Deposit insurance policy implementation in microfinance institutions

10:30 | 31/08/2018 Finance - Banking

(VEN) - Microfinance institutions have increasingly confirmed their important role in socioeconomic development in general and poverty reduction in particular. In addition to creating a legal framework for effective development of microfinance institutions, the Deposit Insurance of Vietnam (DIV) is well aware of the importance of accelerating the implementation of deposit insurance policy in microfinance institutions.

deposit insurance policy in microfinance institutions

According to the World Bank (WB), thanks to microfinance institutions in particular and small-scale credit institutions in general, the rate of the poor in Vietnam has dropped significantly, from about 60 percent in the 1990s to 4.5 percent in 2015.

Fundamental development of microfinance institutions

The State Bank of Vietnam (SBV) issued Circular 03/2018/TT-NHNN on licensing, organization and operations of microfinance institutions.

The issuance of an appropriate legal basis will create a mechanism to promote the development of microfinance institutions, and set out strict solutions to operate microfinance institutions in accordance with the law, contributing to ensuring the interests of depositors, and stabilizing the finance-banking system. Fundamental development of microfinance institutions is also a target set out in the program on building and development of a microfinance system in Vietnam through 2020 approved by the prime minister according to Decision 2195/QD-TTg.

However, to promote the development of microfinance institutions, it needs more clear directions. In fact, microfinance is struggling to oversupply short-term loans. This point has made microfinance institutions and international organizations look to the extent of microfinance and recognize the importance of improving financial knowledge as well as protecting the interests of service users at microfinance institutions.

Deposit insurance policy in microfinance institutions

Although the policy and direction for the development of small-scale credit institutions has been developed for a long time, there are still many limitations and potential risks. The process of formalization of microfinance institutions remains slow due to legal issues. Specifically, up to now, only four microfinance institutions have been licensed by the SBV. In addition, the implementation of deposit insurance policy remains inadequate.

The DIV always attaches great importance to the implementation of deposit insurance policy in microfinance institutions through a series of professional activities such as granting and re-issuing deposit insurance certificates; participating in remote monitoring, on-site inspection and the process involved in the restructuring of credit institutions; and propagandizing information on deposit insurance policy. By September 2017, the DIV completed the issuance of certificates and copies of certificates of deposit insurance to all insured institutions after the prime minister signed Decision 21/2017/QD-TTg dated June 15, 2017 on raising the deposit insurance coverage limit.

In terms of participating in remote monitoring and on-site inspection, the DIV has made greater efforts to ensure uniformity according to the DIV’s regulations, contributing to detecting deficiencies and limitations in administration and management. The DIV is ready to assist microfinance institutions to identify the problems and propose solutions. In addition, propagandizing information about deposit insurance policy in microfinance institutions is considered important, contributing to raising awareness of depositors and stabilizing the finance-banking system. To implement the comprehensive financial universalization strategy, Vietnam’s focus on developing microfinance is considered a fundamental step. Of this, creating a legal framework for effective development of microfinance institutions is mentioned as necessary.

Hien Anh