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Government Socialist Republic of Vietnam
No : 390/TTg Independence-freedom-Happiness
Hanoi, July 27th, 1993.
- In accordance with the Government Organization Law dated September 30,1992.
- In accordance with the Decree-Law on Banks, credit Cooperatives and finance Companies dated May 20,1990.
- With a view to meeting the requirements of socio-economic development in agricultural and rural areas.
Decides
Article 1 :
Allow the operation of the experimental project constituting people's credit funds as planned in Alternative No.1 (Alternative No.1 is attached herewith).
Article 2 :
Delegate the Governor of the State Bank :
- To promulgate the Regulation on Organization and Operation of people's Credit funds, Regulation on Operation of Regional Credit funds and regulations concerning the operation of people's credit funds.
- To submit to the Prime Minister the project for the creation of the Central People's Credit fund.
Article 3 :
The chairman of the Central Directive Committee, ministers, heads of institutions, at ministry level, chairmen of People's Committee in provinces or cities which is under direct administration of the Government shall be liable to implement this decision.
Article 4 :
This decision shall become effective from the date of its signing.
for the Prime Minister Vice Prime Minister
PHAN VAN KHAI (Signed)
The Socialist Republic of Vietnam
Independence-freedom-Happiness
Hanoi, July 27, 1993
Agriculture - Rural Areas play a strategic position in the socio-economic development in our country. The Party's Central committee (5th Session. 7th Congress) have set forth the targets, orientation and key measures for the socio-economic development in rural areas. Among them, requirements and functions of monetary, credit and banking operation in rural areas are expressly set forth.
To reorganize and enhance the efficiency of the credit cooperatives system is one of the most important solutions in order to meet the growing demand in capital needed for socio-economic development as well as for the requirements of credit and banking services in rural areas.
1. Reality of organization and operation of the Vietnam Credit Cooperative System in the past.
a. In 1945, President Ho Chi Minh signed the Decree No 10/SL on the establishment of the Credit Office for Production. The function of this office is to make loans to farmers, especially the poor ones in order to promote production and ameliorate the liv ing standard in rural areas. Thereafter, the credit cooperatives system was constituted in 1956.
Up to 1985, the system has had 7,160 cooperatives which are located in almost every commune of the country (3,960 in the North and 3,200 in the South). from 1986 to 1990, the total number aggregated to 7,660 cooperatives because about 500 credit cooperati ves were created during this period in the urban areas.
b. In 40 operating years, credit cooperatives have played an important role in the implementation or credit, economic and monetary policies in rural areas. the system has :
- Mobilized the idle money from and made loans to the population to spur production and consumption in rural areas.
- Acted as agent to receive savings and make loans supplied by the State Bank to farmers.
- Limited the usury in the countryside.
c. Since the transfer of the economy to market mechanism, especially since the fundamental revocation in banking system, the old operation mechanism is no longer suitable. Many cooperatives were in great difficulty : insolvency : and many of them had sto p operation. The principal reasons are :
- Defects in organization : spontaneous creation, lack of freewill among its members and organization and operation statute was not suitable with conditions, new situation in the countryside.
- Staffs are incompetent and bad at management knowledge.
- Operation manner : during the period when every economic unit was subsidized by the State, the operation of credit cooperatives was dependent upon the State bank. They acted as agents and received commissions, their expenses were covered. They had no i ndependence and responsibility in doing business.
- When a boom in production took place, many credit cooperatives were established spontaneously and escaped the State Bank's management. otherwise, the juridical environment was not integrated; measures and regulations to secure the operation of credit cooperatives were not sufficient.
d. Since the promulgation of the Decree-Law on Banks, Credit Cooperatives and finance Companies, the State bank has issued instructions and regulations on the reorganization of the credit cooperatives system. More then 2,000 credit cooperatives lacking n ecessary conditions had to close business. Loans have been recovered and paid back to depositors. Among them more than 2,00 credit cooperatives were liquidated.
Up to June 1993, only 62 out of 100 cooperatives and 10 rural shareholding banks were regranted licenses for operation. This small amount can not meet the demand of credit and monetary service in the countryside.
These cooperatives are gaining certain results, but the lack of interrelation, the separateness among these cooperatives have impeded their operation.
2. The necessity of reorganizing the credit cooperatives.
a. At present, as well as in the long term, the capital needed for promotion and upgrading living standard in agricultural areas in becoming more an important and urgent.
b. The rural area is large, the requirements of loans for doing business and production of the population are various. Therefore, the operation of both commercial banks and credit cooperatives must be developed in order to meet these requirements by rece iving and making loans. Great attention should be paid to house-hold economic in every commune and village.
c. At present, there are private cooperatives recently established in several rural areas, they mobilize capital and make loans at high interest rate. Credit cooperative of this kinds is now one obstacle for production. Therefore, anew suitable model of credit cooperatives is needed than ever.
d. Reorganize credit cooperatives (hereinafter referred to as credit funds) to mobilize the idle money, at the highest level, from the population and other organizations; to spur socio-economic development in agricultural areas in order to realize the res olution of the Central Committee of the Party (5th congress, 7th Session).
e. The Creation of a new credit funds system shall make contribution to the diversification of credit organization operating in rural areas, to the establishment of a monetary transaction system closely interrelated by the interest of every member of the credit funds system.
g. The organization of credit cooperatives system is an important project and relates to millions people. Moreover, the system has undergone a chain bankruptcy in both rural and urban areas. The confidence of the population in the system has been reduced . With this new model, we do not have much experience. That is why, a project for experimental operation is indispensable. Thereafter, step by step, the system shall be expanded throughout the country
PART 2 New Model of People's Credit funds
1 Grounds for the creation of people's credit funds in a new model
a. The Decree-Law on Banks, Credit Cooperatives and finance Companies. The initial experience after two years of implementing the Decree-Law.
b. Experience from some countries : the Philippines, Indonesia, India, Thailand, especially from the People's Credit funds System Desjardins (Canada) (Mouvement des Caisses Populaires de Credit Desjardins du Canada).
c. Achievements in economic reform of our country, particularly experience and knowledge gained through the banking system renovation in the past few years.
d. Experience from the success and failure of the credit cooperatives system in both rural and urban areas in our country, since 1956 up to now.
2. features of testing popular credit funds in the new model.
a. Voluntariness, autonomy, democracy, mutual help and efficiency must be ensured.
b. There must be strict interrelation between every credit funds of the system (from commune level to central level) so as so a better capital distribution and mutual help in the system can be developed.
c. In the process of reorganizing credit cooperatives in the new model, the management of the State Bank must be clearly specified.
3. Principles of testing people's credit funds in the new model.
a. People's credit fund is an economic unit in the form of a cooperative, established on the basis of voluntariness democracy, equality a view to help one another for the sake of every member.
b. Each people's credit fund is a legal, autonomous economic unit, operating independently in a well-operated management framework from the local level to the central one.
c. The operating scope of people's credit fund shall be decided, basing on the economic environment, the competence of officers and employees in each area, regardless of the administrative border between communes demarcated by the Government.
4. New model of people's credit system :
The credit funds system shall be established in accordance with only one of the two following alternatives :
* Alternative 1 : three-tier system : local credit funds, regional credit funds, central credit fund.
* Alternative 2 : two-tier system : local credit funds, central credit fund.
The establishment of the two aforesaid systems shall base on the following principles :
- At the initial stage, local credit funds shall be established. When needed by local credit funds, regional credit funds shall be created. The central credit fund shall be constituted when necessary conditions are available. Each level of the system mak e the interrelations between every credit funds of the system possible. A credit fund of any level is an independent, self-accounting economic unit, credit funds at regional and central level shall instruct and examine the operation of local people's cr edit funds.
- The State Bank shall macro-manage the monetary and credit operation of the people's credit funds system.
Alternative 1
A. People's credit funds (hereinafter referred to as credit funds)
1. Credit funds are shareholding economic organizations on the form of cooperative with capital voluntarily contributed by individuals or legal entities in rural areas. They operate independently, with a view to mobilizing capital and to make loans at pla ce to help one another, to promote production and to raise the living standard of members.
2. The operation of a credit fund shall be subject to the charter passed by the members assembly of that credit fund and approved by the State Bank. Credit funds shall operate under the licence granted by the State Bank.
3. Credit fund is one legal entity, have its own seal and balance sheets. It shall be fully responsible for its operation to the law and its members.
4. Conditions for the establishment of credit fund.
In the area within the intended operating scope of that credit fund.
- The mobilization of capital is possible and there must be demand for capital to promote production, trade and services.
- There must be a staff who is capable of understanding credit operation mechanism and dealing with credit operation.
- Convenient communication (mail, telephone or facsimile)
- Under the requirements of the population, with supports from local authority.
- There shall be an office that suits the operation of that credit fund.
5. The shareholding capital of credit fund is contributed by its member. There are two kinds of share : qualification share and permanent share (These two kinds of share are expressly demonstrated in the charter or each credit fund).
6. There are two kinds of member :
- Official members : eligible to vote and stand candidate for leadership or the credit fund.
- Unofficial members : are allowed to deposit money and borrow money but are eligible to vote or to stand candidate for the leadership of he credit fund.
(Rights and duties of the two aforesaid kinds of member are expressly et forth in the charter of each credit fund)
Every member contributing capital to the credit fund may borrow money from it. And credit fund only makes loans to members who contribute capital to it.
Official member shall have but one vote, irrespective or the member's shareholdings.
7. Operation of credit funds : Credit funds shall
- Receive deposits from individuals and social, economic organizations.
- Consider the capital volume and make short-term medium-term, long-term loans to members so as to meet the demand in capital needed to enhance production, trade and living standard of members.
- Provide services in cash, payment within the system. And this kind of operation shall be subject to the general regulation and granted licence.
- Be entrusted by other credit funds to make loans recover debts and render services on the basis of an agreement between the two credit funds.
- Be allowed to delegate to other credit fund the management of its operation.
8. Credit funds shall be subject to the macro-management the State Bank.
a. The stipulation on obligatory reserve (Article 45- Decree Law on Banks) is not applied to local credit funds to regional and central credit funds.
b. Credit funds are obliged to pay tax as prescribed by the existing taxation law. Proposal can be made to the Government for the five initial years, from the opening of its operation.
9. The fiscal year of credit fund shall begin on 1st January and end on the last day of December.
a. Credit funds must account costs as stipulated by the State Bank, keep books in accordance with the Decree-Law on Accountancy and Statistics and make regular reports to related bodies.
b. Before the payment of each dividend to shareholders (except qualification shareholders), one part of the net profit of each credit fund shall be set aside as reserves (to create some sorts of funds as stipulated by the State Bank). Borrowers shall re ceive a sum of money in accordance with the charter of each credit fund.
10. Each credit fund is under the direction of a Board of Directors, and the credit fund's day - to - day operation is conducted by a managing director. The appointment, removal of directors and managing director; the function, operation and framework of the credit fund shall be provided by the charter and approved by the State bank.
11. Credit funds participating voluntarily in regional credit funds shall have equal rights and responsibilities for the regional credit fund's operation.
B. Regional People's Credit funds
1. Regional people's credit funds (hereinafter referred to as regional credit funds) shall be established in provinces and cities. Their members shall be local credit funds.
2. Authorized share capital of regional credit funds shall be contributed by its members (local credit funds). The qualification shares shall depend on the real situation in each area and shall be instructed by the State Bank.
3. function and obligations of regional credit funds
Regional credit funds shall :
a. Distribute capital between local credit funds by receiving deposits and granting loans.
b. Grant loans to its members when necessary.
c. Provide services in cash, payment, deposit insurance to its members, as prescribed by the State Bank.
d. Examine and supervise operation of local credit funds.
e. furnish necessary information to its members.
4. The establishment, management and operation of regional credit funds is carried out in conformity with the aforesaid stipulations on those of the local credit fund (stipulation No 2,3,8,9,10 on local credit funds).
C. The Central People's Credit fund (hereinafter referred to as the Central Credit fund).
1. The Central Credit fund is a shareholding organization, functions in conformity with the Deere-Law on Banks, Credit Cooperatives and finance Companies.
2. Share capital of Central Credit fund is contributed by regional credit funds, state enterprises, shareholding companies, private companies. These entities make contribution to share capital in the form of shares. The State shall subscribe to at least 4 0% of the share capital in order to facilitate and supervise the operation of the Central Credit fund.
3. The Central Credit fund shall :
a. Distribute capital between every member of the whole system in accordance with the stipulations of the State Bank (from local to central level) in the manner of receiving deposits and making loans to regional credit funds or local credit funds (in the area where regional credit fund is not yet established).
b. Ensure the solvency and liquidity of the whole system.
c. Act as an agent in clearing payment between credit funds in and out the system in accordance with the stipulations of the State Bank.
d. Act as a "link institution" between the system and the Government, the State Bank, other credit organizations and non-governmental organizations inside and outside the country in order to ensure the operation and development of the system.
e. Administer the operation of credit funds at any level of the system.
g. The Central Credit fund shall be able to provide services concerning credit operation, payment, deposit insurance, loan insurance and others in conformity with licence granted by the State Bank.
Alternative 2
* The people's credit funds system shall be established at two levels :
- Central level (Central People's Credit fund)
- Local level (local people's credit funds)
* The Central Credit fund shall have branches in every regions. And each branch shall :
- Receive deposits from local people's credit funds in that region and remit them to the Central Credit fund.
- Make loans to local credit funds according to the plan worked out by the Central People's Credit fund.
- Assist the Central People's Credit fund to provide services concerning cash and payment.
- Analyze, summarize reports, information from local people's credit funds and send the summary to the Central People's Credit fund.
* Local people's credit funds shall be shareholders of the Central People's Credit fund.