Evaluation of Capital Aid Fund for Women’s Economic Development

Background
This report presents the findings and recommendations of an evaluation conducted from August 3 to September 7, 2011of the Capital Aid Fund for Women’s Economic Development (CWED) (formerly a microfinance project for the poor women of Tien Giang Province - Vietnam) funded by the Norwegian Mission Alliance (NMA) since 2002. The evaluation was conducted in the backdrop when CWED has been a) undergoing rapid growth and b) preparing to become a licensed microfinance institution (MFI) named as Mekong Organization of Microfinance (MOM), as per rules and regulations of the State Bank of Vietnam (SBV), owned by three institutions - Tien Giang Women’s Union, NMA, and Tien Giang Lottery Co. owned by the People’s Committee of Tien Giang Province. The focus of the evaluation has been to identify strengths, weaknesses, and opportunities of CWED and recommend measures for sustainable operations. The team has assessed impacts and sustainability, reviewed management system and capacity of CWED, and made an assessment of NMA’s strategy to recommend on the future direction of CWED and NMA. CWED has a unique implementation mechanism where the client selection for microfinance services is done by commune-level staff members of the Women’s Union (WU) of Tien Giang province under a service provider agreement, which makes the microfinance delivery a joint effort of CWED and the Women’s Union. The evaluation team has also explored the effectiveness of this implementation arrangement.

Methodology
The principal methodology has been on site verification and discussions with the clients and review of internal processes and systems. The team reviewed all planning, activity and financial reports, interviewed the clients at the center meetings and individually, held meetings with other stakeholders including the Peoples’ Committees and WU at the provincial, district and commune level, reviewed management systems of CWED, held a two-day debriefing workshop, and analyzed operational and financial performance of CWED. The impacts of microfinance reported in this report are gleaned from interviews of clients. However, no formal impact study using quantitative method and statistically valid sample of clients has been commissioned.

CWED’s Program and Activities
Program outreach: CWED is primarily a microfinance program. It has expanded from two communes in 2002 to 67 communes, and reached to about 20,000 clients by June 2011 compared to only 310 at the beginning. The size of the present program as of June 2011 can be measured from the following indicators: a) CWED has organized 19,959 poor women as clients of whom 19,901 have outstanding loans (i.e. current borrowers); b) it has disbursed VND 30.96 billion (1 USD = VND 20,000) as loan during January-June 2011; c) the clients have savings balance of VND 11.8 billion and credit balance of VND 39.24 billion; and d) loan repayment rate remains high, more than 99%.

Reaching the poor: The local WU members organize the poor women into groups and centers under service provider agreement between CWED and WU. The information from sample members interviewed during the evaluation shows that most of them belong to landless families or have less than 3000 square meters of agricultural land, own small house and may have more than one sources of income, none of which is sufficient to cover family expenses. CWED has successfully reached the poor women with microfinance services (savings and loan).

Selection process: The service of WU in organizing the poor women has been found to be effective. The credit officers make the final credit appraisal by visiting about 50% of the clients. But the present process makes the Credit officers of CWED distant from the clients. Microfinance being a supervised program the COs need to be very familiar with the economic life of their clients and the local economy.

Group management: CWED organizes center meetings once in a month where the clients make all financial transactions and occasionally the WU staff discusses social issues. Currently, individual clients do not have any passbook reflecting transactions and balances, which is a weakness in the management system that should be corrected soon.

Savings policies: CWED offers two types of savings to the clients: a) mandatory savings at the rate of VND 20,000 per month which cannot be withdrawn; and b) voluntary savings without any limit but can be withdrawn. The rate of interest is 0.3% and 0.5% per month respectively. The voluntary savings is only 4% of total savings but if promoted can be increased. The savings is an important source of fund for microcredit, currently 28% of loan balance, and can be enhanced if the monthly rate is linked with loan amount.

Loan polices: The loan portfolio is expanding fast due to increasing number of clients and increasing loan size. CWED offers one type of loan: loan for 12 to 18 months to be repaid in monthly with an interest rate of 1.2% per month, which is similar to the industry norm. The loan ceiling is VND 6 million but the average loan size is about VND 3.5 million. The clients are happy with the present polices practices but about 20% of clients asked for larger loans up to VND 7-8 million only and some farmers suggested introduction of seasonal loan, that is, loan at the beginning of the agricultural season and repaid after harvest in one installment.  
  
Use of loan: The clients are using loan for crop production, raising livestock and running small business. In case of crop production the money goes for purchase of inputs such as seeds, fertilizers and pesticides. Since rural TG province is primarily an agricultural economy the portfolio is expected to remain same but proportion of livestock loan and trading may increase over time.

Non-financial services: The selling of products is reported to be not a problem because of easy access to market, presence of a large network of middlemen operating in each commune and good road communication. The farmers keep producing the same crops repeatedly. However, there may be opportunities to introduce new high value fruits and vegetables, flowers and herbs, decoration plants etc. Further investigation and training to clients are needed for developing new businesses.

Loan demand and expansion strategy: The expansion of loan portfolio is natural for any microfinance program; about 20% of CWED’s clients are asking for larger loans. Besides, a rough estimate is that about 100,000 clients could be reached within TG province if resource is available and capacity of CWED is built. To keep the cost down CWED should be expanding in the existing villages and communes before moving to new communes and districts. What is more important is to develop the management parameters such as number of clients, loan portfolio, staffing and cost for a model branch, which then can be replicated in new places closer to the clients. Currently, the three branches are unbalanced in terms of clients, portfolio, and geographical coverage, in some instances far from the clients.

Management System
CWED has developed internal policies, management process and system for implementing microfinance program. The system is by and large adequate and appropriate for an MFI but some improvement needs to be made. It has skilled and experienced staff members to manage the program but capacity of WU’s local staff members needs to be enhanced. CWED’s field operations depend on the WU staff members for selection of clients, which should be jointly done.

Effects and Impacts
The effects of CWED’s program are significant. It has created opportunities for small savings for the poor women, ensured sustainable access to credit at a reasonable cost, reduced dependence on high-cost informal market for small loans, allowed expansion of business and established strong linkage with the local government. The impacts of the program are as follows: increase in income and assets, improved food security, and reduced dependence on money lenders.

Relevance of microfinance and Effectiveness of NMA
Microfinance is recognized by the central government as well as local governments as an effective tool for poverty alleviation. The government provides legal and regulatory support although the decisions on issuing licenses are being delayed. The poor clients find microfinance very necessary to investment purposes.
NMA’s role as a donor and capacity builder has been very effective in transforming a microfinance project into a sustainable organization. A similar strategy needs to be continued. 

Sustainability
The portfolio quality and repayment is very good. Overall it has already achieved operational sustainability and on the way of achieving financial sustainability. But high inflation in Vietnam is adversely affecting financial sustainability of CWED. 
The cooperation and support for CWED have been strong from WU, People Committees and the provincial SBV, which provides strong social and institutional support from CWED. But the license to operate as a formal MFI would put it on strong legal putting, and made it easier to mobilize savings.

Opportunities and Challenges
The demand for its financial services is high among the poor. CWED can expand in the whole of TG province to reach about 100,000 clients and subject to availability of resources and government permission, may even expand in the whole Mekong region. CWED can develop more demand driven financial products. If it receives license it can even offer micro-insurance to the clients and mobilize savings from the public. 
The absence of sources of capital to meet credit demands is the main challenge for CWED, which could be mitigated if more resources are available from NMA and similar ‘wholesale’ lending sources and license is available from the SBV. One structural limitation of the microfinance sector in Vietnam is the absence of one or more formal wholesale lending agencies that would lend to MFIs. Besides, high inflation is eroding capital base of CWED and income base of the clients.

Lessons learned
The well-known impacts of microfinance have been proven here as well. The clients reported increase in production and sales of business and increase in profit due to additional capital at reasonable cost. That led to increase in income and consequently, consumption in food and other essential items, and in some cases, increase in asset. But they will need sustainable access to finance to maintain enhanced income, which would need continued access to finance by CWED from NMA and other sources.

The institutional support from local government such as People’s Committees and WU has been very useful to gain strong local presence. But the absence of formal legal and regulatory support from in form of license is hindering growth.

Recommendations
The detail recommendations are presented in Section 11. In short, the main recommendations for CWED are to a) make some changes in the management system such as introduction of passbooks for clients, b) enhance capacity of staff members of CWED and WU, c) strengthen client selection and center supervision by jointly working with the WU, d) develop management system of a model branch for future expansion, e) mobilize capital from NMA and other sources such as mandatory and voluntary savings,   and f) expand within TG province subject to availability of resources.
NMA should be continuing its role as part owner, lender and mentor for NMA. It may also try to develop a wholesale fund singly or jointly with other donors.
One important step from the part of the government would be to setting up a wholesale lending agency to finance microfinance institutions in Vietnam. The donor agencies in Vietnam may lobby the government for setting up such agency. Examples of such agencies are available in Bangladesh and other countries.  

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