Cover Image
close this bookFinancial Systems for Rural Development (GRET)
close this folderPart three: Synthesis of thematic debates
View the document1. How can the different financial systems be linked together?
View the document2. Durability of Financial Institutions
View the document4. The issue of guarantees and the role played by groups
View the document5. Should credit be granted to all social categories?
View the document6. Must savings come before credit or not?

1. How can the different financial systems be linked together?

Each country has structures and a history of financial systems that are unique to it. However, the trend, especially seen in Vietnam, is to base the system on a simple one that becomes progressively more complex over time.

Moreover, when rural credit actions were introduced in Lao PDR, a problem arose due to the wide range and numerous actions conducted in the field of credit and the absence of any connections between these actions and the financial authorities of the country. On one hand, some projects did not undertake procedures with the Bank for Agricultural Promotion until they were about to leave or when they had problems. On the other hand, the project supported in Bolimkhamxay by the Quakers depended more on the district officials, since they were close to the beneficiaries, than on the country's financial structures.

The multiplication of financial institutions or structures offering credit aimed at different target populations is a normal phenomenon but to avoid, among other things, overlapping of expertise and geographic competition, questions need to be asked about the connection that they should have between each other.

Furthermore, in terms of financial and operational effectiveness, it would sometimes be worthwhile for the decentralized credit-savings networks and the banks to work together through refinancing agreements. Indeed, the decentralized systems are not competitive with the banks, but most often complementary. It is in the banks best interest, both to limit their costs and to limit loan loss, to rely on organized, liable groups. As for the basic credit unions, it is in their best interest to sign agreements with the banks for refinancing and, as a result, increasing the volume of loans for their members.

It is therefore essential to encourage a "meeting" between these two credit actors instead of them turning their backs on each other as is too often the case.

The discussion then dealt with the procedures for regulations, coordination and institutionalization of the rural credit projects.

- In Vietnam, two different procedures have been adopted to regulate decentralized systems. Credit cooperatives were created by a Central Bank decree. Their regulation was not based on any field experiments. As a result, after two years, these cooperatives reported failures and almost all of them went bankrupt. Currently, the people's unions are adopting a completely different procedure. They started out by letting the unions operate, little by little, and adjusting the system in the field. Only after two years of experimenting could a bill, aimed at regulating these unions, be discussed. The law will be passed after three years of field work and does not impose itself as a prerequisite. It will be in effect for the extension phase and not for the experimentation phase.

- In Cambodia, the effort of coordination and coherence of the system allows substantial initiative at the ground level. There has been progressive coherence that started 4 or 5 years ago. It has materialized through annual forums in which all the partners offering rural credit were in attendance. In addition, there is a structure, the CCRD, through which the government can give specific guidelines and in which the banks, ministries, Women's Union, NGOs and representatives of the basic structures are represented. It is this structure that should create the conditions of institutionalization and brainstorming is done jointly with all the partners. Initiatives can therefore originate from the ground level.

- In Lao PDR, there are regulations for the credit cooperatives backed by the banking system. This financial institution is offered by the bank to interface between the banking system and the farmers. By controlling the form of this structure, the bank is trying to avoid anarchical development of the credit structures and offer a structure for working jointly with the NGOs. The latter can help the farmers organize themselves and join together to set up these structures authorized to offer decentralized credit. The bank could then loan to these cooperatives. This joint work could also materialize through training programmes.