ILO Office in Vietnam

This study was undertaken within the ILO – MOLISA project “Extension of Microfinance and Microinsurance to Informal Women Workers”.

The aim of the study was to gain an overview of the different risk managing financial services available in Vietnam. Risk managing financial services are defined as financial services that allow households to more effectively cope with risks and economic stresses. The study will therefore focus on insurance, flexible savings and emergency loans. Grants and interest-free loans will not be discussed.

The researchers (ILSSA) were asked to look at the formal (public and private), semi-formal (NGOs and mass organisations) and informal providers. The aim of the study was to review available services and assess whether they were adapted to the needs of poor households and poor women, in particular.

In 1995, the Government of Vietnam introduced social security legislation for all establishments in the public and private sector with more than 10 workers. The social security coverage has now been extend to all registered private enterprises. The following benefits are provided to workers:

• Retirement pensions
• Work accidents and industrial diseases
• Sickness benefits
• Maternity leave benefits
• Survivors benefits

The employer contributes 15% of the payroll, while the employee 5% of his/her salary. The Vietnam social security only covers the formal sector, as a result, it is estimated that only 11% of the labour force is covered by social security. Most of the labour force currently covered by social security is from the state sector.

The intention of the government is to extend social protection to all workers. The Labour Code stipulates that compulsory and voluntary methods will be used to realise the goal of protecting all workers and their families. However there are currently few voluntary members of social security.

A barrier may be the fact that social security contributions are high (the employer and employee contributions amount to 20% of average wages). A 20% contribution rate is impractical for implementation amongst informal economy workers.

Various social assistance programmes have been developed in Vietnam. However it should be noted that social assistance (which mostly consists of grants) is not an insurance mechanism and will therefore not be discussed in detail.

• Special cash transfer programmes paid to war veterans and invalids and to families involved in the revolution and the war (1.4 million people)
• Social guarantee fund for regular relief
• Contingency fund for pre harvest starvation and disaster relief
• Hunger Eradication and Poverty Reduction (HEPR) programme

The current health insurance regulation came into effect in January 1999. The Vietnam Social Security agency administers the compulsory health insurance scheme, the voluntary health insurance scheme and the free health care card scheme. Health care for children under 6 is theoretically free. However it should be noted that, in practice, parents very often need to pay for the care.

The compulsory health insurance scheme is mainly targeting the formal sector. Private sector workers engaged by enterprises with at least 10 workers are required to join the compulsory health insurance scheme. Members of the compulsory health insurance scheme are entitled to both outpatient and impatient treatment at all levels.

Contributions are 2% of payroll by employers and 1% of salary by employees. There is a 20% co-payment for all members expect social priority groups and pensioners. The compulsory health insurance scheme covers only contributors and not their dependants. Insured workers were offered a significantly discounted rate to enrol their dependants, as long as all members of the family were covered (to counter adverse selection). This initiative was not successful.

In 1998, the number of voluntary health insurance members stood at 3.69 million (with 6.07 million compulsory members). However in 2000, the number of voluntary members decreased, indicating a need to improve the quality of services and to raise awareness among informal workers (including farmers).

Voluntary holders enjoy the same benefits as mandatory holders (for a similar premium). The premium range is the following (VND/pers/year):

	Urban	Rural
Adults	80,000 – 140,000	60,000 – 100,000
School children and students	35,000 – 70,000	25,000 – 50,000

Different pilot schemes have been developed in Vietnam to encourage households to participate to the voluntary health insurance scheme. For example, in Hue, the Women’s Union collaborated with the Vietnam Social Security agency.

The voluntary health insurance scheme is facing serious issues, such as: high level of premium, lack of trust in the scheme, attitude of health care staff, complexity of administrative procedures and risks of moral hazard and adverse selection.

Free Health Card for the Poor

Vietnam introduced in 2002 the Free Health Card for the Poor scheme, as part of the HEPR programme. Under this scheme, the poor are given a fully subsidised health insurance card that covers a comprehensive package of services. The Health care Fund for the Poor is financed from the state budget ensuring a minimum of 75% of the fund total value and the remaining is funded by local budgets and contributions from national and international organisations.

The Fund is responsible for buying health insurance cards for the poor with a premium of VND 50,000 per person per year or reimbursing actual expenses of health care for them. By end 2003, 1.85 million persons were granted a free health insurance card and 2.5 million people received free health care.

However some issues have been raised. The targeting mechanism is complicated and some poor people (such as migrants) are not entitled to free health cards. So far only 20% of the entitled households have been granted a free health card, with strong variations between provinces. Finally it appears that the quality of health care is sometimes insufficient for free health cardholders.

In summary, of a population of more than 78 million, only 10.5 million people (13%) were covered by health insurance in the year 2000.

Conclusions

1. The current social security mostly caters for the formal sector and is not appropriate for workers in informal economy

2. The voluntary health insurance could answer the needs of workers in the informal economy (especially the non-poor). However, concerns are raised regarding the quality of the health care provided. In addition, there are reports of unofficial fees to be paid by bearers of a voluntary insurance card.

3. The Free Health Card for the Poor, which was introduced recently, is appropriate for poor workers of the informal economy. However the scheme faces some difficulties: the number of households who were granted free health cards is still limited and the quality of health care services is sometimes poor for free health card holders (as for voluntary health insurance members). In addition, some specific groups do not have access to health insurance, such as migrants.

B. Formal sector –insurance sector

The Vietnam insurance sector has been growing rapidly in the past years. Public and private (joint stock, joint ventures or wholly foreign-invested) insurance companies are in operation in Vietnam. The regulatory framework differentiates between life and non-life insurance companies. Insurance companies have therefore to choose between a life and a non-life license.

Vinare is the state-owned Vietnam reinsurance company. However the Government of Vietnam intends to equitise Vinare by 2010 (and will therefore become a joint stock company).

Insurance can be divided in the following categories:

Life license

Non life license

• Life insurance

• Property life insurance (protects against the cost of damage or loss of any type of asset)

• Health insurance

• Disability health insurance (extends protection of health insurance to include protection against reduction or loss of income due to illness or accident).

Among the 17 insurance companies licensed to provide insurance services in Vietnam,

• 3 are state insurance companies (Bao Viet, Bao Minh and Petro Vietnam Insurance Company)
• 5 are fully foreign owned insurance companies (Allianz-AGF, Groupama, Prudential, Manulife and AIA)
• 4 are joint ventures insurance companies (Bao Minh CMG is one of them)
• 5 are joint stock insurance companies

As for the type of license they hold, 5 companies hold a life insurance license (Bao Viet Life, Prudential, Manulife, AIA and Bao Minh CMG), the rest holds a non-life license. It should be noted that some licenses can be restricted, for example Groupama holds a non-life license that restricts its activities to agricultural insurance.

In addition, 3 insurance brokers are in operation in Vietnam and around 20 overseas insurance companies have representative offices in Vietnam

1. Life insurance

Vietnam life insurance market has been growing strongly in the last few years. In 2003, life insurance sales grew up to VND 6,500 billion.

The life insurers’ market shares are the following (in 2003)

Bao Viet	41.7%
Prudential	37.7%
Manulife	12.9%
AIA	5.5%
Bao Minh CMG	2.2%

The insurance companies have been diversifying their products. For example, Bao Viet launched a voluntary pension insurance, Prudential launched an insurance product for women or for children under 18. In addition, the companies offer secondary products (riders). Each company offers a range of products, however it should be highlighted that most products are a combination of term life insurance with a savings component.

Most life insurers target the middle-income market, the minimum premium being VND 84,000 a month. For example, when asked whether they would be interested in going downmarket (i.e. in reaching poorer households), Bao Minh CMG explained that: 1/ their premium is already low (VND 100,000/month) allowing many people to buy their products, 2/ their current target market is still untapped and Bao Minh CMG has enough room to develop. Bao Minh CMG therefore does not see the need to target poorer households.

Bao Viet however offers products that could be appropriate for the low-income market. For example Bao Viet offers a life insurance product that requires an annual premium of VND 2,800 (minimum). With this premium amount, in case of death the family of the subscriber will be granted a VND 1,000,000 compensation.

2. Non life insurance

The two leaders in the non-life insurance market are Bao Viet and Bao Minh, with respectively 41% and 25.2% of market share.

Bao Viet offers a range of non-life products, such as:

• Personal accident and health care insurance
• Property insurance
• Liability insurance (not relevant to low income households)

2.1. Property insurance

Only selected property insurance products could be useful to low income households. Potential products for low-income households include rice crop insurance and livestock insurance.

Groupama, in Can Tho provides livestock insurance. Groupama has faced severe difficulties with livestock insurance and now tries to diversify its activities beyond agricultural insurance. Bao Viet tried rice crop insurance in the past and was not successful. Bao Viet still offers industrial crop insurance (for cashew nuts and coffee, for example). As for livestock insurance, Bao Viet has so far a limited experience and was waiting for Groupama results in this field. It should be noted that Bao Viet has only one staff working part time on agricultural insurance.

Other insurance companies do not offer insurance products useful for low-income households.

2.2. Personal accident and health care insurance

Bao Viet insurance products of potential interest for low-income households include:

• Children’s comprehensive insurance
• Personal accident insurance
• Hospitalisation and surgical allowance insurance
• Comprehensive personal accident insurance
The minimum premium is VND 2,800 a year.

Conclusions

1. Life insurance products from private insurance companies do not seem appropriate for low-income households, as the minimum monthly premium (VND 84,000) is too high.

2. Some BaoViet life and non life insurance products appear appropriate to low income households (minimum premium of VND 2,800 a year).

3. Groupama has faced serious difficulties in livestock insurance and now tries to diversify its activities. Bao Viet does not offer agricultural insurance products besides industrial crop insurance.

C. Semi formal and informal insurance initiatives

As explained above, Vietnam social security caters mostly to the state formal sector, while private insurers focus on the middle / high income population. As a result, various organisations have developed alternative insurance mechanisms to cater to the needs of low-income households.

Mutual Aid Fund of Elderly Association	Nghe An, Nam Dinh	Provides support in case of death, sickness and longevity (70 and 90) - Membership fee (VND 10,000 to VND 70,000) + annual premium (VND 1,000 to VND 5,000)
Mutual Aid Fund of Women’s Union (with AAV)	Son La, Quang Ninh, Ha Tinh	Provides financial support in case of death (VND 200,000) and in case of sickness (VND 20,000, twice a year maximum) Premium = VND 500 every 2 weeks
Credit life insurance – TYM		Covers the death of the member (VND 500,000) and the outstanding loan balance, the death of spouse/children (VND 200,000) and severe illness (VND 200,000 only once). Premium = VND 200 per week
Livestock insurance – GRET	Vinh Phuc	Insures the pig (porker or sow) against 4 red diseases. Provides free technical advices
Farmer insurance fund	Nghe An	Covers old age (pension) and death Minimum premium = VND 20,000 per month

Conclusions

1. Several organisations have developed in house insurance products. However as they lack specific insurance expertise, some of these insurance schemes might run into difficulties. They however demonstrate that tailored insurance products for low-income household can be developed.

Conclusions

Insurance is a complicated business and social organisations, in general, are not recommended to undertake insurance on their own (with the exceptions of very simple products such as death insurance or credit insurance).

To increase access to insurance to low-income households and low-income women in particular, the ILO project on “extension of microfinance and microinsurance for informal women workers” could:

1. Investigate potential linkages between Bao Viet / Groupama and microfinance institutions (for life and non life products)

2. Improve upon existing semi-formal insurance schemes developed by microfinance institutions (such as TYM and AAV).

SAVINGS

The aim of the study is to review all savings services available in Vietnam and assess whether they are appropriate for low-income households and low-income women in particular. In Vietnam, several savings options are available, as demonstrated by the table below.

Sector	Institutions
Formal public sector	VBARD Social Policy Bank Vietnam Postal Savings Service Company (VPSC)
Formal private sector	Private banks (e.g. Asia Commercial Bank, ACB) People Credit Funds
Semi-formal sector	MFIs: CEP, TYM, AAV, Save US Women’s Union
Informal sector	Ho, hui, phuong

Savings products are usually classified as:

• Demand deposit
• Time deposit
• Contractual deposit

1. Formal public sector

Bank	Savings products	Conditions	Comments	Appropriate for low-income households?
VBARD	Demand deposits Time deposits (with lottery draw) Contractual deposits Savings with progressive interest rates	Minimum deposit = VND 50,000	Wide network (around 1646 branches and outlets). VBARD savings activities focused on urban areas Contractual deposits: only in selected branches	No (minimum deposit = VND 50,000)
SPB	Demand deposit Time deposit Contractual savings Savings with progressive interest rates	No conditions	Network? Has to rely on VBARD? Has SPB been successful in mobilising savings?	???
VPSC	Time deposits Contractual deposits	Missing No demand deposit available For contractual deposits: minimum = VND 50,000 a month	Established in 1999 and currently offers its services in 709 post offices (out of the 8000 post offices available) Open everyday from 7.30 am to 6.00	??? Still new to the population Savings in rural areas is limited
ICB	Demand deposit Time deposit (with lottery draw) Contractual deposit	Minimum deposit = VND 50,000		No

2. Formal private sector

Bank

Savings products

Conditions

Comments

Appropriate for low-income households?

ACB

Demand deposits

Time deposits

Contractual deposits

VND 1,000,000 required to open a savings book

Targets middle / high income population

PCF

Demand deposit

Time deposits

Minimum deposit = VND 50,000

Savings book fee = VND 5,000

900 PCFs

3. Semi formal sector

Institution	Savings activities	Conditions	Comments	Appropriate for low-income households?
Save Us	Demand deposit (bamboo savings) Demand deposit with restricted access (number of withdrawal is limited, Young Bamboo savings)	Maximum deposit amount = VND 200,000 Minimum deposit = VND 1,000 Interest paid for minimum savings balance = VND 100,000 Open to borrowers and non borrowers	Advance notice for fund withdrawal	Yes
TYM	Demand deposit	Maximum deposit amount = VND 100,000 (VND 20,000 in Y Yen, Nam Dinh) Only borrowers	Advance notice for fund withdrawal	Yes
AAV	Demand deposit Time deposit	Minimum deposit = VND 1,000 Open to borrowers and non borrowers	Advance notice for fund withdrawal Time deposit = new product launches in June 2003	Yes
CEP	Demand deposit (daily savings)	Daily borrowers	Advance notice for fund withdrawal	Yes
Women’s Union	Contractual deposit (“spring savings”)	Minimum deposit? Borrowers and non borrowers	HCMC and Nghe An	Yes

4. Informal sector

Different informal savings mechanisms are available (ho / hui / phuong). In some group savings, an interest is paid, while in other groups no interest is paid. Some of these group savings are formed for a specific purposes (to build a house, to prepare for a wedding, for Tet, etc), other do not have a specific aim. All groups have their own regulations. The number of participants varies between 5 and 30, but the common size is between 10 and 12 persons. Contributions are usually around VND 100,000 per month. Contributions in paddy take place twice a year (at harvest time).

Savings groups with cash contribution cater to middle income households (as the contributions are around VND 100,000 a month and can be much higher). However savings groups with paddy contribution are more appropriate for low income farmers.

Conclusions

1. In the formal public sector, commercial banks (including VBARD) are not offering savings products appropriate to the rural low-income market. It should be investigated further whether SPB and VPSC offer appropriate products. VPSC savings activities in rural areas have so far been limited. However it would be interesting to explore the potential of VPSC to provide savings services to rural low-income households.

2. In the private sector, private banks are focusing on the middle-high income population and are therefore not interested in the low-income households with a limited savings capacity. PCFs also appear to mainly cater to middle income households.

3. Semi-formal organisations (such as microfinance institutions and other women’s union microfinance scheme) have been successful in offering savings products to low-income households. However these savings products are often compulsory. The few savings products that are not compulsory also face some difficulties, for example, households sometimes need up to 15 days to access their savings. It would therefore be useful for the ILO project to work with microfinance institutions to help them improve their savings products.

4. A variety of informal savings groups are in operation. The operations of these savings group provide useful information on the needs of low-income households, as well on their capacity to save. Lessons from these informal savings groups should be applied to microfinance institutions.

EMERGENCY LOANS

An emergency loan is defined as a small short-term loan provided immediately with simple procedures. This section will only focus on interest bearing emergency loans.

Public and private banks, as well as SPB, in general do not provide emergency loans. The only way for a client to obtain an emergency loan is to mortgage his/her savings passbook. Microfinance institutions have been providing loans that can act as emergency loans (such as AAV supplementary loan and TYM multi- purpose loan). However these loans cannot be accessed in a day and the required procedures (although much simpler than bank procedures) can act as a barrier.

In consequence, the organisations that offer “real” emergency loans are pawnshops and moneylenders, in rural and urban areas.

Conclusion

1. Public and private banks are not interested in providing emergency loans to low-income households, the main reason being the high-perceived risk of such loans.

2. Some microfinance institutions have been providing supplementary or multi-purpose loans that can serve the purpose of emergency loans. However these loans lack some flexibility to truly serve as emergency loans, as a result, MFI clients still rely on moneylenders as well as family and friends.

3. Only pawnshops and moneylenders are providing real emergency loans (loans disbursed immediately with simple procedures). Lessons from their operations could be applied to microfinance institutions interesting in improving or developing emergency loans.