Contribution of bank credit to new rural construction in South Central provinces

Nội dung text: Contribution of bank credit to new rural construction in South Central provinces

1. THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING THE BANKING ACADEMY o0o HUYNH THU HIEN CONTRIBUTION OF BANKING CREDIT TO NEW RURAL CONSTRUCTION IN SOUTH CENTRAL PROVINCES Major: Finance - Banking ID: 9340201 SUMMARY OF DOCTORAL THESIS IN ECONOMICS HANOI – 2020
2. THE THESIS IS COMPLETED AT THE BANKING ACADEMY Scientific instructors: 1. Dr. TONG THIEN PHUOC 2. Assoc.Prof.Dr NGUYEN THUY DUONG Examiner 1: Examiner 2: Ezaminer 3: The thesis is defended in front of the Thesis Council at academy level held at the Academy of Finance at hour day . month . year 2020 The thesis is available at: - The library of the Academy of Finance - The National Library of Vietnam
3. 1 PREFACE 1. Urgency of the thesis topic The South Central Coast region consists of 8 provinces from Da Nang to Binh Thuan with a total natural land area of 4.45 million ha, accounting for 13.2% of the country's total area. The region has 3.67 million hectares (ha) of agricultural land , accounting for 82 , 47% of the country’s total agricultural land area. With over 1,300 km of coastline, many seaports, roads, railways and airways connecting with other regions in the country and internationally with diverse and abundant land and climate resources, the region hs many favorable conditions for agricultural development and new rural construction. However, after 10 years of implementing the National Target Program of Building New Rural Areas, only 378/825 communes, accounting for 45.82%, have been recognized as meeting the new rural standard, lower than the national standard (50.8%) and only higher than that of the Central Highlands (37.73%) and the Northern mountainous area (26.45%). The results of the implementation of the new rural construction program are not the same among the provinces in the region, although the natural and socio-economic conditions among localities are not too different. Some provinces have so far only less than 50% of communes reaching new rural standards (Quang Nam, Quang Ngai, Phu Yen, Khanh Hoa, Ninh Thuan) and the average number of criteria/commune reaches less than 15 criteria. Many criteria directly related to the life of the people are still very low, such as income criteria (60.6%), poor households (61.3%), organization of production (70.3%). Limitations in the new rural construction process of the region in recent years are maybe tem due to both objective and subjective reasons such as: the transport infrastructure system is still limited and weak; the ability to organize production of a part of the population in remote and isolated areas is still lacking; farmers, production households, enterprises, cooperatives and farms in agricultural and rural areas mainly have small production scale, little capital, lack of awareness to market economy, low competitiveness, leading to difficulties and limitations in joint ventures, production and distributions; iIn recent years, there have been many shortcomings in the poverty reduction policy, leading to dependence, satisfaction with current life, lack of will to rise out of poverty of a part of the poor; the efficiency of a number of loans from to the government's economic and credit program in rural areas is still low; the bank's lending policy has not been closely linked with the local policies These have made local credit institutions hesitant in providing credit in rural markets. Currently, the outstanding loans for new rural construction are still mainly concentrated in the Bank for Agriculture and Rural Development (BIDV) and the Vietnam Bank for Social Policies (VBSP) (accounting for 88.9% of the new rural construction credit balance of the region); this is one of major reasons why the new rural construction process in this regions has been on par with many other areas of the country. Therefore, it is an urgent issue to boost bank credit capital for agricultural and rural development which helps create favourable conditions for people and
4. 2 businesses to develop production and raise incomes, becomes the firm stepping stone for economic development, and contributes to new rural construction in South Central provinces. Based on that reality, the author chose the following topic for the doctoral thesis: “Contribution of bank credit to new rural construction in South Central provinces” . 2. Literature review 2.1 In foreign countries There have been many studies in the world in the field of credit for rural areas, typically the following studies: In the study "Prosper or Perish: Credit and Fiscal Systems in Rural China" published by Ithaca Press University, Lynette Ong (2012) addressed the problems of China's agricultural credit, pointing to the imbalance between central and grassroots credit systems. Between 1985 and 2004, the Rural Credit Cooperatives (RCCs) were China's official banking institutions which mainly served rural people. The lack of alternative savings institutions and investment channels made RCCs a very popular savings option in rural China. The function of Chinese agricultural cooperatives were to support credit for agricultural development of farm households. However, according to national statistics on the loan portfolio of Chinese agricultural cooperatives, the proportion of loans to farmer households was much lower than that of rural enterprises. Therefore, it was necessary for the Chinese government to take active steps to reform its financial and banking system to ensure the credit and financial system in rural China can prosper. In the article "Mysteries on India's Agricultural Credit" published by The World Financial Review, Narayanamoorthy and Alli (2015),examined the natural relationship between rural credit and agricultural GDP growth and made an assessment of the reality of rural credit in India. Many farmers taking part in rural credit did not only fail to make profits, but became more difficult due to incurred additional loan costs because the agricultural credit they received was not used properly. Through the study, the author proposed three policies that the Government of India could implement to promote the development of the country's agriculture sector: double the amount of agricultural loan in 3 consecutive years, implement the hunger eradication and poverty reduction plan for farmers, and have policies to support interest rates for those who are not subject to poverty reduction. The study of Kim Young-Chul (2004) on “Improving the Agricultural Finance System: The Changing Role of Agricultural Cooperatives in Korea” was pusblished in the Journal of Agricultural Economics, Konkuk University Seoul, South Korea. Through an assessment of the reality of Korea's agricultural development, the author provided valuable information on Korea's efforts and initiatives in improving the agricultural financial system. A series of policies were introduced to stimulate growth in the agricultural sector in Korea, such as reforms towards a banking system serving both agricultural and non-agricultural sectors; improvement of
5. 3 management efficiency through a credit rating system; strengthening of the credit monitoring system in which establishing an effective supervisory credit system was considered the most successful solution. This supervisory credit system is the agricultural cooperative system of Korea. Published studies focused on analyzing and assessing the reality of rural credit development in countries around the world. Along with that, the authors also proposed some policy recommendations for regulatory agencies and recommendations for financial institutions in the context of strong demand for rural credit development. 2.2. In Vietnam According to author's research, currently there are not many studies on bank credit for new rural construction. Notable studies are: 2.2.1. Agricultural , rural, and new rural development The book titled "New rural construction in Vietnam nowadays: a study on the South Central Coast" by Pham Di (2016), published at the National Political Publishing House, is a quite comprehensive document about new rural construction both in terms of theory and field research in the South Central Coast. However the author's time of research on new rural construction is according to the Decision No. 800/QD-TTg of June 04, 2010, approving the national target program on new rural construction during 2010-20200 and Decision No. 491 / QD-TTg of April 16, 2009 promulgating the national set of criteria for new rural areas. The doctoral thesis of Nguyen Van Hung (2015) on "New rural construction in socio- economic development in Bac Ninh province" was successfully defended at Ho Chi Minh National Academy of Politics. In this thesis, the author systematized the theoretical basis of new rural construction in socio-economic development; presented new rural construction experiences in local socio-economic development in some countries such as China, South Korea or domestic provinces such as Ninh Binh, Hai Duong, Vinh Phuc to draw lessons for Bac Ninh province; conducted analysis and evaluation of new rural construction practice in socio-economic development in Bac Ninh province according to criteria from 2020 to 2015, clarified the achieved results, limited existence and causes. Based on the combination of theory and practice, the author proposed basic directions and major solutions to new rural construction in socio-economic development in Bac Ninh province to 2020. Thus, In the content of that thesis, the author mainly analyzed the criteria of new rural construction in socio-economic development of Bac Ninh province in the period of 2010-2015 and proposed solutions to 2020. Hoang Tien Cuong (2016) presented the articled titled "Some theoretical issues on agricultural development and rural economy associated with new rural construction in the context of accelerating industrialization, modernization and international integration" published in The National Science Conference on agricultural development and rural
6. 4 economy associated with new rural construction in the Central region which was organized by the Institute of Social Sciences of the Central Region. In that article, the author systematized some concepts about rural area, agriculture, rural economy, viewpoints and conditions for implementing the objectives of agricultural and rural development associated with new rural construction, the Party and the government’s policies, and factors affecting agricultural development and rural economy associated with new rural construction. At the same time, the author also provided some new approaches and six experience lessons in agricultural development and rural economy associated with new rural construction at grassroots level. That study was carried out on agriculture, rural development, new rural construction in the Central region with the government’s policies from 2015 and earlier. In summary, according to the author’s research, so far there are many quiate many studies on agricultural development, rural development and new rural construction but these studies were mainly done in the first phase of new rural construction (the 2010 – 2015 period) and were done according to the Decision No. 800/QD-TTg of June 04, 2010, approving the national target program on new rural construction during 2010-20200 and Decision No. 491 / QD-TTg promulgating the national set of criteria for new rural areas. 2.2.2. Credit activities for agricultural, rural development and new rural construction The doctoral thesis on "Credit policies of the Bank for Agriculture and Rural Development of Vietnam for the development of agricultural and rural economy in the Central Highlands" of Nguyen Manh Hung (2008) was successfully defended at Banking Academy. The thesis systematized and developed basic theoretical issues about credit policies of commercial banks for agricultural and rural economic development in the market economy, studied the reality of agricultural and rural credit policies of the Bank for Agriculture and Rural Development (Agribank) in the Central Highlands region in the 2002-2007 period, evaluated policies through a system of evaluation criteria, and drew advantages, limitations and causes of limitations. From studying the theoretical research and reality, the author proposed solutions and recommendations to improve the effectiveness of credit policies for agriculture and rural development of Vietnam Bank for Agriculture and Rural Development for the Central Highlands region. Thus, the thesis solved the shortcomings on credit policies for agriculture and rural development of Agribank in five Central Highlands provinces with the main focus on capital mobilization and lending activities in the 2002-2007 period. The doctoral thesis on "Mobilizing and using financial sources for new rural construction in Thai Binh province" of Nguyen Thi Bich Diep (2017), was successfully defended at the Academy of Finance. The author studied theoretical issues of mobilization and use of financial resources for new rural construction, experiences of provinces such as Nam Dinh, Dong Thap and Hung Yen on mobilization and use of financial resources in new rural construction and lesson for Thai Binh province. In chapter 2 of that thesis, the author
7. 5 analyzed the reality of mobilization and use of each financial resource in new rural construction in Thai Binh province in the period of 2011-2015 and at the same time conducted a survey of 482 households in 31 communes of Thai Binh province on methods of mobilizing, allocating and using financial resources from different areas in new rural construction. From there, the author summed up and evaluated the achieved results, the limitations and its causes as a basis for proposing solutions to mobilize and use financial sources, contributing to accelerate the process of new rural construction. in Thai Binh province for the period of 2016-2020. In general, the results of that thesis can be used for reference on the theoretical basis of new rural construction, financial resources mobilized and used in new rural construction and have practical value on some solutions to increase mobilization and use of financial resources for new rural construction in a locality, namely Thai Binh province. The master’s thesis on "Credit solutions contributing to new rural construction at Cooperative Bank of Thanh Hoa Province" of Hoang Le Nga (2015) was done at the Banking Academy. The author systematized some basic theories about new rural and bank credit. After that, the author then analyzed the reality of bank credit for the new rural construction model of the Thanh Hoa branch of Cooperative Bank from 2012 to 2014, assessed the achieved results and limitations to be solved so that credit activities for new rural model of Cooperative Bank of Thanh Hoa province could become more effective and safer. Based on results of reality assessment, the author proposed a number of credit solutions to contribute to building a new rural model at Thanh Hoa Cooperative Bank and at the same time, presented recommendations to the State agencies, the State Bank, Cooperative Bank of Vietnam and customers. However, this thesis was only about analyzing, evaluating and proposing credit solutions that could contribute to new rural construction in a province, namely Thanh Hoa province, of Thanh Hoa Cooperative Bank, The proposed solutions were only of micro scale. A ministerial-level research project on "A study of credit policies and solutions for rural households in new rural construction" by To Ngoc Hung, (chief editor) (2016), was successfully defended at the Banking Academy. In this project, the research team established the theoretical basis of credit for rural households in new rural construction, international experience on credit policies and solutions for rural households in new rural areas construction and drew lessons for Vietnam. The authors then conducted a review of the reality of credit policies and solutions for rural households in new rural construction in Vietnam using secondary data from BIDV and VBSP during 2010 – 2016. The authors also studied three quantitative models to identify factors affecting farmers' access to loans, identified factors affecting the expected loan size of rural households and the impact model of household credit to income in the new rural construction program. From the results of the
8. 6 evaluation, the thesis provided directions and solutions to improve policies and credit solutions for rural households in new rural construction in Vietnam. That is research topic of bank credit policies for rural households in new rural construction Vietnam duting the 2010 – 2016 period. It can be seen that there have been many studies on credit activities for agricultural and rural development. However studies on contribution of credit activities to new rural construction are still quite limited and incomprehensive; they mainly focused on specific subjects such as households or production households, a particular bank, a locality or a province and the majority of them assessed the reality from 2016 backwards. 2.3. Research gap of the thesis From an overview of foreign and domestic studies, it can be seen that there are quite many research works related to bank credit for agricultural and rural development and new rural construction in the world with different approaches and methods for evaluation and analysis. However, at present, domestic studies on this issue is still limited and not comprehensive. The thesis aims at addressing the following basic research questions:: - What is bank credit for new rural construction and the impact of credit capital on new rural construction? - What is the reality of new rural construction and contribution of credit activities to new rural construction in South Central provinces of Vietnam? - What solutions and recommendations are required to promote credit activities that contribute to new rural construction in South Central provinces in the near future? 3. Research objectives The thesis aims to systematize theoretical basis of bank credit for new rural construction, analyze and evaluate banking credit activities for new rural construction in the South Central region; on that basis, the thesis proposes some solutions to promote contribution of bank credit activities to new rural construction in South Central provinces. 4. Research objects and scope 4.1. Research objects The thesis focuses on theoretical and practical issues on contribution of bank credit activities to new rural construction in South Central provinces. 4.2. Research scope - In terms of content: The author limits the scope of the study to contribution of bank credit activities to new rural construction in South Central provinces. - In terms of space: Data for analysis are collected from the branches of BIDV and VBSP in South Central provinces; these are two credit institutions that mainly implement credit policies used for agriculture, rural development and new rural construction.
9. 7 - About time: + The thesis studies and assess reality of credit activities for new rural construction in South Central provinces during 2014 - 2019. + The thesis proposes solutions to improve contribution of bank credit activities to new rural construction in South Central provinces and recommendations to relevant agencies until 2025. 5. Research methodologies Data sources used for the research were collected as secondary data on new rural construction from 2010 to 2019 from the Coordination Office on New Rural Development of provinces in the South Central region, the official websites of the Departments of Agriculture and Development of South Central provinces, reports summarizing 5 years and 10 years of new rural construction of South Central provinces and other regions of the country from the Central Coordination Office on New Rural Development under the Ministry Agriculture and Rural Development (MARD), the General Statistics Office Of Vietnam. The bank credit data were collected from the income statements of the VBSP in South Central provinces, Agribank Central Office in the period 2014 - 2019, branches of the State Bank of Vietnam in South Central provinces. From the collected data, on the basis of dialectical materialism and historical materialism methods, the following methods are used during the thesis implementation process: - Methods of analysis - synthesis: this method is used used throughout the thesis to systematize, synthesize theory to form the theoretical framework for research issues. - Descriptive statistical method: this method is used to collect information and data; summarize, present, calculate and describe different characteristics to generally reflect the research object. - Comparison method: this method is used as the basis for analysis and identification of trends and fluctuations of criteria. The statistics are from secondary data sources and systemized according to time series, to plan and are used as the basis for comparison and evaluation. - Method of expert opinion: Researches carried out in this thesis were consulted by officials at department, office or industry level who are directly related to directing and coordinating the National Target Program of Building New Rural Areas, Ministry of Agriculture and Rural Development (MARD), Coordination Office on New Rural Development under the MARD, and credit officers of Agribank and VBSP. - Methods of scientific inheritance: The author presents an overview of scientific studies related to the thesis topic; these results help the author complete the theoretical basis and the solutions of the thesis.
10. 8 6. New contributions of the thesis Firstly, the thesis has systematized the theoretical framework on new rural construction and bank credit for new rural construction. Secondly, the thesis has summarized studies on bank credit for agricultural and rural development, new rural construction in some countries in the world such as China, Korea, India and the experience of two provinces of Nam Dinh and Binh Duong, thereby, thereby drawing experience lessons for the South Central provinces. Thirdly, by research methods, the thesis has assessed the reality of new rural construction in the South Central provinces in the 2014 - 2019 period. Fourthly, the thesis proposes a number of solutions for banks in general, especially Agribank and VBSP, to promote contribution of bank credit to new rural construction in South Central provinces 7. Structure of the thesis In addition to the preface, conclusion, list of reference materials and appendices, the thesis consists of 3 chapters Chapter 1: Theoretical basis of bank credit for new rural construction Chapter 2: The reality of of bank credit for new rural construction in South Central provinces Chapter 3: Solutions to bank credit contribution to construction of new rural areas in South Central provinces
11. 9 CHAPTER 1: THEORETICAL BASIS OF BANK CREDIT FOR NEW RURAL CONSTRUCTION 1.1. Overview of rural construction 1.1.1. Concept of new rural area New rural area is a rural area in which the material, cultural and spiritual lives of the people is constantly improved, gradually reducing the gap between rural and urban areas. Farmers are trained to adopt advanced technologies, have a strong political stance, and play a leading role in new rural development. 1.1.2. Concept of new rural construction Thus, the concept of "new rural construction" “is understood as the development process from outdated rural areas to rural areas with modern production industry, high quality and productivity, and, at the same time, the process helps improve people's lives (To Ngoc Hung, 2016). 1.1.3. Content of new rural construction New rural construction towards implementation of the Set of National Standards in Decision No. 1600/QD-TTg dated Aug 2016 of the Prime Minister on approving national target programme and Decision No.1980/QD-TTg dated Oct 17, 2016 on on promulgation of national criteria for New Rural area in 2016 - 2020. 19 criteria are promulgated in detail in the program with contents of (1) New rural construction planning; (2)Socio-economic infrastructure (3) Economy and organization of production, (4) Culture-society and environment, (5) Political system. 1.2.Bank credit for new rural construction 1.2.1. Concept and characteristics of bank credit Concept of bank credit Based on theories about bank credit for new rural construction presented in previous studies and the author’s study, th author genelizes the concept of bank credit for new rural construction as follows: Bank credit for new rural construction is understood as credit activities of commercial banks to entities in rural areas, participating in agricultural production activities with the main of providing capital for farmers to serve production and economic development, thus contributing to hunger eradication and poverty reduction, increase in income and completion of new rural construction criteria. Characteristics of bank credit  Appropriate loan management procedures and processes  Lending period and debt collection plan are associated with agricultural production and business activities
12. 10  The natural environment and prices affect farmers’ income and ability to repay.  High loan costs and great risks  The loan security assets are mainly low-value land use rights or unsecured loans 1.2.2. Bank credit classification - According to credit terms - According to customer’s credibility - According to the purpose of borrowing - According to lending method 1.2.3. Role of bank credit for new rural construction - Bank credit is an important financial resource in the new rural construction process - Bank credit is a tool to finance infrastructure development in rural areas, creating conditions for each business to adopt new technologies into production and business. - Bank credit gives people a continuous improvement in education, production, and economic accounting. 1.2.4. Criteria to evaluate bank credit activities for new rural construction - Growth in service provision scale and new rural loan income - Expanding of market share for new rural loans - Diversity of new rural loan services - The perfection of service quality - Risk control in lending for new rural construction - Criteria from the customer side. 1.3. Influencing factors of bank credit for new rural construction 1.3.1. Factors from supporting agencies and organizations 1.3.2. Factors from bank 1.3.3. Factors from customers 1.4. Experience for bank credit for new rural construction in some foreign countries, in some typical localties in Vietnam and lessons for South Central provinces 1.4.1. Experience of Chinese China is considered a large developing agricultural country with more than 720 million people and more than 121 million ha of farmland with a vastly untapped rural financial market. The Central Bank of China estimates that about two-thirds of the total farmers lack banking services, although the credit and loans in the China Rural Credit Fund each year increase by 20%, higher than the national average. To address chronic fiscal shortages in rural areas, the Government has asked financial institutions such as the Agricultural Bank of China (ABC), Agricultural Development Bank of China (ADBC), Rural Credit Cooperative (RCC), Rural Postal Saving (RPS) and china banks to increase credit loans related to agriculture. In particular, the ADBC is instructed to expand the field
13. 11 of agricultural support and increase long-term credit for rural infrastructure construction. In addition, state-owned commercial banks, such as the Investment and Commercial Bank and life and property insurance companies in Xinyang and Shanghai, also provide some financial services to farmers. 1.4.2. Exeperience of Korea Saemaul Undong" means the community renewal movement, launched by the President of Korea on April 22, 1970. With drastic policy changes, Korean agriculture has grown from being small and fragmented with backward production to becoming a modern, industrialized industry. This process started with agricultural cooperatives and quickly spread throughout rural areas of Korea. Besides agricultural cooperatives, the Korean government also focused on developing micro credit institutions, bringing credit closer to farmers. Micro-credit in Korea is mainly conducted by non-governmental organizations; the government only plays a leading role in policy making and solutions. 1.4.3. Experience of India India is also a country with the majority of the population living on agriculture (52%); therefore, up to now, agriculture is still considered the backbone of the Indian economy. In order to implement these policies, a secured rural credit institution system is needed. Currently, rural credit in India is divided into two types: institutional and non-institutional. Non-institutional sources of credit include money lenders, traders, brokers, friends and relatives. Commercialization in agriculture has made traders and brokers become big money lenders in the rural economy with fertilizers and pesticides provided by traders through credit or deferred payment. Institutional credit is provided by co-operative banks with the amount of credit available for agriculture tripled between 2005 and 2013, accounting for about 20% of total credit supply for agriculture in the country. Reserve Bank of India (RBI) and commercial banks act as the largest institutional funding source for the agricultural sector in India, accounting for over 65% of total credit flow into the region during the 2005 - 2013. 1.4.4. Experience of Nam Dinh province Nam Dinh is one of the first two provinces in the country to complete the task of new rural construction. After 9 years, by the end of July 2019, Nam Dinh province has 100% of communes and towns, 10/10 districts and cities meeting new rural standards, one year earlier than the target set in the Resolution of the XIX Provincial Party Committee. This is thanks to efforts from many parties including the significant contribution of the banking system. As of early October 2019, outstanding loans for new rural construction in 209 communes of the province reached VND 31,984 billion; non performing loan ratio accounted for only 0.4% of the total outstanding loans to new rural commune. The number of outstanding customers was 210,440 (households: 209,568; enterprise 860; cooperative
14. 12 12). The average outstanding loan of each new rural commune by October was 153 billion VND/commune, an increase of 103 billion VND / commune compared to 2011. From the VBSP loans, in the past 10 years, 67,504 poor households, 45,118 near-poor households, 14,432 households have just escaped from poverty and 221,052 other policy beneficiaries have had access to loans; this helped 30,106 households escape poverty, 8,662 households escape near poverty and disburse loans to 52,119 students to continue their studies. 1.4.5. Experience of Binh Duong province By 2019, Binh Duong is among 8 provinces and cities nationwide that have 100% of new rural communes. At present, there are 46/46 communes meeting new rural standards, 1 commune meet advanced new rural standards; communes are continuing to invest in improving the quality of criteria according to the set of criteria for advanced new rural communes and model new rual communes; 3/7 units of district and towns meet new rural standards, completing the task of building new rural areas. Thanks to social policy credit activities, financial supports are provided to more than 119,000 poor households and other policy beneficiaries, with a total loan of 3,288 billion VND, contributing positively to helping more than 10,000 households overcome poverty to get rich. More than 5,000 pupils and students have better studying conditions. More than 39,000 laborers maintain jobs and new jobs are created. More than 94,000 clean water projects meeting national standards are built and repaired; capital is disbursed for 103 households to buy or rent social houses. The achieved results have contributed positively to social security, helping 49 communes in the province to meet new rural standards, limiting the situation of usury and black credit in the province. 1.4.6. Experience lessons for South Central provinces From the experience of other countries in the world, especially in China, Korea and India which has many socio-economic similarities, especially the contribution of bank credit in in agricultural and rural development, new rural construction, to Vietnam and the two provinces of Nam Dinh and Binh Duong (which are the leading provinces in new rural construction thanks to the contribution of credit capital), the author draw some lessons for South Central provinces about contribution of bank credit to to new rural construction. Firstly, the provinces of the South Central region need to develop a diverse rural financial market with many participants involved in the supply. Second, it is necessary to diversify investment capital for agriculture and rural areas Third, it is necessary to diversify loan programs / products to farmers Fourthly, preferential interest rates for lending in agriculture and rural areas are required Fifth, the role of policy credit should continued to be promoted.
15. 13 CONCLUSION OF CHAPTER 1 New rural construction requires the mobilization of many resources, of which bank credit plays an important role, providing capital for people in production and business, increasing income, reducing poverty and contributing to economic growth, and implementing social security. Chapter 1 has generalized the basic theoretical issues about contribution of bank credit to new rural construction, such as: concepts, characteristics, roles, loan classification, criteria for evaluating lending activities for new rural construction. Chapter 1 has analyzed factors affecting contributions of bank credit for new rural construction and studied experience on bank credit for new rural construction of some countries and typical localities to draw lessons for South Central provinces.
16. 14 CHAPTER 2 : THE REALITY OF BANK CREDIT FOR NEW RURAL CONSTRUCTION IN SOUTH CENTRAL PROVINCES 2.1. Overview of new rural construction of South Central provinces 2.1.1. Socio-economic situation in South Central provinces 2.1.2. Reality of new rural construction in South Central provinces during the period of 2014- 2019 2.2. Reality of contribution of bank credit to new rural construction in South Central provinces during the period of 2014 - 2019 2.2.1. Reality of credit extension in agriculture and rural fields of credit institutions in South Central provinces 2.2.2. Reality of contribution of bank credit to new rural construction in South Central provinces during the period of 2014 – 2019 - Contribution of credit capital to new rural construction in South Central provinces during 2016 – 2019 For South Central provinces, the contribution of credit capital in new rural construction during the period of 2016-2020 is particularly important. As of 2019, the central source for new rural construction is VND 104,093.26 billion, accounting for 65.49% of the total mobilized capital for the implementation of the national target program for new rural construction, higher than the ratio in Decision No. 1600 by the Prime Minister. This source of credit capital acts as the leverage and motivation for people in the region to boldly invest in economic development, rising out of poverty, contributing to raising incomes, creating a new face for rural areas. Table 2.10: Contribution of credit capital to new rural construction in South Central provinces during the period of 2016 – 2019 Unit: billion dong, % South Central Credit capital for Total capital for % of credit/total provinces new rural new rural capital for new construction consruction rural construction Da Nang 868,21 3.691,57 23,52 Quang Nam 14.357,51 28.130,36 51,04 Quang Ngai 3.080,45 9.320,46 33,05 Binh Dinh 44.329,89 53.137,67 83,42 Phu Yen 8.506,22 17.577,83 48,39 Khanh Hoa 9.803 12.772,74 76,75 Ninh Thuan 1.022,19 2.944,43 34,72 Binh Thuan 22.125,79 31.350,87 70,57 Total 104.093,26 158.925,93 65,49 Source: : Summary report on 10 years of new rural construction of South Central provinces
17. 15 - Size of bank credit for new rural construction To analyze the contribution of credit activities to new rural construction in South Central provinces, the author only uses data of Agribank and VBSP because as of 2019, the credit scale these two banks is 92,541 billion dongs, accounting for nearly 90% of the outstanding loans for rural construction in South Central provinces. More than 10% of the remaining debt is dispersed in various credit institutions such as Lien Viet Bank, BIDV, micro-finance institutions, people's credit funds, etc., Source: Income statements of the representative office of Agribank in the Central region and of VBSP branches in Central provinces, plus the author’s calculation The scale of outstanding loans at VBSP and Agribank increases continuously over the years, from VND 48,077 billion in 2014 to VND 92,541 billion in 2019, an approximate increase of 2 times. The scale increased steadily in both banks, of which Agribank had a faster increase rate than VBSP. In parallel with the credit balance, the number of customers granted credit in South Central provinces also increased from 1,007,000 customers in 2014 to 1,441 thousand customers in 2019. After the implementation of Decree 55/2015 / ND- CP and ND 116 / ND - CP on credit policies for agricultural and rural development applied to VBSP and credit policies for households newly escaping poverty of VBSP, the growth rate of the number of customers granted credit in the field of agriculture, rural areas and new rural construction continuously increased over the years from 6.82% in 2016 to 7.89% in 2019). Increasing access of people in the rural area to credit capital from commercial banks has helped people to have capital to organize. production, improving material, cultural and spiritual life, contributing to the completion of new rural construction criteria of localities in the region.
18. 16 Table 2.11: The number of customers granted credit of Agribank and VBSP in South Central provinces, during the period of 2014 – 2019 Unit: thousand of people, % Target of number of customers 2014 2015 2016 2017 2018 2019 with outstanding loan VBSP 669 721 787 864 977 1.104 Agribank 339 355 367 375 359 337 Total customers approached 1.007 1.076 1.155 1.240 1.336 1.441 Growth in number of customers 6,82 7,29 7,36 7,74 7,89 granted credit Source: Income statements of the representative office of Agribank in the Central region and of VBSP branches in Central provinces, plus the author’s calculation -. Structure of bank credit fornew rural construction a/ Credit structure according to lending purpose Data in table 2.13 show that credit for new rural construction during the period of 2014 - 2019 mainly focused on production and business loans in rural areas and for consumption, accounting for over 95%, in which credit for agricultural production accounted for over 60% - twice as much as consumer credit. Moreover, the outstanding credit balance for production and business grew continuously from VND 33,555 billion in 2014 (accounting for 69.8%) to VND 97,964 billion in 2019 (accounting for 73.4%). In addition, outstanding loan to rural households also increased from VND 12,860 billion in 2014 to VND 21,604 billion in 2019. However, the increase in outstanding loans for consumption was slower than for production and business; the loan proportion tended to decrease slightly in this period. This shows that subjects in rural areas paid more attention to using loans for agricultural production and business activities, creating more positive effect in other activities as well to create income and improve faces of life. Table 2.13: Credit structure according to borrowing purpose in the VBSP and Agribank in South Central provinces during the period of 2014 – 2019 Unit: billion, % Borrowing 2014 2015 2016 2017 2018 2019 purpose O/S % O/S % O/S % O/S % O/S % O/S % Business, production 33.555 69,8 37.300 71,0 43.021 72,0 53.360 73,2 61.971 73,8 67.964 73,4 Consumption 12.860 26,7 13.516 25,7 14.735 24,7 17.530 24,0 19.600 23,3 21.604 23,3 Other 1.662 3,5 1697 3,2 1.969 3,3 2.024 2,8 2.451 2,9 2.973 3,2 Total 48.077 100 52.513 100 59.725 100 72.914 100 84.022 100 92.541 100 Source: Income statements of the representative office of Agribank in the Central region and of VBSP branches in Central provinces, plus the author’s calculation (O/S= outsanding)
19. 17 - For VPSB, the proportion of business loans to consumption fluctuated around 2 times, similar to the trend of the general statistics results of both banks. In the consumer lending structure of VBSP, the author only introduces two lending activities for disadvantaged students and loans for clean water & sanitation because these two loans account for a large proportion in total outstanding loans of the bank and other loans accounted for a small proportion which the author puts in other lending purposes. - For Agribank, lending for agricultural production and business accounts for a high proportion compared to consumer loans and loan for other purposes. The proportion of business loans is more than 3 times compared to consumer loans and loan for other activities, accounting for over 70% of the bank's total outstanding loans. Outstanding loans for production and business grew over the years from 2014 to 2019 and reached over VND 50 trillion in 2019, accounting for 75.2%. b/ Credit structure according to borrower Outstanding loans to individuals and households continuously increased over the years from 2014 to 2019. By 2019, the outstanding loans to these borrowers of both banks were 57,329 billion VND, increased by 1.67 times compared to 2014, accounting for 61.95% of the total outstanding credit for agriculture and rural areas. Outstanding loans for these borrowers increased steadily over the years from 2014 to 2019. By 2019, outstanding loans reached VND 32,593 billion, accounting for 35.22%, an increase of VND 3,479 billion compared to 2018, nearly 3 times higher than outstanding loans in 2014 (VND 10,957 billion). Table 2.16: Credit structure according to borrower of Agribank and VBSP in South Central provinces during the period of 2014 – 2019 Unit: billion VND, % Borrower 2014 2015 2016 2017 2018 2019 O/S % O/S % O/S % O/S % O/S % O/S % Individual, 34.442 71,64 35.625 67,84 39.156 65,56 46.650 63,98 52.203 62,13 57.329 61,95 household SMEs 10.957 22,79 13.580 25,86 21.269 29,17 22.778 31,24 29.114 34.65 32.593 35,22 Other 2.678 5,57 3.308 6,3 3.148 5,27 3.485 4,78 2.706 3,22 2.619 2,83 Total 48.077 100 52.513 100 59.725 100 72.914 100 84.022 100 92.541 100 Source: Income statements of the representative office of Agribank in the Central region and of VBSP branches in Central provinces, plus the author’s calculation (O/S= outsanding) c/ Credit structure according to credit terms The structure of credit terms for new rural construction in VBSP and Agribank in the period of 2014 - 2019 shows that the proportion of short-term and medium-term capital was qite balanced. Accordingly, the medium and long-term loan balance continuously increases at a higher rate than the short-term loans during the years from 2014 to 2019. However, in terms of the proportion, medium and long-term loans tend to decrease gradually. By 2019,
20. 18 the proportion of medium and long-term loans was lower than that of short-term loans, accounting for only 49.1%. This is because the growth rate of medium and long-term loans was slower than the rate of credit growth in short term (Figure 2.7). Source: Income statements of the representative office of Agribank in the Central region and of VBSP branches in Central provinces, plus the author’s calculation - Credit structure according to lending form The structure of credit contribution to agricultural and rural production, new rural construction in the South Central provinces mainly include direct loans and entrusted loans through social unions in which the whole or only certain steps of the lending process can be entrusted. For VBSP: it can be seen that the credit extension activity at VBSP is mainly entrusted loans through socio-political associations, continously accounting for a high proportion of around 90% in the period of 2014 - 2019 with growth in both in outstanding loans and the proportion of outstanding loans in entrusted lending activities. The socio- political organizations mandated by the VBSP to take part in the credit extension process are the Women's Union, Farmer's Union, Veteran's Union and Youth Union. At Agribank, the proportion of outstanding loans for direct lending is much higher than entrusted loans through social unions. Specifically, in the period of 2014 - 2019, the proportion of direct loans continuously reaches 80% to 90% with outstanding loans of VND 59,698 billion as of 2019. Although the proportion of entrusted loans accounted for a small proportion, it increased gradually over the years from 2014 to 2019, reaching 7,971 billion VND in 2019 - an increase of 2.5 times compared to 2014 (3,250 billion VND). -. Bad debt in credit extension activities for new rural construction For VBSP: non-performing loan (NPLs) are classified into charge-off debts and overdue debts. The credit quality of VBSP is quite positive with the ratio of charge-off
21. 19 debts and overdue debts of less than 1% in the period of 2014-2019. Total charge-off debts and overdue debts of VBSP in the South Central provinces for new rural areas construction tends to gradually decrease until 2019 to below VND 100 billion, accounting for 0.39% of the total outstanding loans. For Agribank, the ratio of bad debt in credit for agriculture and rural development, new rural construction in South Central provinces was below 3% during the 2014-2019 period, meeting the requirement of the bad debt ratio of the State Bank of Vietnam. Table 2.22: NPLs for new rural construction of Agribank in South Central provinces during the 2014 – 2019 period Unit: billion VND, % Year 2014 2015 2016 2017 2018 2019 Bad debt 481 231 355 351 658 463 Total O/S loan 32.663 35.539 41.147 52.641 61.009 67.669 Bad debt ratio 1,47 0,65 0,86 0,67 1,08 0,68 Source: Statement incomes of the representative office of Agribank in South Central provinces and the author’s calculation - Efficiency of credit for new rural construction It can be said that, preferential credit programs at VBSP has been widely carried out, meeting a large amount of capital requirement of poor and near-poor households, bringing direct impact and bring practical results to the achievement of goals, especially the goal of reducing the poverty rate of the National Target Program on new rural construction. Together with the VBSP, the Agribank in South Central provinces has been involved in the rural financial market from the first days, helping borrowers in the agricultural and rural sectors to have access to capital, thereby investing in production and business activities as well as consumption and other activities. These capital sources have facilitated the development of production, making the average income per capita in South Central provinces reached about 27.87 million VND / person. By 2019, the average rate of poor households in the provinces in the region was about 6.49% (third highest compared to other regions in the country), but decreased greatly compared to 2010 (12.7 %). The ratio of near-poor households is 5.88%, with a very low annual rate of falling back into poverty at only 0.02% (Ministry of Labor, War Invalids and Social Affairs, 2019). This result helps the localities in the region complete criteria on residential housing (criterion 9), income (criterion No. 10), criterion No. 11 on poor households and criterion No. 12 on labor structure and production organization (criterion 13), which contributes to speeding up the completion of the national target program on new rural construction in South Central provinces.
22. 20 2.3. Assessment of credit activities for new rural construction in South Central provinces 2.3.1. Achieved results - Bank credit has timely met the capital needs for new rural construction - Bank credit helps farmers increase their income, improve their material life and escape poverty to for better conditions in rural areas. - Bank credit aims to reduce poverty and solve obstacles in completing new rural construction criteria 2.3.2. Limitations Firstly, Bank credit has not met the capital needs for customers to build new rural areas Secondly, the current regulations on collateral are still inconsistent with the actual conditions during the implementation process; the process of credit in rural areas is difficult. Thirdly, the process of supervising and controlling after lending by credit institutions is not regular, potentially increasing bad debt risk, low credit turnover. Fourthly, poor management ability, ability to access science and technology, and update market information of customers in rural areas are still limited. Fifthly, the limited number and network of credit institutions participating in the rural financial market reduces people's access to capital. Sixthly, not meet the capital needs for customers to serve production and business activities Seventh, limitations on the quality of human resources 2.3.3. Causes - Objective reasons - Subjective reasons CONCLUSION OF CHAPTER 2 From the theoretical basis presented in chapter 1, chapter 2 has analyzed the reality of credit for new rural construction at Agribank and VBSP in South Central provinces. Using qualitative research as a basis, the author has explained the limitations, causes and proposing solutions and recommendations to promote bank credit activities to contribute to new rural construction of South Central provinces in chapter 3.
23. 21 CHAPTER 3: SOLUTIONS FOR CONTRIBUTION OF BANK CREDIT TO NEW RURAL CONSTRUCTION IN SOUTH CENTRAL PROVINCES 3.1. Orientations of new rural construction in South Central provinces 3.2. Orientation of bank credit for new rural construction in South Central provinces 3.2.1. Opportunities and challenges of bank credit for new rural construction in South Central provinces 3.2.2. Orientations of bank credit for new rural construction in South Central provinces 3.3. Solutions for contribution of bank credit to new rural construction in South Central provinces 3.3.1. Diversify forms of lending in line with the characteristics of credit extension in agriculture and rural areas to promote new rural construction Having diserve forms of loans, customers can choose the lending method suitable for their types production and business; based on that they can have specific poduction plans and repayment plans. Diversification also requires a combination of flexible lending methods such as inter-bank loans, limit loans, etc. to help borrowers become more proactive in using capital in line with the production cycles and products in agriculture. - In case the customer does not meet the loan conditions to access credit capital, the banks implement a linkage model of three, four, or five partners in production and provides support in the form of in-kind credit products to overcome this limitations. - Commercial banks continue to implement and expand inter-season loans and loans for crop production. These products provide credit for two or more adjacent production cycles of similar nature. The outstanding principal of the previous cycle will continue to be financed for the next adjacent cycle. - The capital transmission channel of the VBSP also continues to promote indirect lending to the poor, forming a lending mechanism for enterprises to invest and build public facilities serving households in new rural areas (such as schools, cultural houses, clinics, etc.). - Banks strengthen monitoring and improving the effectiveness of unsecured lending activities for poor households through groups and units. 3.3.2. Fulfill loan guarantee requirements for customers in a flexible manner - For customers who want to borrow a large amount of money, if they have good credit histories, stable output contracts, long-term industrial plants and land use right certificates without dispute, banks should consider granting loans when presented land use right certificates by households to enable customers to have sufficient capital for production and business activities. - For loans to invest in machinery, equipment and agricultural mechanization used in large sample fields or to invest in agricultural models of clean technology, banks accept the
24. 22 loan security by the assets to be formed after granting credit. - For business households that participate in traditional organizations, associations, cooperatives, and trade villages, loan security is provided in the form of guarantee provided by local organizations and associations of high legal status. - For mountainous areas, under Program 30a, forest land, agricultural land, gardens that have not been issued with red books and allocated forest land but are exploited and used for a long time by households; borrowers can use the certification papers from local governments to secure the loans. 3.3.3. Strictly follow the implementation of credit procedures, strengthen supervision after lending - Financial institutionsstrictly complies with loan approval process. - Strengthen monitoring activities after disbursement for customers. - For credit operations of VBSP, because they are characterized by transactions at communes, transactions must be carried out in accordance with procedures in Document No. 4030 / NHCS-TDNN of the Bank's General Director; 100% of entrusted association, the savings and loan groups come to the commune transaction points to pay interest to the bank and take part in the commune briefings. 3.3.4. Closely coordinate with local authorities, organizations and unions - Pay attention to expand lending through all levels of associations (Farmer's Union, Women's Union, Veteran's Union, Youth Union, ) and loan groups. - Credit institutions should actively organize periodic, ad-hoc inspections, or integrated inspection of trust activities at the associations, unions, groups. - The credit institution works more closely with the local authorities on propaganda, implementation of new documents and regulations on the bank's loan programs, collection of information on occupation, economic situation of borrowers to lend in groups. - Collaborate with Department of Agriculture and Rural Development, Agricultural, Forestry and Fishery Extension Center, Plant Protection Center, Seed Research Center in localities to organize training and dissemination of cultivation techniques and drug use. plant protection, for farmers. - The VBSP proactively contacts with relevant organizations and sectors in the area to develop and sign joint documents on coordination mechanism for the purpose of supporting the poor in terms of changing structure of plants and livestock through applying science and technology, The bank collaborates with Departments of Labor, War Invalids and Social Affairs, Departments of Agriculture and Rural Development, district agricultural departments and job creation centers of socio-political organizations to successfully implemented the coordination program.
25. 23 3.3.5. Focus on the development of the credit institution network in providing credit for new rural construction - Banks operating in agriculture and rural areas continue to maintain and develop the network with traditional methods as the main methods. - Credit institutions in the area participating in rural financial markets need to focus on strengthening the implementation and replication of mobile transaction point model to remote villages and hamlets. - Focus should be given on building and developing electronic distribution channels, especially distribution channels via smartphones. 3.3.6. Promote medium and long-term loans suitable to the production conditions of borrowers - Continue granting medium and long term credit under the implemented traditional method - Promote development of financial leasing credit in agriculture and rural areas. - Focusing on providing co-financing loan products according to the agricultural production value chain. 3.3.7. Improving the quality of human resources to ensure the right loans to meet the needs of people and economic organizations involved in agriculture and rural activities and new rural construction 3.4. Some recommendations 3.4.1. For the government 3.4.2. For the State Bank of Vietnam 3.4.3. For departments, agencies, and local governments 3.4.4. For borrowers CONCLUSION OF CHAPTER 3 In chapter 3, the author has outlined orientations for new rural construction and contribution of bank credit to new rural construction in South Central provinces. At the same time, the author has provided specific solutions on contribution of bank credit to new rural construction in South Central provinces: diversify forms of lending suitable to the characteristics of credit extension in agriculture and rural areas to promote new rural construction; fulfill loan guarantee requirements for customers in a flexible manner; strictly follow the implementation of credit procedures, strengthen supervision after lending; closely coordinate with local authorities, organizations and unions; focus on the development of thee credit institution network in providing credit for new rural construction; promote medium and long-term loans suitable to the production conditions of borrowers; improve the quality of human resources.
26. 24 GENERAL CONCLUSION New rural construction is a national target program being implemented by the Party and the entire people. With the thesis topic, the author focuses on solving the following issues: Firstly, Chapter 1 systematizes the issues of new rural construction, bank credit and the role of bank credit for new rural construction, as well as factors affecting contribution of bank credit to new rural construction. Chapter 1 studies the experiences of China, Korea, India and the two provinces of Nam Dinh and Binh Duong on contribution of bank credit to new rural construction to draw lessons for South Central provinces. Secondly, from the theoretical overview, in chapter 2, the author has applied the qualitative research method about the reality of credit activities of credit institutions participating in the new rural credit market in the new South Central provinces during the period of 2014 - 2019 (here, only 2 banks are considered: Agribank and VBSP). Based on the current situation of capital supply, the author has pointed out the achieved results, limitations and causes of limitations on providing capital for agricultural production and new rural construction activities of people in rural areas. Thirdly, along with limitations and causes, combined with the orientation of new rural construction as well as the credit investment policy in the region, the author has proposed a number of solutions and recommendations to promote bank credit activities for agriculture and rural areas in order to improve farmers' lives, eradicate hunger, alleviate poverty, develop agriculture and rural areas, contribute to new rural construction according to goals of sustainable development, economic growth and security society. Finally, due to the limitations of theoretical and practical knowledge as well as limited research time, it is difficult for the research to avoid certain errors. The author looks forward to the comments and the jury and other researchers to improve the subject.
27. 25 LIST OF THE AUTHOR’S PUBLISHED WORKS RELATED TO THE THESIS 1. Huynh Thu Hien (2014), “Bank credit for agriculture and rural areas in the Central Coast region”, Banking Science & Training Review, issue 142, Mar/2014, page 20 - 23 and 29 2. Huynh Thu Hien (2016), “Accessibility of credit capital of households in new rural construction in Quang Ngai province”, Journal of Finance and Accounting Research, issue 8, Dec/2016, page 20-25. 3. Tong Thien Phuoc & Huynh Thu Hien(2017), “Solutions to bank credit for new rural construction in Quang Ngai province”, Journal of Finance and Accounting Research, issue 10, Sept/2016, page 20-25. 4. Huynh Thu Hien (2017), “ Social policy credit for disadvantaged students in Quang Ngai province”, Proceedings of the national scientific conference: Vietnam Bank for Social Policies - a journey of 15 years, Labour and Social Publishing House, page 246-255. 5. Huynh Thu Hien (2017), “Microfinance activities contribute to poverty reduction in Quang Ngai province”, Proceedings of the international workshops: Promoting access to finance in Vietnam, volume 1; Labour and Social Publishing House pages 227-235. 6. Huynh Thu Hien (2019), “New rural construction credit policy in Quang Ngai province”, Review of Finance, issue 1 Jul/2019 (708), page 27-129. 7. Co-author of the University level project: “Solutions to bank credit for new rural construction in Quang Ngai province”, examined in December 2016, Good grade.