The People's Credit Funds system with rural economic development in Vietnam

tion of the People's Credit Fund system Internal Factors, External Factors. 1.2. To improve the operation of the People's Credit Fund system with rural economic development 1.2.1. To complete the operation of the People's Credit Fund system 1.2.1.1. Viewpoints to complete the operation of the People's Credit Fund system Completing the operation of the PCF system must be a regular and continuous process in order to overcome the shortcomings and help the PCF system develop safely and effectively. 1.2.1.2. The necessity of improving the operation of the People's Credit Fund system Derived from the orientation of the Party and State; Derived from the need to improve the quality and effectiveness of the operation of the PCF system. 5 1.2.1.3. Indicators assessing the level of performance of the People's Credit Funds system The quality of lending operation; Products and services; Financial capacity; Yielding; Operational risk; Applying information technology in the operation of the PCF system. 1.2.2. The relationship between the completion of the operation of the People's Credit Fund system and rural economic development 1.2.2.1. The role of improving the operation of the People's Credit Fund system with rural economic development Improving the operation of the PCF system is a factor and plays an important role in the socio-economic development process in rural areas. In essence, the PCF system has a financial and social role. 1.2.2.2. A model assessing the impact of the activities of the People's Credit Fund system on rural economic development The development of the rural economy is expressed in many aspects, namely, the level of poverty reduction, income generation, employment, development of rural transport infrastructure, increased access to financial services health, education ... In this reseach, the author focuses on the performance of rural economic development as the living standard of rural people when using credit services of PCF system. 1.3. Foreign experience in organization and operation of the People's Credit Funds system and lessons for Vietnam 1.3.1. Foreign experience Desjardins Credit Fund, Quesbec - Canada, German Federal Bank. 1.3.2.Some lessons for Vietnam 6 Firstly, the PCF system should improve autonomy, self-responsibility and promote the spirit of mutual aid between the constituent units of the system; Secondly, the Safety Fund is one of the decisive factors for strengthening and consolidating weak public health workers; Thirdly, the training of human resources is considered as the decisive factor for success of the PCF system. Fourthly, the Cooperative Bank must always carry out the role of regulating capital, ensuring the liquidity of the PCF in a quick and flexible manner and meeting the demand for loans of grassroots PCF. Chapter 2 ACTUAL OPERATION OF THE PEOPLE'S CREDIT FUND SYSTEM WITH RURAL ECONOMIC DEVELOPMENT IN VIETNAM 2.1. Introduction of the People's Credit Fund system in Vietnam 2.1.1. History formation and development of the People's Credit Fund system in Vietnam Pilot period of establishment (1993- 2000), consolidation and reorganization phase (01 / 2001-6 / 2004), completion and development phase (7/ 2005- now). 2.1.2. Opportunities and challenges in the operation of the People's Credit Fund system in Vietnam 7 Firstly, the Party and State are increasingly interested in the collective sector in general, the PCF system in particular and the conditions for this model to develop. Secondly, with the policy of attaching importance to the three agricultural policies (Agriculture - Rural - Farmers), the Party and State always pay attention and mobilize all resources for agricultural and rural development in the direction of industrialization and modernization. Thirdly, the results and achievements gained recently have made people more confident and active participation in the PCF system. This is one of the most favorable factors for PCF to scale up and improve the quality operations. Challenges: Firstly, the chartered capital of PCF is still low, so the level of capital mobilization and lending is limited. Secondly, the credit market in rural areas is at risk of being left empty. Thirdly, the most PCF have had computers for accounting and debt management, but transactions have not yet been transferred between the Cooperative bank and grassroots PCF. 2.1.3. The operation of the units constituting the People's Credit Fund system in Vietnam 2.1.3.1. Cooperative Bank • Capital mobilization: Continuing to promote the operation of the Central People's Credit Fund, capital mobilization operation of the Cooperative Bank have a tendency to increase. In 2010, the bank will raise its charter capital to 4,320 billion VND and 2,670 billion VND in 2017. 8 • Credit operatio: The Cooperative Bank provides loans to support and improve the performance of the grassroots PCF. In addition, the Cooperative Bank provides loans to other entities on a priority basis to meet the demand for reasonable loans from grassroots PCF. • Capital operation: The regulatory capital in the PCF system through the central role of the Cooperative Bank increased from 2010 to 2017, especially in the two years 2011 - 2012 the amount of regulated capital reached the highest level of 610 billion in 2012 because these two years it is also a difficult time for the whole banking system in Vietnam. • Payment and treasury services: Account opening; Payment and treasury services; Other operation. 2.1.3.2. Grassroots People's Credit Fund • Capital mobilization: The average growth rate of capital mobilized from grassroots PCF level from 2010 to 2017 is very good, from 6,028 billion VND in 2016 to 18.02 billion VND in 2017, which is an increase of 2.98 times. Very impressive for grassroots PCF. • Credit operatio: Average outstanding loans / grassroots PCF from 2010 to 2017 increased quite fast, from 10,060 billion VND in 2010 to 16,250 billion VND in 2017, increase of approximately 1.6 times.  Other operatio: Open deposit account; Payment services; Procurement of fixed assets; Other professional operatio. 2.1.3.3. Vietnam Association of People's Credit Fund 9 Consultancy operatio; Training operatio; Information and communication operatio; Foreign affairs. 2.1.4. Analyzing the factors affecting the operation of the People's Credit Fund system in Vietnam Size: 300 Participants: people working at People's Credit Funds Scale and structure of the questionnaire: The scales used in the reseach are the likert scale with the following five common scales: very disagree, disagree, normal, agree, very agree. Data Analysis: Descriptive statistics of demographic variables; factor analysis; correlation analysis, regression analysis. Official reseach results: Rating scale reliability - Cronbach's Alpha coefficient: Cronbach's Alpha coefficient ranges from 0.863 to 0.894. EFA Discovery Factor Analysis: The coefficient of KMO is 0.881> 0.5 and Sig = 0.000 <0.05, assuming that correlations between observed variables are correlated in overall. The coefficient of KMO is 0.797> 0.5 and Sig = 0.000 <0.05 should assume that the correlation between the dependent variables is correlated in the overall. Correlation between factors: Between the independent variables and the dependent variable, the correlation coefficient has a non-zero value, and the corresponding Sig value equals 0.000, which is very small compared to 0.05. Assertions between independent variables and 10 dependent variables are linearly correlated with the correlation coefficient here, namely the Pearson Correlation coefficient, derived from the correlation matrix. Results of the regression function: PCF = 0.184 * Human resources of the PCF system + 0.164 * Information technology + 0.124 * Financial capacity + 0.116 * Ownership and operation + 0.116 * Network system + 0.116 * Risk management capacity + 0.087 * Operational strategy + 0.069 * Products and services. 2.2. The situation of completing the operation of the People's Credit Fund system in Vietnam 2.2.1. To complete the operation of the people's credit fund system according to the evaluation criteria 2.2.1.1. Quality of lending activities According to the Cooperative Bank report, by the end of 2017, nearly 1,205 PCF mobilized over 82,000 billion VND and lent 76,000 billion VND, providing loans to around 8-9 million people. Unlike banks, PCF are only operated locally, mobilized from local members, and are lent only to those members. As a result, credit funds have a clear grasp of borrowers, with the lowest NPL ratio in the system ranging from 1% to 2%. 2.2.1.2. Service products The products of PCF have not really linked to the demand of customers, which is very clear in the situation of overcapacity which is happening in PCF while many rural households are still in shortage of 11 capital for production to trade, or to access credit in other lending channels. 2.2.1.3. Financial capacity Operational sustainability (OSS): OSS in the period 2007-2015 is more than 100%, considered to be sustainable in terms of operations. However, international practice suggests that OSS should be greater than 120% for long-term sustainability. Financial Self-Sustainability (FSS): FSS of PCF in the period 2007 - 2015 is over 100%, which demonstrates the ability of financial intermediaries to secure their financial self-sufficiency. 2.2.1.4. Yielding According to the State Bank in Vietnam, by the end of 2017, the has 2050 of PCF system operating in 57 provinces and cities with the total assets of more than 100,000 billion VND. Among types of credit institutions, the models of profitability leading the PCF system, higher than commercial banks. For the period 2007-2015, ROA and ROE of credit funds were always higher than the industry average, respectively 0.49% and 5, respectively. 49%. 2.2.1.5. Operational risk Over the past time, the State Bank has discovered about 30 credit funds across the country with a scale of several hundred billion, by 3 individuals contributed capital, then lending to large enterprises. Some PCF have not followed up their operation objectives, show signs of profit and do not strictly follow the credit process, so there are always many risks in operation, threatening the safety of the PCF system. 12 2.2.1.6. Applying information technology in the operation of the people's credit fund system In some PCF, staffs and staffs have been regularly focused on upgrading the professional qualifications and skills of the staffs and building a prestigious, friendly, convenient, safe and efficient unit. 2.2.2. Analyzing the impacts of the People's Credit funds system on rural economic development (1) Research methodology: The main method is quantitative method. Use the DID method to assess the impact of credit on PCF on the living standards of people rural in Vietnam. Combination of Differential Difference (DID) with OLS regression To assess the impact of credit of PCF on living standards of rural population, the topic uses DID method, in which credit of creditors' credit is considered as a policy variable. The topic was randomly selected from two groups of households in accordance with the DID methodology. Group 1, referred to as the participating group, consists of local households participating in PCF borrowing within one year of the Vietnam Household Living Standards Survey in 2014 and does not borrow in the Level Survey Households Vietnam in 2012. Group 2, referred to as the comparison group, is the non-borrowing household in both surveys. (2) Research model Yit = β0 +β1D+β2T+β3D*T+β4Zit + εit Yit is the indicator reflecting the living standard of household i at time t. 13 D = 1: surveyed households belong to the participating group; = 0: Survey households belong to comparison group. T = 0: Household survey in 2012; = 1: Households surveyed in 2014. Zit is the control variable: it consists of variable groups that reflect demographic characteristics, characteristics of education and employment, household production capacity, etc. + Households in the comparison group in 2012 have D = 1 and T = 0, so the standard of living is: E (Y00) = β0 + β4Zit + Households in the group in 2012 have D = 1, T = 0, so the standard of living is: E (Y10) = β0 + β1 + β4Zit  The difference in living standards between the two household groups in 2012 is: E (Y10) - E (Y00) = β1 + Households in the comparison group, in 2012 have D = 0, T = 1, so the standard of living is: E (Y01) = β0 + β1 + β4Zit + Households belonging to the participating group in 2014 have D = 1, T = 1, so the standard of living is: E (Y11) = β0 + β1 + β2 + β3 + β4Zn. => The difference in living standards between the two groups of households in 2014 is: E (Y11) - (Y01) = β1 + β3. => The impact of credit of PCFs on the living standards of the rural population is: = {E(Y11) –E(Y01 )} –{E(Y10) – E(Y00)} = β3 = DID. (3) Describe the variables in the model Dependent variable: Per capita income and living expenses per capita in real terms represent the living standard of the rural population. Independent variables: Table 2.1. Describe independent variables Symbol Define Unit Expected mark 14 CREDIT Turns dummy into a household group, = 0 if the household is in a comparative group (no loan), = 1 if the household is a participant (loan). T Turns the dummy to the time of the survey, = 0 if the survey time is 2012, = 1 if it is 2014. + T*CREDIT The interaction between household groups and time, the coefficient of estimation for this variable is the effect of credit on income or household expenditures. + HHSIZE Household size, The number of household members. People - DEPRATE Household dependency ratio, equal to the number of dependents per worker. People - HEADAGE Age of household head. Age - HEADMALE Sex of household head, = 1 if head is male, = 0 if head is female. + ETHNIC Ethnicity of the head of household, = 1 if being Kinh or Hoa, = 0 if other ethnic group. + AVERHHEDU The average education level of the household is equal to the average number of schooling years per household member. Year + NONFARMINC The ratio of non-farm income to total income. % + LANDPERCA Area of cultivated land per capita. M 2 + NORTH In the North, = 1 if the household is in the North, = 0 if the household is in another region. +/- SOUTH South, = 1 if the household is in the south, = 0 if the household is in another area. + DISTANCE Distance from home to center. + PP CREDIT FUND PCF + CREDIT OF PP CRE FUND Credit PCF + OTHER FIN INS Other Financial Institutions. + CREDIT OF OTHER FIN INS Credit Other Financial Institutions. + CAREER Career. + (4) Describe the data The topic uses the data of the two VHLSSs in 2012 and 2014. VHLSS 2012 surveyed income and expenditure on 9,300 households and the VHLSS for 2014 surveyed income and expenditure on 9,280 households. Of these, 4,250 households participated in both surveys. Because sampling of these two standard living ques- tions is randomly selected, 15 the sampling requirement of the DID method is to ensure randomness. With a sample size of 217 * 2 = 434 observations were filtered out from two sets of data. The reseach selected 113 local households in 2014 not participating in PCF in the 2012 VHLSS and borrowed funds from PCF in the VHLSS 2014 as a participating group, and 104 households in 2014 but did not participate in the loan. The capital of PCF in both surveys is similar to that of households with loans for comparison. Assuming that in 2012, these two groups have the same starting point, if the two groups do not have loans from PCF, their income and expenditures will vary from 2012 to 2014. (5) Research results • Impact of the PCF on household income Table 2.2. Credit impact of PCF on income Dependent Variable: average income, VND/ People/ Month Regression result 1: Variable Coefficient Std. Error t-Statistic Prob. T*CREDIT 65063.47 53842.42 1.208406 0.0276 CREDIT 4476.085 11681.30 0.383184 0.7018 T 40044.16 48071.39 0.833014 0.4053 C 185704.4 7362.957 25.22144 0.0000 R-squared 0.065168 Mean dependent var 199127.0 Adjusted R-squared 0.058646 S.D. dependent var 138657.6 S.E. of regression 134530.3 Akaike info criterion 26.46614 Sum squared resid 7.78E+12 Schwarz criterion 26.50368 Log likelihood -5739.152 Hannan-Quinn criter. 26.48096 F-statistic 9.991879 Durbin-Watson stat 1.149819 Prob(F-statistic) 0.000002 Wald F-statistic 6.323630 Prob(Wald F-statistic) 0.000333 Regression result 2: Add other control variables to the model Variable Coefficient Std. Error t-Statistic Prob. 16 CREDIT 27658.94 10696.28 2.585846 0.0100 T 18899.11 35504.02 0.532309 0.5948 T*CREDIT 66842.84 35855.31 1.864238 0.0630 HHSIZE -13160.70 2683.758 -4.903832 0.0000 AVERHHEDU 16507.59 2428.292 6.798024 0.0000 NONFARMINC 247454.5 67887.85 3.645048 0.0003 ETHNIC -38703.72 8867.488 4.364677 0.4533 SOUTH -8511.482 9197.379 -0.925425 0.3553 HEADMALE 8685.879 8454.686 1.027345 0.3048 LANDPERCA 0.601798 4.233224 0.142161 0.8870 DEPRATE 25105.45 16477.68 1.523603 0.0284 HEADAGE 133.0229 287.1757 0.463211 0.6435 C 50249.10 22672.22 2.216329 0.0272 R-squared 0.587404 Mean dependent var 199127.0 Adjusted R-squared 0.575644 S.D. dependent var 138657.6 S.E. of regression 90325.18 Akaike info criterion 25.68972 Sum squared resid 3.43E+12 Schwarz criterion 25.81172 Log likelihood -5561.668 Hannan-Quinn criter. 25.73787 F-statistic 49.94743 Durbin-Watson stat 1.805444 Prob(F-statistic) 0.000000 Wald F-statistic 21.33926 Prob(Wald F-statistic) 0.000000 Source: From research results of the author  The impact of the People's Credit Fund system on spend Table 2.3: Credit impact of PCF on spend Dependent Variable: average spend, VND/ People/ Month Regression result 1: Variable Coefficient Std. Error t-Statistic Prob. CREDIT 11902.50 5711.966 2.083783 0.3378 T 22579.46 21692.09 1.040908 0.2985 T*CREDIT 60928.45 25731.87 2.367821 0.0183 C 41431.20 4736.391 8.747421 0.0000 R-squared 0.073207 Mean dependent var 40295.35 Adjusted R-squared 0.066741 S.D. dependent var 66994.93 S.E. of regression 64720.68 Akaike info criterion 25.00272 17 Sum squared resid 1.80E+12 Schwarz criterion 25.04026 Log likelihood -5421.591 Hannan-Quinn criter. 25.01754 F-statistic 11.32182 Durbin-Watson stat 1.684603 Prob(F-statistic) 0.000000 Wald F-statistic 3.712587 Prob(Wald F-statistic) 0.011679 Regression result 2: : HET adjustment results (variance of change error) Dependent Variable: Average spend Method: Least Squares Sample: 1 434 Included observations: 434 Variable Coefficient Std. Error t-Statistic Prob. T 42356.72 17260.48 2.453971 0.0545 CREDIT 16070.43 5574.035 2.883089 0.0641 T*CREDIT 64705.11 18886.77 3.425948 0.0007 HHSIZE -8149.203 1606.506 -5.072625 0.0000 AVERHHEDU 34.91924 1505.463 0.023195 0.0215 HEADAGE 15.42633 153.0796 0.100773 0.0698 HEADMALE 406.9993 5737.601 0.070935 0.0435 NONFARMINC 55741.87 34509.43 1.615265 0.1070 DEPRATE -28297.32 19239.74 -1.470775 0.0421 LANDPERCA 0.996329 2.283603 0.436297 0.6628 ETHNIC 5447.749 7003.423 0.777870 0.0371 NORTH 36222.78 13700.31 2.643938 0.0085 SOUTH -6404.872 5036.590 -1.271668 0.2042 C 37942.02 16013.68 2.369350 0.0183 R-squared 0.313500 Mean dependent var 40295.35 Adjusted R-squared 0.292251 S.D. dependent var 66994.93 S.E. of regression 56361.38 Akaike info criterion 24.74868 Sum squared resid 1.33E+12 Schwarz criterion 24.88007 Log likelihood -5356.464 Hannan-Quinn criter. 24.80054 F-statistic 14.75375 Durbin-Watson stat 1.924012 Prob(F-statistic) 0.000000 Wald F-statistic 5.964090 Prob(Wald F-statistic) 0.000000 Source: From research results of the author 18 • Comparing the impact of PCF and other credit on household living standards. Table 2.4. Impact of PCF and other credit on income and spend Dependent Variable: Average income, VND/ People/ Month Variable Coefficient Std. Error t-Statistic Prob. T -278.7451 12372.74 -0.022529 0.9820 CREDIT OF PP CRE FUND -19065.77 9473.496 -2.012538 0.0448 OTHER CREDIT 91410.10 17848.01 5.121584 0.0000 T* CREDIT OF PP CRE FUND 47676.12 26000.94 1.833631 0.0674 T* OTHER CREDIT 4850.654 22207.36 0.218426 0.8272 HHSIZE 4911.867 2044.487 2.402493 0.0167 AVERHHEDU 10090.44 2375.421 4.247853 0.0000 DEPRATE -22101.14 12102.13 -1.826218 0.0685 NONFARMINC -8657.294 9631.507 -0.898851 0.3692 CAREER 179655.1 8332.737 21.56015 0.0000 DISTANCE 9000.834 1165.932 7.719864 0.0000 LANDPERCA 20.86626 7.068888 2.951845 0.0033 C -39605.14 14960.78 -2.647264 0.0084 R-squared 0.754478 Mean dependent var 199127.0 Adjusted R-squared 0.747479 S.D. dependent var 138657.6 S.E. of regression 69677.39 Akaike info criterion 25.17064 Sum squared resid 2.04E+12 Schwarz criterion 25.29264 Log likelihood -5449.028 Hannan-Quinn criter. 25.21879 F-statistic 107.8093 Durbin-Watson stat 1.527772 Prob(F-statistic) 0.000000 Wald F-statistic 114.8167 Prob(Wald F-statistic) 0.000000 Table 2.5. Impact of PCF and credit of other financial institutions on household expend Dependent Variable: Average spend, VND/ People/ Month. Variable Coefficient Std. Error t-Statistic Prob. T -6815.381 5219.474 -1.305760 0.1924 OTHER CREDIT -12135.18 12552.43 -0.966760 0.3342 T* OTHER CREDIT 47203.44 38590.10 1.223201 0.0219 19 T* CREDIT OF PP CRE FUND 18226.60 16201.81 1.124973 0.0612 HHSIZE -6099.484 4480.250 -1.361416 0.0741 HEADAGE 852.6608 389.6852 2.188076 0.0292 HEADMALE 9089.907 5770.843 1.575144 0.0160 AVERHHEDU 5575.393 1362.033 4.093435 0.0001 ETHNIC 921.9185 6656.277 0.138504 0.0899 DEPRATE -31782.99 20343.54 -1.562314 0.0190 NONFARMINC 11784.51 11757.42 1.002304 0.3168 SOUTH 10798.97 7982.217 1.352879 0.0768 CAREER 735.2632 8714.436 0.084373 0.9328 DISTANCE 6427.674 1299.096 4.947806 0.0000 CREDIT OF PP CRE FUND 14578.89 9949.325 1.465314 0.1436 LANDPERCA -7.972444 3.970335 -2.008003 0.0453 C 52802.91 13221.61 3.993683 0.0001 R-squared 0.329868 Mean dependent var 40295.35 Adjusted R-squared 0.304156 S.D. dependent var 66994.93 S.E. of regression 55885.34 Akaike info criterion 24.73837 Sum squared resid 1.30E+12 Schwarz criterion 24.89792 Log likelihood -5351.227 Hannan-Quinn criter. 24.80135 F-statistic 12.82911 Durbin-Watson stat 1.866973 Prob(F-statistic) 0.000000 Wald F-statistic 12.94555 Prob(Wald F-statistic) 0.000000 Note: - Credit of PCF = 1 if the household does not borrow money from PCF in 2012 and borrowed in 2014, = 0 if the household did not borrow in both periods. Credit from other sources = 1 if the household does not borrow money from another financial institution in 2012 and borrows in 2014, = 0 if the household does not borrow at both. Source: From research results of the author 2.3. Assessment of the current situation of improving the operation of the People's Credit Fund system for rural economic development in Vietnam 2.3.1. These achievements First: PCF operate effectively, contributing significantly to the socio- economic development, improving the living conditions of members and especially the development of rural agriculture. 20 Second: Vietnam Association of PCF has initially performed some basic tasks. Third: Credit quality is improved, overdue debts are always allowed by the State Bank, ensuring the safety of loans. Fourth: Products and services are increasingly focused on quality, meet the diverse needs of customers, especially the loan service more flexible, suitable for rural economic characteristics. Fifth: the financial capability of the PCF system has been strengthened and strengthened to meet the demand of PCF operation. Sixth: The profitability of the PCF system is increasing, as compared to commercial banks, the scale of operation of the PCF system is smaller, the number of loans is smaller, the bad debt ratio is lower than the ROA and ROE higher than Commercial banks. This shows the good performance of PCF. Seventh: Credits of PCF have an impact on increasing the real income of the household. The access to credit of PCF helped increase the living standard of the household achieved 393,000 VND / person / month. 2.4.2. Limitations and reasons Firstly: The se