestation livestock raising launched in 2015. Out of 21 current credit programs, nearly 70% VBSP’s business portfolio is lending to agriculture, forestry and aquaculture.
Natural resource conservation, forest protection, climate change through forest-centric finance schemes.
Forest Sector Development: 76.500ha conserved special use forests and sustainably managed plantation forests
Under the Forest Sector Development Program signed between the Vietnam Government and the World Bank, VBSP takes over financing the Production Forest Plantation component with over USD 38 million loan worth in 2005-2034. The project aims at switching from subsidizing plantations to lending to small-holders; Forest-based socio-economic improvement, poverty reduction, job creation, food security and fight against climate change. VBSP provides loan directly to borrowers; Loan maturity is from 1 to 15 years; The current interest rate at 6.6%/year and no loan security for the loan amount less than USD 2,200.The project is launched in 6 central provinces: Quang Nam, Quang Ngai, Binh Dinh, Thua Thien Hue, Thanh Hoa and Nghe An. From 2005 – 2015, more than 43,000 households, mostly from poor and near-poor households, in central Vietnam have received access to microfinance and technical support to cultivate over 76,500 hectares of forest.
Forest rehabilitation & sustainable forest management
Under the Agreement signed between the German Reconstruction Bank and the Government of Vietnam to implement project “Forestation and sustainable forestry management of natural forests” in 2006 -2015, VBSP takes charge of opening and managing deposit accounts for farming households and rural communities in the project areas. The project transfers $200/250 to farming households and rural communities for diversifying forest products to stabilize income through deposit accounts opened at VBSP with result-based withdrawal upon verification. It aims to support forestation and sustainable forestry management of 32,700 hectare of natural forests in 4 project provinces. The project ended in 2015 and VBSP managed 14 thousand accounts of project’s farming households with outstanding balance of VND 11 billion.
Coastal wet land development
VBSP received an amount of USD 650,000 from the Supporting Social component of Coastal wet land development project funded by DANIDA to implement the project in 2008 – 2014. The project objectives are to provide credit for the poor households in the project area for income generation such as: forest plantation combined with animal husbandry, small scale industry and small business that must be appropriate with the general target of wet forest protection. The project scope includes 21 communes of 12 districts in four provinces: Tra Vinh, Soc Trang, Bac Lieu and Ca Mau. The total outstanding loans of the project are currently VND 758 million with 173 active borrowers.
Nearly 10 million constructions of clean water supply and rural sanitation
The credit program of clean water supply and rural sanitation provided by VBSP is one of the green credit channels which contribute to conducting the policy of environmental protection and improving the living standard effectively and efficiently.
Millions of rural households are provided loans with preferential interest rates for building clean water and sanitation facilities. Each household can borrow up to VND 6 million for each clean water or sanitation construction with 5-year loan maturity. The maximum loan amount for both constructions is 12 million VND / household. After 13 operation years, to date, total loan portfolio reaches VND 26,330 billion with 2,624,000 active borrowers. 9,928,000 RWSS constructions are built to respond with the rural household’s demand, out of which there are 5.039 million RWSS constructions and 4.889 million sanitation constructions. The overdue debt ratio only makes up 0.15% in total loan portfolio.
Some successful customer stories
As a beneficiary of the FSDP project, farmer household Nguyen Thanh Binh, Tung Khanh hamlet, Cat Hiep commune, Phu Cat district, Binh Dinh province, borrowed VND 52 million from VBSP in 2005 to plant 6 hectare of acacia trees. Until 2012, he repaid full debt and he continued borrowing VND 30 million in 2015 to expand more two hectares of acacia trees. He said: “My family was very difficult. Due to very few agriculture land, we had to leave home for earn a living. Now we come back our home town to start up forestation by borrowing from VBSP. Investing 1 hectare forest for paper production costs VND 15 million for plantation and caring. After 7 years would harvest around VND 80 million/hectare. We could earn net income from VND 8 – 10 million per ha after deducting investment costs such as seedlings, fertilizer, interest rate”.
Nguyen Thanh Binh, farmer, Tung Khanh hamlet, Cat Hiep commune, Phu Cat district, Binh Dinh province, borrowed VND 52 million from VBSP to plant six acacia hectares
Another successful story is farmer household Le Thi Hoc, hamlet 3, Tra Giang Commune, Bac Tra My District, Quang Nam Province: “We borrowed VND 100 million from VBSP to invest 10 hectares of plantation in 2006. After 6 years receiving a loan from the project, we could earn from VND 60 to 70 million per ha after deducting investment costs. We repaid all debt in 2012 and continued to borrow VND 200 million to expand more 20 hectares. We could not only pay back the debt but also had enough money to build a new house and afford some modern appliances”.
Farmer Lê Thị Học, hamlet 3, Tra Giang Commune, Bac Tra My District, Quang Nam Province, borrowed from VBSP for investing 10 hectares of plantation
Small household Dinh Như, village 5, Vinh Thuan commune, Vinh Thanh district is an example for plantation with livestock raising. In 2010, he borrowed VND 8 million from VBSP with his owned asset to build a small house for his family. Then he requested a loan of VND 40 million from VBSP to plant 2 accecia hectares, 1 bean hectare and raise 4 breeding cows. To date, he earned an income of over VND 30 million per year, helping his family have a more stable life.
To implement the National Green Growth Strategy and National Action Plan on Green Growth for the 2014-2020 period, the SBV Governor had earlier promulgated Directive No.3 in 2015 on promoting green credit and the management of social and environmental risks in credit granting activities and Decision No.1552 in 2015 setting out the action plan for the banking sector to implement the National Green Growth Strategy to 2020. Therefore, green growth via the banking system is such an efficient way to accelerate the economic restructuring process towards the efficient use of natural resources, contributing to poverty reduction and creating a driving force for sustainable socio-economic development.
VBSP’s credit programs have contributed remarkably to environmental protection, natural resources and energy efficiency improvement; environment quality enhancement and human health protection, towards the sustainable development.
VBSP continues performing preferential credit schemes for the poor and other disadvantaged groups, especially those in remote, mountainous, rural areas and island. To accelerate green credit growth, clean agriculture, encourage borrowing projects friendly with the environment, energy savings and efficient use of natural resources Green credit is such a necessary and urgent requirement for the banking industry to avoid socio-environment risks. In the coming time, VBSP will push up partnership and alliance with international organizations to exchange experience, conduct green credit projects, contributing to nature conservation, environment protection, social security and sustainable poverty eradication.