ILO Office in Vietnam INTRODUCTION OF RISK MANAGING

ILO Office in Vietnam INTRODUCTION OF RISK MANAGING FINANCIAL SERVICES Lessons learnt in Viet Nam PROJECT “EXTENSION OF MICROFINANCE AND MICROINSURANCE FOR INFORMAL WOMEN WORKERS”

ILO Office in Vietnam 1. General Facts 2. The Project 3. Lessons Learnt 4. Future Perspectives 2

ILO Office in Vietnam I. GENERAL FACTS n n Steady growth of Viet Nam economy: average of 7. 5 %/year in the last 10 years Transition from centralised to market economy, progressive integration into globale economy Poverty reduction success But new challenges 3

ILO Office in Vietnam n Social protection mechanisms still limited; most workers - especially in the informal sector – not included. Social protection is a high priority for Go. V (aiming toward universal coverage, however unprobale to reach in the near future) Given the limitation of the formal system, the ILO wished to work on alternative to current social protection mechanisms in this transition period. n 4

ILO Office in Vietnam II. THE PROJECT n n Launched on 2003 Part of the French government program on “Pilot test in the field of social protection” in 3 countries n An ILO – MOLISA partnership n A SFP’s research action project 5

ILO Office in Vietnam Goal and Purpose n n Goal: Development of innovative social protection mechanisms to reduce the vulnerability of poor women in the informal economy Purpose: Identification and pilot testing of risk managing financial products 6

ILO Office in Vietnam Methodology Demand-oriented & participatory approach; partnership with microfinance organisation 1) Initial assessment of demand & supply 2) Identification of 3 MFIs 3) Technical assistance to partner MFIs to develop and pilot test financial products 4) Capacity building & awareness raising 5) Sector promotion at meso level 7

ILO Office in Vietnam The pilot tested products Voluntary savings (with TYM Fund) n n n Observation: low-income clients need and can save for emergency and/or assets building Intervention: Introduce a more flexible, more accessible Saving with TYM family savings is much savings product Results: more convenient than saving in the bank (client) n Doulbe in savings clients and savings balance n 1, 500 savings clients; 20, 000 potential clients of the MFI n High satisfaction from clients Challenges: MIS cannot accommodate the flexible product Perspective: New MIS, new product designs 8

ILO Office in Vietnam The pilot tested products Mutual Protection Fund (with Dong Trieu Fund) n Old product: Member Mutual Assistance Fund n One premium, cover both credit-life, death benefits, and serious illnesses (30 deseases) n No statistic research, no market research n Premium set “at convenience” (low enough so that client can pay!) n Book keeping: integrated into microfinance operation book keeping. 9

ILO Office in Vietnam The pilot tested products New product: Mutual Protection Fund n n n Actuary research New products: n Loan Protection product n Mutual Assistance product Bookkeeping system redesigned 10

ILO Office in Vietnam The pilot tested products Mutual Protection Fund Loan Protection Product (compulsory) § Eligibility: all members taking a loan § Insured event: member’s death § Benefit: outstanding loan balance written off § Price: § Protection term: loan term a % of loan amount 11

ILO Office in Vietnam The pilot tested products Mutual Protection Fund Mutual Assistance Product (voluntary) § Eligibility: all members (between 18 - 60) § Insured event: illness (more than 5 days of hospitalisation), ceasarian, death of members; death of husband & children § Benefit: death benefit for member, husband & children under 18 (from $25 to $62/person); health benefit for member only up to $12. 50/year § Price: $ 0. 12/month § Term: monthly 12

ILO Office in Vietnam The pilot tested products Mutual Protection Fund Results: § All loan clients covered with Loan Protection; 75% members (4, 400) have Mutual Assistance Thepaid programme has linked our arms. We do this to § Claims to 148 people in 2006 support each other (client in Dong Trieu) § Positive net income § Client satisfaction Challenges: § Lack of specialised management § Weak information system § Lack of legal framework 13

ILO Office in Vietnam The pilot tested products n n n Credit-life insurance (with Ninh Phuoc Fund) Partner-agent model: Insurance company adjusted an existing product, MFI sell and service the product Covered initially death/total permanent disability of client only, expanded to husband after 1 st year Result: n More than 2, 000 clients and their husbands covered n Low income women in poor rural areas now aware of insurance benefits Challenges: Small scale of the MFIs Perspectives: n Potential to introduce other products (cross selling) n Potential to duplicate model 14

ILO Office in Vietnam Systematic pilot testing 1. Compose 4. Prepare 3. Define 2. Develop process pilot test all systems pilot test team testing protocol objectives 10. Continuously evaluate the Pilot test 9. Start product test 8. Develop customer marketing materials 5. Modelling financial projections 7. Train relevant staff 6. Document Products: Definition & procedures 15

ILO Office in Vietnam III. LESSONS LEARNT 1. Partners 2. Products 3. Sustainability 4. Delivery models 5. Inclusion in national strategy 16

ILO Office in Vietnam Finding right partners n n MFIs are good partners to start with when introducing RMFS to low-income clients n Social mission n Grass root level network n Market knowledge MFIs also present some challenges (Viet Nam case): n Small scale n Limited system (MIS) and management capacity Who will be the next partners? 17

ILO Office in Vietnam Developing appropriate products From client’s perspectives n Product should meet the needs of clients n Payment mechanism should meets clients’ cash flow n Client should be well informed about the costs and benefits of the products before they actually purchase If all the above condition are met, then clients can afford the price and will pay! n A cross example: First-cycle subsidise may be necessary to initiate demand (CEP’s health insurance product) 18

ILO Office in Vietnam Developing appropriate products From the institution’s perspectives §Product design should take into account the institution’s capacity §Product should bring a benefit to the institution 19

ILO Office in Vietnam Reaching sustainability n n n “How” may be as important as “How much” Pricing exercise should consider all institutional costs of offering a product Sustainability should be considered both from financial perspective and institutional perspective 20

ILO Office in Vietnam Building on delivery models to expand outreach n n Partner-agent model has great potential to reach large number of clients. Players of the future will not be limitted to MFIs Role of the ILO: facilitating partnerships 21

ILO Office in Vietnam Inclusion in the national strategy National strategy n Role of microfinance in proverty reduction recognised n Universal health care program n Move toward sustainable mechanisms ILO’s contributions n Sector promotion n Promotion of sustainable products and delivery models n Advocacy 22

ILO Office in Vietnam IV. FUTURE PERSPECTIVES Scale up! n n Update research on Expansion of Savings and Insurance Services Prepare for expansion: New project proposal under development 23

ILO Office in Vietnam Thank you for your attention! QUESTIONS?

ILO Office in Vietnam Nguyen Thi Bich Van Email: bichvan@ilohn. org. vn Tel: (84 4) 734 0902, ext. 228 Fax: (84 4) 734 1532 25