The government has funds for technical support activities through households or local agricultural extension offices. However, these activities are still formal, mass, and have little effect. Therefore, agricultural extension activities should be combined with projects applying for loans.
To ensure the suitability and sustainability of the policy, it is necessary to have clear criteria to distinguish the two groups of subjects above and support activities for effective use of loan capital need to be provided with high quality.
- About interest rates
Lending interest rates, corresponding to the two proposed groups above, lending interest rates will be applied to the two groups. However, for the group applying interest rates according to market interest rates, there may be many different interest rates corresponding to different loans.
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Deposit interest rates, to ensure mobilization from different resources, deposit interest rates need to be taken into account as a factor determining the sustainability of the policy. Deposit interest rates are determined according to market principles.
If deposit and lending interest rates are controlled, it will limit the expansion of lending subjects as well as the mobilization of deposits from different sources. Therefore, interest rates need to be flexible to respond to external interest rates. Thus, freely setting interest rates for each loan and each deposit will help the policy implementing agency compete very effectively with other banks in mobilizing resources to implement as well as lending to policy subjects. In the long term, lending interest rates do not necessarily have to be preferential because international experience shows that the major problem in implementing policies is the form of capital management. If managed wisely, there is no need for preferential loans to operate and attract non-budgetary resources, especially private capital, in a sustainable manner.
- About loan term and amount
Increase medium- and long-term preferential credit. This can only be solved when the source of preferential loans is large. Therefore, if we do a good job of diversifying credit sources, we will not only solve the problem of providing medium- and long-term credit but also increase the current lending level.
Thus, applying flexible interest rates along with no control over lending levels will allow more deposits to be mobilized and then there will be more resources to lend to more poor people. Importantly, when more deposits are mobilized, depositors (who are the poor) are always under pressure to maintain the value of their assets to ensure their deposits. And this also helps protect
borrowers. In addition, the policy implementation agency must always organize its activities effectively because it is always under the supervision of individuals and organizations that deposit money (If the operation is not good, they will withdraw money en masse). Therefore, depositors play a huge role in ensuring the sustainability of the policy. If Vietnam solves this problem well in the future, the concentration of credit from other organizations to a single point of contact will be possible and then the problem of resource integration will be solved.
b. Resource mobilization
To ensure sufficient and proactive resources for policy implementation, it is necessary to diversify resources and integrate resources with the same goals in a locality.
The first is to diversify policy implementation resources.
Mobilization from people who are beneficiaries of the policy. Mobilization is carried out in forms such as mobilizing savings deposits, insurance and pension programs.
Savings mobilization is carried out in two forms: voluntary savings and compulsory savings. For voluntary savings mobilization, borrowers contribute monthly or quarterly savings with a certain amount (this amount must be consistent with the savings capacity of the poor - this contribution level needs to be carefully calculated to ensure the feasibility of the policy). It is certain that the amount of money mobilized from a poor person over a certain period of time will not be much, but it has the effect of encouraging borrowers with large loan balances to save more. In addition, borrowers are encouraged to deposit savings with many forms of deposit contracts suitable for them to encourage borrowers to save for specific purposes such as studying, purchasing assets, etc.
In addition, borrowers are required to deposit savings into an interest-bearing investment account that can be withdrawn after a certain period of time. International experience shows that it takes at least three years for these savings to be meaningful, as they provide borrowers with a significant amount of money that can be used for other purposes.
Insurance and pension fund programs, with the insurance program, the borrower pays into a savings account - life (this amount the bank will use to clear the debt if the borrower or a relative dies). Implementing this insurance program not only helps the poor and their families limit risks - bringing benefits to the poor, but also helps the bank mobilize a long-term savings. With the pension fund, the borrower pays a certain amount of money every month to build
Build a retirement fund for yourself. This will help borrowers have retirement benefits later and more importantly, they feel like they have shares in the bank, so their responsibility in using capital will also be much improved.
Mobilizing savings from people who are not beneficiaries of the policy (have not borrowed). This activity will help banks attract enough capital to lend. However, to do this in reality is not easy at all, here there needs to be a competitive interest rate policy to consider mobilizing from this source.
The second is to integrate different resources with the same goal of supporting poor people to borrow capital in one locality.
The State should have a solution to concentrate credit resources with the same purpose of poverty reduction into one agency to manage and allocate to such subjects, which will be more effective. It is possible to concentrate small credit sources of non-governmental organizations on the Social Policy Bank because it is the only agency currently implementing preferential credit policies and then government organizations play a role in supervising activities. In order to convince non-governmental organizations to entrust the Social Policy Bank to manage and allocate this capital source, it is necessary to first improve and enhance the activities of the Social Policy Bank because one of the reasons is that in the past, these organizations directly provided small credit in rural areas because they rated the effectiveness of the Social Policy Bank very low.
c. Allocation and use of resources
The first is government funding used to implement activities to support the improvement of capital efficiency and the poorest groups at high risk and vulnerability.
Government support is important in the early stages of policy implementation. However, this support leads to a series of problems.
Firstly, because it is government support, it must be a preferential loan, which means it needs to be for a specific target, such as the poor according to certain regulations. The scarcity of resources combined with regulations that only a few subjects are eligible for loans leads to lending to the wrong target. In addition, because there are not enough resources, it is often not proactive in implementing policies. When there is capital, it is disbursed and that may not be the time when the poor need capital. In addition, the loan level can be adjusted to be very high, but in reality, the loan level is always lower because there are not enough resources to implement and at that time, organizations often set strict regulations that make it difficult for the poor to meet those requirements.
Second, when operating with government funding or donated funds, it is very likely that there will be difficulties in debt collection and this will affect sustainability. World experience shows that lending to the poor with government funding has led to a very high level of debt because government subsidies have taken away the incentive for savings of credit institutions for the poor, which in turn will create incentives for depositors to monitor the activities of these institutions.
Thus, it can be seen that government subsidies are necessary but cannot be considered the only source of funding to implement policies. The government continues to support but to carry out activities that the market itself cannot do well or cannot do. And here is the support in terms of technology or production and business experience.
This agricultural extension support activity can be provided directly by the government or by an organization or individual. The issue of who provides the services is not important, but the issue is who can do it effectively. However, the funding for the activities will be covered by government funds.
If the above is done well, the poor will not only have access to loans but also be equipped with the necessary techniques to effectively use those loans. Then the situation of the poor not knowing how to do business and refusing to borrow money will be overcome and more importantly, the ability to repay debts will be greatly improved.
As can be said, the above implementation still ensures the role of creating opportunities for the poor, but there has been a qualitative change compared to the previous period. If in the past the government could only provide opportunities for the poor through loans from its own funds without supporting the effective use of capital, then with this implementation, it has ensured "giving the poor fishing rods, not giving them fish".
The second is government funding used to lend to a group of the poorest people who are at high risk and vulnerable.
To overcome the situation of dispersion in policy implementation, state funding is only used to provide loans with preferential interest rates, even zero interest rates, to the poorest and most vulnerable groups who are often exposed to risks. Thus, instead of lending to a large number of poor households, it is now only focused on a smaller group of people and is easier to organize and implement for higher efficiency. If this can be done, it will help the government perform its role well in poverty reduction, which is to focus on solving what society itself cannot do - supporting the poor to cope with risks to limit vulnerability.
3.4.1.2. Policy on infrastructure construction in poor communes
Basis for policy completion
a. Originating from the shortcomings in current policies Regarding infrastructure policies, the implementation process has revealed some major limitations such as the policy has not yet reached the poorest villages and communities, the efficiency of use and quality of works is low, and the decentralization to communes as investors is slow. There are many reasons but mainly stem from the participation of the people, resource mobilization and allocation, and the mechanism and organization of policy implementation.
Regarding people's participation, in all stages of the infrastructure project, people have been mobilized with the goal of improving their capacity as well as creating income for them. However, the participation is still too formal, the results of the goal of empowering and creating opportunities for the poor have not been achieved as expected. In addition, the limitation in people's participation has made the quality of the works not guaranteed, which has reduced the benefits brought by the public service.
Regarding resource mobilization and allocation, the nature of infrastructure projects requires a huge amount of capital. However, resources are available, but allocating these resources to the poorest villages and communities is not always easy due to the lack of unified criteria. Regarding resource mobilization, resources are limited, so local contributions must be mobilized, but the policy is being implemented in poor communes, so it is very difficult, if at all, to mobilize people's labor.
Regarding policy implementation, with a policy that has a wide range of benefits and the participation of many parties such as the infrastructure investment policy, the problem is that there needs to be a mechanism for coordination between parties. Especially at present, in some poor communes, there are many projects of different donors operating, leading to overlap and waste of resources. So how to integrate resources is also something that needs to be addressed in the coming time. In addition, assigning the commune as the investor should be considered as a good solution to improve the capacity of commune-level authorities in management. However, this is also an issue that has not been focused on, which has significantly affected the effectiveness of the policy.
b. Consistent with the viewpoint and orientation of policy improvement
The first is to create opportunities for poor communes, poor villages, and poor communities. Infrastructure investment is an important solution to reduce geographical disparities, which also means that poor communes will have more opportunities to improve their incomes as well as access to
access to basic social services. However, while this has been done quite well in poor communes and especially poor villages without large geographical and topographical differences, it seems that there has been no change for the poorest communities and villages. Therefore, future infrastructure investment policies need to pay attention to this issue.
The second is to strengthen the empowerment of poor communities. Creating conditions for people as well as commune-level authorities to participate in policy implementation has improved their capacity. However, in order to no longer be a formality, it is necessary to create conditions as well as have stronger mechanisms for people to participate qualitatively in all stages of the policy, especially empowering communes more strongly in being investors.
Third is to limit the risk of vulnerability for poor communities and villages. Currently, although there have been many improvements in the resource allocation mechanism, the policy is still not directed to the poor communities and the poorest villages. That means the risk of vulnerability due to geographical isolation for these places has not been improved. In addition, the risk of vulnerability is also seen in the sustainability of infrastructure works. From there, the question for the future is not only how to target the poor but also ensure the problem of maintaining the works after investment is solved.
Policy improvement direction
a. Strengthening people's participation in policy implementation
People's participation will significantly improve the effectiveness and efficiency of policies. To avoid the situation of formal participation, it is necessary to determine which activities people will participate in and how they will participate. Therefore, the first thing to do is to determine the consultation steps so that people will know which stages and contents they will participate in. With infrastructure investment activities, people must participate in all stages: (i) determining the need for construction investment, (ii) implementing, managing and supervising the construction process, (iii) accepting and handing over the project, (iv) managing exploitation and use.
Participation is usually conducted through village meetings. However, the limitations mentioned in Chapter 2 indicate that there is a need for a change in the way it is done. In addition to direct participation, indirect participation through representatives (People’s Councils, socio-political organizations) also needs to be strengthened. Therefore, it is necessary to strengthen the capacity of commune and village officials so that they can arrange and organize meetings with people to select suitable sub-projects.
In order for participation to be more than a formality, there must be concrete methods to encourage the participation of poor households in project activities (such as the selection of works at the village level) through voting, organized by poor households or gender groups, and then brought to general discussion on the principle of first satisfying the needs of poor groups.
Specific mechanisms and processes for participation need to be developed in a practical way to ensure the participation of women, especially ethnic minority and poor women. For support staff (e.g. community facilitators), it is important to know how to adjust the proportion of women and local people recruited for these positions.
b. Mobilizing and effectively allocating resources to implement policies Mobilizing resources to implement policies
In the past, the funding source for infrastructure construction mainly came from the state budget and local budgets, mainly from the state budget. Because this source is limited, it has significantly affected the implementation progress as well as the investment rate of the projects. Diversifying funding sources is necessary, so in addition to funding from the state budget, it is necessary to effectively mobilize resources from the people.
First of all, to promote the resources of the people, in areas with development conditions, we should mobilize financial and labor contributions to reduce the budget from the State budget. That budget will be transferred to areas with more difficult development conditions. Therefore, it is necessary to change the current form of budget allocation. It is not advisable to allocate an equal amount of finance to each commune on average, but it must be based on the conditions of each area, avoiding the situation where the budget is not enough to complete the project.
Mobilize contributions from the people. The poor reported that the costs of infrastructure contributions significantly increased their burden. Therefore, it is necessary to reduce the burden of monetary contributions for the poor in building local infrastructure works. When conducting community consultation activities in infrastructure construction, it is necessary to focus from the beginning on consulting on the ability of the poor to contribute and participate so that local authorities can propose specific measures suitable to their circumstances (for example: contributions in labor, contributions over a reasonable period of time).
For construction works serving a group of households in a village, the mobilization of contributions from households must be discussed and decided by the households themselves. Commune or village officials must inform the households about the technical requirements of the project and the total cost.
The project budget and the funded capital, how and in what way to contribute must be decided by the beneficiaries.
For projects serving the entire commune or many villages , the mobilization of people's contributions must consult people's opinions through people's contributions at village meetings or through discussions of opinions of People's Council delegates, village heads, representatives of beneficiaries and mass organizations from villages. Contributions to villages will only be allocated when there is consensus of people's representatives or households in the villages.
The decision on how to contribute (by labor, in kind or in cash), who will contribute (by labor, by household or which subjects are exempted) must be left for the households in the village to discuss and decide. The decision on the contribution plan must be agreed upon by at least 2/3 of the meeting participants by vote to be considered valid and recorded in the minutes of the village meeting to report to the commune, avoiding the situation where the government decides to allocate by household or by labor and the people are only responsible for implementing as is currently the case.
On the effective allocation of resources for policy implementation
Selecting beneficiaries as well as resource allocation mechanisms that ensure reaching villages and hamlets in remote areas and reaching the poorest social groups and households in mountainous areas will contribute to improving the effectiveness, efficiency and suitability of infrastructure investment policies in the coming time.
The first is about identifying beneficiaries.
Policy 12 has focused on supporting small-scale investment activities at the village level. However, shifting the targeting to the village level has faced many challenges in identifying targets and allocating resources effectively. Although there are advantages in terms of transparency in allocating funds to communes, there is a need for more specific mechanisms in identifying targets and allocating benefits to the poorest social groups and communities in those communes, including: (i) isolated and remote villages, (ii) smaller ethnic minority groups, (iii) ethnic minority women and girls, and (iv) the poorest groups/chronically poor households.
Particularly disadvantaged villages are identified according to the following criteria: (i) low living conditions and high poverty rate; (ii) agricultural production faces many difficulties including below average cultivated land area; and (iii) few social infrastructure works in the villages and no roads to the commune center.