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D+C Vol.42.2015:1 35 VBSP charges interest rates of five to eight percent per year. That is about half the rate of commercial banks and a third of what non-governmental MFIs such as TYM demand. MFIs have thus been forced to keep their interest rates as low as possible. Indeed, Vietnamese MFIs on average charge only half the interest rates of their peers in India, Cambodia or the Philippines. Nonetheless, government-sponsored microfinance remains cheaper, and non- governmental MFIs have not grown as fast in Vietnam as in some other Asian coun- tries. They reach about 700,000 people, a mere five percent of the country’s poor and low-income families. Apart from reducing the scope of non- governmental MFIs, government-subsi- dised credit has other serious downsides. When borrowing becomes too easy, peo- ple are attracted who cannot service loans and will eventually default. Moreover, families start to use credit for consump- tion rather than productive investments. The government spends an annual $ 50 million to $ 200 million in support of VBSP. Accordingly, VBSP has little incentive to mobilise savings from the poor. Doing so, however, would serve a dual purpose: It would help clients to make the most of their savings by paying them an interest rate. It would raise capital for investments in productive enterprises. Ultimately, it would be better if the government spent more money on schools, health care and infrastructure in general instead of distorting competition in the microfinance sector. Non-governmental strengths Against the odds, TYM and other MFIs are becoming increasingly popular. One rea- son is the holistic approach. From the first day, TYM considers its clients “members”. Loans are granted when they are needed, not when the government disburses fresh money. The TYM approach is caring in the sense of educating members in financial matters and assessing diligently whether they will be able to pay back their loan. All members are encouraged to save so they build their own assets, and such assets help them to get a higher loan in the fu- ture. TYM has an excellent repayment rate of 99.9 %. It is true, of course, that Viet- nam’s business spirit is great in general, so the repayment morale is strong too. However, the loyalty of TYM members to their MFI is particularly enduring, and they are obviously prepared to pay a pre- mium for TYM’s services. On this basis, and thanks to strict cost controls and ef- ficient operations, TYM has been profit- able for 15 years. Profits are invested in expanding outreach. Until 2005, MFI operations were con- sidered to be mostly charitable and too small to deserve much state attention in Vietnam. Things changed because micro­ finance was promoted at the international level, for instance by the Asian Develop- ment Bank and other donor agencies. In 2005 and 2007, Vietnam’s govern- ment adopted two decrees on micro­ finance, and in 2010, paragraphs on mi- crofinance were included in the revised banking law. However, only three MFIs have received an official licence so far, and TYM was the first. Other contenders, how- ever, seem to have lost interest, which is probably due to the fact that the regula- tions are quite demanding. Two international partners have inspired and supported the evolution of TYM, the leading Vietnamese microfinance institution (MFI). The first is Germany’s Savings Banks Foundation for Interna- tional Cooperation (Sparkassenstiftung für internationale Kooperation) and the second is the Centre for Agriculture and Rural Development (CARD) in the Philippines. TYM is not only interested in these partners’ technical expertise, but also needs a vision of what is achievable with the right people and the right policies. The German Savings Banks are run by municipal governments. Their network covers every town and district. Historically, the Savings Banks were pioneers of microfinance. They have been serving the goal of financial inclusion for more than 200 years. Everybody has the right to open an account, to transfer funds, to save securely and get loans if eligible. The Savings Banks have a long history of financing small and medium-sized enterprises (SMEs) in their respective region. Unlike commercial banks, they focus on promoting economic develop- ment in their region, rather than maximis- ing profits at the national or international level. The business model has proven sustainable over two centuries. Econo- mists agree that the savings banks and the cooperative banks, which are also organised in a decentralised manner, have greatly contributed to making Germany’s economy resilient and diversified. CARD, on the other hand, is a successful case of a non-governmental initiative that has grown into a sophisticated network of financial institutions. CARD serves 2.6 million clients today. To become a client, one must first join the NGO, which grants access to basic services. As their economic prospects improves and they become more demanding and confident, clients can become customers of CARD Bank, which offers more diversified services, including, for instance, an extended network of ATMs (automatic teller machines), international transfers and business development services. On top of this, CARD has started an SME Bank that supports entrepreneurs with financial needs that are beyond the scope of microfinance. CARD also runs an in-­ surance company, a training institute and a network of shops. CARD has been true to its mission of improving financial inclusion. The management uses consistent tools for monitoring and evaluating its operations. Unlike MFIs in other countries that began to prioritise shareholders’ profits, CARD has never been embroiled in major scandals. Its business model is sustain- able. In a similar way, Germany’s Savings Banks and cooperative banks have stuck to their mission, proving remarkably resilient in times of financial crises over the centuries. (jt/dtnl) International inspiration