Current credit arrangements stifle farmers

During a recent seminar in Ho Chi Minh City, organised by British non-profit organisation Oxfam, experts in the agricultural sector expressed concern for Vietnamese farmers. As the country opens up for the world economy, farmers will become vulnerable to lowered tariffs and a surge of imported agricultural products.

“It is estimated that farmers make up 60% of the Vietnamese population, the majority of whom are employed by small farming households. With scant resources regarding technology, finance, and skills, they are susceptible to falling behind amidst Vietnam’s global integration process. This is a particularly pressing issue, given that the country will soon sign the Trans-Pacific Partnership (TPP) Agreement, which includes developed countries with modern agricultural economies,” said Vu Thi Quynh, representative of Oxfam in Vietnam.

Hoa urged the government to provide prompt assistance to small Vietnamese farming households, especially in terms of credit and capital funds. Without sufficient funding to improve product quality, it would be virtually impossible for domestic farmers to compete with imported goods, Hoa said.

Nguyen Hong Mai, general director of Tam Anh Investment, then noted the two main difficulties that Vietnamese farmers faced when applying for bank loans. First, they often conduct business without written receipts, making it difficult for banks to monitor activities and assess their financial capacity. Second, preferential loans from the government are usually allocated on a regional basis, rather than assessing the funding needs of specific local farmers. 

“To solve these problems, I suggest that banks develop a comprehensive list of financial necessity for all agricultural sectors, then set interest rates and loans accordingly. We should also encourage Vietnamese farmers to collect receipts and apply for certifications such as ISO and GAP (Good Agricultural Practice), which will allow them to take up loans with greater ease,” noted Mai.

Dr. Tran Minh Hai, lecturer of Economics at An Giang University, acknowledged that recent regulations had paved the way for unsecured lending to farmers. According to the decree, which took effect in June 2015, farmers can borrow up to VND10 billion (US$443,800) without incurring any collaterals.

“However, in order to implement Decree 55, banks must seize farmers’ documents of house or land ownership, which is a form of collateral in essence. This is an understandable procedure from the banks’ perspective, but one which excludes real progress from the farmers’ perspective, who are already struggling and may turn to loan sharks to avoid collaterals,” Hai said.

Hai then stressed the importance of co-operatives and other local unions that can act as middlemen for farmers when dealing with banks and inspectorates for credit programmes. Hai also added that farmers, via co-operatives, should work with manufacturing firms to develop a sustainable supply chain.

“By utilising a supply chain, it will be much easier for farmers to disclose their business activities to banks. A modern supply chain is also what the Vietnamese agricultural sector needs in order to compete with foreign players, thus allowing farmers to kill two birds with one stone,” Hai suggested.