Directive No. 11/CT-NH17 on Strengthening Guidance for the Pilot Establishment of People's Credit Funds

DIRECTIVE

OF THE GOVERNOR OF THE STATE BANK

On Strengthening Guidance for the Pilot Establishment of People's Credit Funds

In recent times, the work of piloting the establishment of People's Credit Funds according to the plan for expansion has been actively implemented and achieved good results in many provinces and cities. As of October 31, 1995, there were 412 grassroots credit funds nationwide, an increase of 233 funds compared to the beginning of the year, with 5 regional funds and the central fund having commenced operations. Among the 41 pilot provinces and cities, 29 have established People's Credit Funds, including 15 provinces and cities that expanded their pilot programs; 13 provinces and cities have between 20 to 57 grassroots credit funds; the number of members and operational capital of the credit funds have significantly increased compared to the beginning of the year.

However, the implementation of the pilot program for establishing People's Credit Funds is currently facing several issues and weaknesses that need to be promptly addressed. Notably, the progress in implementing the pilot program is slow in many provinces and cities; due to insufficient active and strict guidance, violations of safety regulations and pursuit of profit at the expense of safety occur in many funds; while the supervision and inspection work of the State Bank has been strengthened, it remains a weak point and is currently inadequate.

To meet the new requirements of the pilot program for establishing People's Credit Funds, the Governor of the State Bank, Head of the Central Steering Committee for Piloting the Establishment of People's Credit Funds, requests the Steering Committees at all levels and the Directors of the State Bank Branches to take practical measures to effectively implement the pilot program for establishing People's Credit Funds, ensuring the content and requirements set out at the beginning of the year; In the short term, focus on the following issues:

1. Each province and city needs to conduct a mid-term review of the implementation of the pilot program for establishing People's Credit Funds in their locality, accurately assess both achievements and shortcomings, especially identifying the causes, thereby formulating specific and practical plans and solutions for implementation in the near future.

- The pilot program for establishing People's Credit Funds must be under the direct leadership and guidance of local party committees and governments at all levels. Mid-term review meetings should include representatives from the party committees and governments of pilot districts and counties to thoroughly implement the directives and resolutions of the provincial and municipal party committees regarding this work.

- Members of the pilot steering committees at all levels need to fulfill their roles as assigned, operate consistently, and be responsible for guiding specific areas or regions.

- State Bank branches need to effectively perform their role as the permanent steering committee and provide strong advisory support to the party committees and governments to ensure the successful implementation of the pilot program in their locality; consider this as a priority task in the immediate future and over the next few years.

- During the process of guiding the establishment of pilot People's Credit Funds, the principle of urgency and positivity must be adhered to while ensuring safety and efficiency. Only grant operating licenses to those credit funds that are deemed to have met the necessary conditions.

2. Direct the grassroots People's Credit Funds to promptly address deficiencies and weaknesses in management and operation, particularly focusing on the following issues:

a. Grassroots People's Credit Funds can only lend to members; immediately cease lending to non-members. Measures must be taken to recover loans already made to non-members. Staff who deliberately violate these rules must be dealt with appropriately.

b. Strictly adhere to the maximum loan limit for each member, which is 10% of the registered capital of the People's Credit Fund. In special cases where projects are highly effective and capable of timely repayment, the grassroots People's Credit Fund must report to the State Bank branch for permission to handle each case individually. The Director of the State Bank branch will decide after reviewing and confirming that the conditions are met and will not affect other members' borrowing.

c. Guide the adjustment of interest rates applied by grassroots People's Credit Funds towards reducing deposit interest rates by leveraging local capital mobilization advantages, reducing costs, and providing reasonable borrowing rates to members, addressing the current issue of excessively high deposit and lending rates in many funds.

- While managing the maximum lending rate as prescribed, the State Bank directs People's Credit Funds to reduce the spread between deposit and lending rates. Initially, given that grassroots funds are newly operational, they may apply a maximum spread of 0.7% per month for local deposits and 0.5% for adjusted funds from regional funds, while taking steps to lower this spread as soon as possible.

- The spread between input and output for regional funds lending to grassroots funds is 0.25% per month for local deposits and 0.15% per month for adjusted funds received from other funds and loans from the central fund.

d. Rectify and strengthen the role and responsibility of supervisors within each grassroots People's Credit Fund. Alongside reminding supervisors of their responsibilities, short-term training sessions should be organized to enhance their understanding and supervisory capabilities. Those unable to fulfill their duties should be replaced.

3. Promptly establish and implement a mechanism for adjusting capital at the State Bank branch level in pilot provinces and cities where regional People's Credit Funds have not yet been established, to avoid hindrances in capital adjustment among funds and throughout the system.

a. The State Bank branch is tasked with representing the central fund to handle capital adjustment issues locally, including adjustments between funds within the province or city and loans from the central fund.

b. The Director of the State Bank branch determines the interest rate for local capital adjustments based on the principle of not incurring losses. When receiving loans from the central fund or having surplus funds to lend to the central fund, the published interest rate of the central fund must be respected.

c. Capital adjustment transactions are recorded in an appropriate account as stipulated; simultaneously, off-balance sheet accounts are opened to record and monitor transactions arising from the role of adjustment.

d. The Director of the State Bank branch implements this capital adjustment activity locally and is responsible for complying with relevant regulations, lending efficiently, and recovering principal and interest on time to repay the funds that lent and the central fund.

4. In the event that the Central Fund has commenced operations, the branches of the State Bank shall no longer provide supplementary working capital loans to grassroots funds as previously done. The source of 7 billion VND allocated equally among the initial 14 pilot provinces will continue to be recovered through debt collection by the State Bank branch. All grassroots credit funds with the need for supplementary credit must implement this within their own system via regional funds (or balancing funds at State Bank branches where there are no regional funds) and will be processed from local sources or loans from the Central Credit Fund. In cases of necessity, the State Bank of Vietnam will directly lend to the Central Credit Fund so that it can re-lend within the system.

5. Enhance personnel engaged in inspection and supervision of the grassroots credit fund system to meet the important tasks of the State Bank at all levels.

a. Grassroots credit funds that have been established must be subject to regular inspection and supervision from the outset, promptly detecting and preventing violations, and strictly dealing with cases of intentional breaches of principles and regulations.

b. Ensure adequate staffing for the Department managing grassroots credit organizations, and enhance necessary means according to inspection and supervision requirements.

c. Allocate sufficient staff for the Office managing grassroots credit organizations in accordance with the tasks of each locality, based on inspection and supervision requirements and directives for all funds. The Branch Director of the State Bank should first allocate from local resources; if additional positions are needed, they should primarily address these requirements.

d. Study the experience of Ha Tay, and if deemed necessary and effective, allow the deployment of permanent staff at each pilot county for grassroots credit funds.

e. Develop training plans for personnel managing grassroots credit organizations, ensuring that each staff member is proficient in banking operations and knowledgeable about grassroots credit funds.

g. Assign the Department of Organization and Training to coordinate with the Department managing grassroots credit organizations to swiftly implement organizational and personnel issues according to inspection and supervision requirements and directives for the grassroots credit fund system, including policies to encourage and facilitate the implementation of these tasks by assigned personnel. These are critical and urgent matters to ensure the timely establishment of grassroots credit funds. The Governor of the State Bank requests the heads of units within the sector to strictly adhere to the issues outlined in this Directive.

These are critical and urgent matters to ensure the timely establishment of grassroots credit funds. The Governor of the State Bank requests the heads of units within the sector to strictly adhere to the issues outlined in this Directive.

Hoang Dinh Cau

(Signed)