An action research project on risk managing financial services

Project Description

The ILO in collaboration with MOLISA is currently undertaking a project on “risk-managing financial services” funded by the French government, the Dutch Catholic Organization for Relief and Development Aid (CORDAID) and Ford Foundation.

“Risk-managing financial services” are financial services that allow households to more effectively cope with risks and economic stresses.

Please find below a short project description.

The official name of the project is “Extension of microfinance and microinsurance to informal women workers” and the project was officially launched on 20 May 2003.
 

Recent development research, in Vietnam and elsewhere, has emphasised the need to reduce the vulnerability of low-income persons to attain sustainable poverty reduction.

In 2001, one third of the Vietnamese population lived in poverty. Most of those who were not poor lived close to the poverty line. Poor and near poor households are vulnerable to a range of risks that can have a devastating effect on their livelihoods. Since the majority of the poor falls outside the scope of formal social protection systems, they rely primarily on informal mechanisms for managing risks and coping with shocks, which are largely insufficient.

To achieve the poverty and hunger eradication targets set by the Government of Vietnam, it is necessary to address two important and connected challenges:
   a) to lift people out of poverty and
   b) to protect people from suffering declines in their livelihoods, which reverse former gains1.

Microfinance is typically associated with the first challenge. Through loans for income-generation or microenterprises, microfinance enables the poor to increase, or at least stabilise, household income. Considerably less attention, however, has been given to the role of financial services in addressing the second challenge.

If properly designed and delivered, microfinance has the potential to help safeguard poor households against the extreme vulnerability that characterizes their everyday existence. Loans, savings and insurance can help smooth income fluctuations and maintain consumption levels even during lean periods. Financial services can serve as a buffer for sudden emergencies, business risks, seasonal slumps or events, such as a flood or a death, that can push a poor family into destitution2.

[1] Localising MDGs for Poverty Reduction in Viet Nam: Reducing Vulnerability and Providing Social Protection, Poverty Task Force, June 2002.

[2] Is Microfinance an effective strategy to reach the Millennium Development Goals? Focus Note 24, CGAP, January 2003.

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The aim of this action research project is to test innovative financial products, such as emergency loans, flexible savings or insurance, that will reduce poor women’s vulnerability. The project is essentially divided into two phases: research and pilot testing.
 

In the first phase, the project will identify the risk management needs of poor women: What risks are they facing? How do they protect themselves against such risks? How do they mitigate these risks? How do they cope with these risks once they happen? How often do these risks occur and how much do they cost? What are the strengths and limitations of their coping strategies? By identifying common risks, expensive risks and inadequate coping strategies, this research will be able to identify areas for which a risk-managing financial service would be an appropriate intervention.

Simultaneously the project will strive to understand what protection mechanisms are currently available in Viet Nam. Through a review of available insurance, savings and emergency loans services, the project will determine how suitable these mechanisms are for poor women, how these services might be adapted to meet the needs of the target population, and analyze the regulatory environment for extending risk-managing financial services.

Based on these findings, the second phase the project will attempt to fill the gap between what is currently available and the needs of poor women by testing innovative financial services. The project will use a deliberate, systematic and participatory approach to product development. By the end of the two years the project should have developed significant insight into the key design features of appropriate and demand-driven risk-managing financial services. The results of these pilot projects will be documented and disseminated within Viet Nam and beyond.

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This project targets poor women in the informal economy. The main partners of this project are the Ministry of Labour, Invalids and Social Affairs (MOLISA) and selected Microfinance Institutions operating in Viet Nam.

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The International Labour Office (ILO) executes the project in collaboration with MOLISA. A national Project Advisory Committee gathering representatives of the Women Union and of MOLISA has been appointed by MOLISA to guide, review and monitor project implementation.

This project is part of an inter-regional programme, funded by the French government, to develop innovative mechanisms to expand social protection to excluded groups. The other participating countries are Burkina Faso and Ethiopia. The lessons learnt from these three experiences are intended to contribute to national and international debate on poverty reduction and the extension of social protection.

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Goal: Development of innovative social protection mechanisms to reduce the vulnerability of poor women in the informal sector in Viet Nam

Purpose: Identification and field testing of financial products that will allow poor women from the informal sector to better cope with shocks and therefore reduce their vulnerability

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1. Increased understanding of poor women’s needs for risk-managing financial services

2. Increased understanding of risk management mechanisms available in Viet Nam in the formal and informal sectors, with a focus on insurance, savings and emergency loans

3. Identification of innovative financial products that fill the gaps between the risk management needs of poor women and the availability of such services

4. Field testing of at least 2 risk-managing financial products with partner organisations

5. Better understanding of the role of financial services in vulnerability reduction and social protection amongst practitioners and policy makers nationally and internationally

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The project will be carried out from May 2003 to September 30, 2008.

Contact us

Ms. Nguyen Thi Bich Van
National Project Coordinator - Microfinance Project

48-50 Nguyen Thai Hoc Street, Hanoi, Vietnam
Tel: (84 4) 734 09 00/2/3/5/6/7 (ext 228)
Fax: (84 4) 734 15 32
E-mail: bichvan@ilohn.org.vn
Website: www.microfinance.org.vn

© 2003-2004 Văn phòng ILO tại Việt Nam.
www.microfinance.org.vn