What is Microfinance?
Microfinance is the provision of small (micro) loans to individuals who are not serviced by traditional banking systems.
These people are not serviced for a number of reasons, they may deemed too high risk, or deemed too poor to provide traditional forms of collateral. Otherwise, they might lack the minimum documentation to open a bank account. Marginalised people however, have many of the same financial needs as those able to access mainstream financial services. Therefore, many turn to informal financial services. These services range from money lenders charging usurious rates on loans, to informal savings circles which are notoriously risky.
Hearts for Hue’s Solution:
Hearts for Hue provides microfinance loans to poor women with the aim of sustainable economic support, income generation, and employment creation. A small number of disabled or otherwise marginalised men are also supported.
Our programme gives women the opportunity to open businesses or invest in their current business and create a steady future income. Alongside the financial support to achieve these goals, H4H provides training to borrowers in financial literacy, savings techniques and other necessary topics for financial management. H4H cannot publish these training courses because they are adaptations of work by Microfinance Opportunities and a financial heuristics approach which the World Bank and the Poverty Action Lab have highly rated.
We are grateful to VESAF and Dove Fund for enabling these project.
How the Programme Works:
Hearts for Hue works with the local authority and the local women’s union to assess the level of poverty and capacity for business development. Interested women are invited to take part in an introductory lesson in microfinance. Following the lesson, women can fill out an application form for the program. Selection criteria is based on the level of need and capacity for business development.
Once borrowers are chosen for the program, H4H starts training a Community Management Board who oversee the loan program locally. This training covers both the general theory of microfinance and technical skills such as working with excel. The training course can be accessed here.
Hearts for Hue believes in the importance of supporting one another, therefore women are placed into groups of ten borrowers. These groups are expected to assist each other with payments and business. If one member is unable to pay back their loan fully, the group assists financially. Women are encouraged to share ideas and help each other out with their businesses. This creates a strong network of financially independent women.
Loans are used in a variety of ways, such as breeding of livestock, cultivation of various crops, sale of consumer goods, or any other purpose that will improve their livelihoods.
Loan sizes are dependent on the borrowers’ needs, however a borrower’s first loan with H4H is typically 7,000,000 VND (approximately 300 USD). After successfully repaying the first loan, borrowers are able to apply for subsequent, larger loans. The rationale for increasing the loan size is twofold. Firstly, this should best reflect the needs of an expanding business. Secondly, the larger future loan size serves as a form of collateral; why default now, if I can get a larger loan in the future?
Loans are repaid monthly with low interest rates ranging from 0.4% to 1% per month. Rates of 0.4% are reserved for the poorest clients, and is typically below the rate of inflation in Viet Nam.
Microfinance loan terms are flexible, ranging from 10 to 24 months.
Hearts for Hue uses interest payments in other activities that support microfinance clients such as business development skills training and providing education opportunities for children. It also retains a small amount to cover program management expenditures. We have carried out our Microfinance Program in Hue City since 2011 and currently provides services to over 600 marginalised families.
To be a participant in the Microfinance Program, borrowers are obliged to join a savings program. The monthly saving is 10.000 VND (less than 50 cents US) and earns an interest, equivalent to the rate on their microfinance loan. The full savings plus interest are refunded to clients when they stop participating in the program.
For further information on our microfinance loans, please download our policies and procedures.
Hearts for Hue believes in complete transparency. Please find the de-identified repayment history of every loan given in the VESAF and DOVE programmes. H4H encourages other microfinance providers to do the same.