Decision No. 47/QD-NH21 Issuing the Regulation on Management and Use of the Rural Development Fund

 Pursuant to …;

Regarding the issuance of the Regulation on Management and Use of the Rural Development Fund

GOVERNOR OF THE STATE BANK OF VIETNAM

Pursuant to the Law on State Bank dated May 24, 1990,

Pursuant to Decree No. 15/CP dated March 2, 1993 of the Government on the tasks, powers, and responsibilities for state management of ministries and ministerial-level agencies;

Pursuant to Decision No. 5551/QHQT dated October 2, 1995 of the Government regarding the State Bank's implementation of wholesale banking functions under the Rural Finance Project funded by the World Bank;

Pursuant to the Credit Agreement No. 2855/VN signed on July 19, 1996 between the International Development Association (IDA) and the Socialist Republic of Vietnam;

At the proposal of the Director of the Project Management Board,

DECISION:

Article 1. Now hereby promulgates with this Decision the "Regulation on Management and Use of the Rural Development Fund (RDF)."

Article 2. This Decision shall take effect from the date of signing.

Article 3. The Chief of the Governor's Office, the Director of the Project Management Board, the heads of relevant units under the State Bank, the Governors of the State Bank Branches in provinces and cities, and the General Directors (Directors) of financial institutions selected to participate in the Rural Finance Project shall be responsible for implementing this Decision. 

 

REGULATIONS

MANAGEMENT AND USE OF THE RURAL DEVELOPMENT FUND
(Issued together with Decision No. 47/QĐ-NH21 dated February 28, 1997 of the Governor of the State Bank of Vietnam)

The International Development Association (IDA) has allocated a development credit for the Rural Finance Project to support small and medium-sized enterprises operating in agricultural production and rural economic development. A portion of this development credit will be allocated to the Rural Development Fund (RDF) established and managed by the State Bank of Vietnam. Investment in small projects of small and medium-sized enterprises will be carried out through financial institutions.

1. These regulations guide the screening of HIV testing for blood transfusion, blood product transfusion, and the implementation of assisted reproductive techniques and organ transplantation at state-owned, private, and public health facilities (hereinafter referred to as health facilities).

Article 1. In these regulations, the following terms are understood as follows:

1. Rural Development Fund (RDF): This is a Fund established and managed by the State Bank of Vietnam within the framework of the Rural Finance Project. The capital of this Fund comes from the development credit provided by IDA for the Rural Finance Project.

1.2. The International Development Association is an organization belonging to the World Bank (IDA).

1.3. Project Management Unit (PMU): This is the Project Management Board established pursuant to Decision No. 269/QĐ-NH9 dated September 23, 1995 of the Governor of the State Bank of Vietnam.

1.4. Subsidized Loan: The portion of the RDF Fund that the State Bank of Vietnam lends to financial institutions.

1.5. Re-lending: The capital that financial institutions borrow from the RDF Fund to lend again to eligible enterprises with small projects.

1.6. Enterprise: Includes state-owned enterprises, joint-stock companies, limited liability companies, joint ventures, and private enterprises.

1.7. Small Project: An enterprise project implemented using re-lending funds.

1.8. Financial Institution: Financial institutions established and operating in the Socialist Republic of Vietnam, selected by the State Bank of Vietnam to participate in the Project in accordance with the selection criteria stipulated in this Regulation.

Article 2. Objective:

Through financial institutions, the RDF Fund's resources will be re-lent to enterprises engaged in agricultural production and rural economic development to achieve the following objectives:

2.1. Increase medium- and long-term credit sources for the rural areas excluding Hanoi and Ho Chi Minh City.

2.2. Encourage competition among financial institutions in providing financial services in rural areas.

2.3. Enhance the capacity of financial institutions operating in the rural finance sector.

2.4. Improve access of poor rural residents to formal credit sources, thereby reducing high-interest lending in rural areas and improving living standards.

1. Provisions on HIV screening tests:

Article 3. Financial Institutions eligible to borrow from the RDF Fund:

3.1. State-owned commercial banks.

3.2. Joint-stock commercial banks.

3.3. Other financial institutions.

Article 4. Criteria for selecting financial institutions to borrow from the RDF Fund.

4.1. Legality:

They must be financial institutions established, organized, and operating in compliance with the regulations of the State Bank of Vietnam and other Vietnamese laws, and must comply with all current laws, regulations, and regulations in Vietnam.

4.2. Solvency:

A financial institution is considered solvent when the value of its operational assets is sufficient to cover its debts, particularly those owed to depositors and lenders.

Determining the solvency of financial institutions will be based on the following financial ratios:

4.2.1. The ratio of overdue debt not exceeding 5% of total loan capital (overdue debt is determined by overdue debt minus provisions for uncollectible loans);

4.2.2. The adequate capital ratio must not be less than 10% (the adequate capital ratio is determined by the equity or pure share capital relative to risk assets - including loans and investments, excluding government securities investments).

The lower the overdue debt ratio and the higher the adequate capital ratio, the higher the solvency of financial institutions.

4.3. Liquidity:

A financial institution is considered liquid when it can quickly convert its assets into cash or when liquid assets (cash at the fund, deposits at banks, short-term gold or government securities investments) are sufficient to cover its short-term liabilities (determined by demand deposits, short-term deposits, and service debts for loans due within one year).

The liquidity ratio, which is the ratio of liquid assets to short-term liabilities, must not be less than 40%.

The higher the liquidity ratio, the higher the liquidity of financial institutions.

4.4. Profitability and Efficiency:

The profitability and efficiency of a financial institution are determined by the following financial ratios.

4.4.1. Return on Equity (ROE), which is net profit after tax relative to equity or pure share capital.

4.4.2. The return on earning assets shall be greater than 5%, where earning assets are determined as the sum of all loans and investments (net profit on earning assets for the year).

When considering the above standards, nominal profitability and actual profitability must also be taken into account to ensure that the equity capital of Financial Institutions is not eroded by inflation, i.e., the return on equity (ROE) must be higher than the annual inflation rate. Actual ROE is determined by net profit for the year on equity capital minus fixed assets at the beginning of the year.

4.5. Management capability of the staff:

Financial Institutions must have a management staff with appropriate qualifications and expertise in accordance with the regulations of the State Bank of Vietnam.

4.6. Temporary eligibility:

The criteria for selecting Financial Institutions to participate (Financial Institutions) mentioned above, together with the ratios stated in Sections 4.2, 4.3, and 4.4 of this part, are based on the standards set by IDA for international commercial banks. In cases where a Financial Institution has not fully met the selection criteria mentioned above, it may still be temporarily eligible. To participate in the project, such a Financial Institution must submit to PMU for review and approval, with IDA's consent, its institutional development plan along with an appropriate training program and a specific timeline to meet the aforementioned criteria. PMU will be responsible for monitoring and supervising the implementation of these plans through semi-annual reviews ending on June 30 and December 31 each year, and reporting the results of these reviews to IDA for consideration before September 30 and March 31 each year.

If a Financial Institution fails to comply with the selection criteria or the approved institutional development plan and does not implement the corrective measures proposed by PMU, PMU has the right to cancel the uncommitted loan portion of the sub-loan and take necessary actions to preserve the committed balance.

Article 5. Eligible sub-projects:

5.1. The Rural Development Fund (RDF) will be used to finance short-, medium-, and long-term investments, as well as working capital, carried out by enterprises in rural areas that are consistent with the project's objectives. Sub-projects in the following sectors will be considered eligible for RDF financing:

5.1.1. Feasible production activities related to agriculture, forestry, fisheries, and other rural industries such as aquaculture, agro-industries, commodity production, construction, fruit processing, agricultural products and food processing, packaging, oil pressing, etc.

5.1.2. Feasible investment activities carried out by service enterprises to support rural economic activities, create employment opportunities, and encourage exports, such as transportation, garment manufacturing, weaving and handicrafts leasing, etc.

5.2. To be considered eligible, sub-projects must be technically and economically feasible, financially sound, and comply with Vietnam's environmental protection regulations.

5.3. State-owned enterprises with small and medium sizes can only receive a maximum loan amount not exceeding 5% of the credit limit granted to a Financial Institution from the RDF at any given time. Small and medium-sized state-owned enterprises are those with total assets not exceeding $2,000,000 and fewer than 500 employees.

5.4. Enterprises must have at least 70% ownership held by Vietnamese nationals to be considered eligible.

Investment activities in land are not eligible.

Article 6. Lending, repayment, and interest:

6.1. The evaluation, acceptance of sub-projects, and lending decisions are the responsibility of Financial Institutions. Financial Institutions must be responsible for recovering the principal and repaying the debt in full and on time, and bear all credit risks associated with these loans.

6.2. For sub-loans with a value of less than $20,000 equivalent, PMU will disburse funds to Financial Institutions from a special account based on expenditure statements. PMU will subsequently review the appraisal reports of sub-projects conducted by Financial Institutions after disbursement.

6.3. For sub-loans with a value of more than $20,000 equivalent but less than $150,000 equivalent, PMU will examine and approve the project appraisal documents submitted by Financial Institutions before approving disbursement from a special account. However, depending on the performance of each Financial Institution in appraising sub-projects, PMU may request IDA to waive the requirement for PMU to pre-approve the appraisal reports of sub-projects for sub-loans made by that Financial Institution. If IDA approves, disbursement to that Financial Institution for sub-loans from the RDF over $20,000 equivalent but under $150,000 equivalent will be based on expenditure statements, subject to subsequent review by PMU.

6.4. For sub-loans over $150,000 equivalent, IDA's approval of the sub-project must be obtained before PMU allows disbursement from a special account or withdrawal from a credit account.

6.5. In all cases, Financial Institutions must submit loan documentation, procurement documents, and payment vouchers to PMU within a maximum period of 60 days from the date of disbursement. If a Financial Institution fails to submit or obtain the required loan documentation as specified above, the sub-loan will be canceled and recovered, and a penalty fee will be applied.

Article 7. Loan term:

The term of the secondary loans granted by the State Bank of Vietnam to Financial Institutions shall be consistent with the term of the onward loans implemented by such Financial Institutions. Onward loans from the RDF Fund shall not be used to finance sub-projects with an expected repayment period exceeding ten years. The principal repayment period for onward loans from the RDF Fund (including grace periods determined based on the projected cash flow balance of the sub-project and the borrower's repayment capacity) shall not exceed ten years or the repayment period of the sub-project if it is shorter than ten years. The term of short-term loans (onward loans from the RDF Fund) shall not exceed twelve months.

Article 8. Interest Rate:

8.1. The State Bank of Vietnam will grant loans to Financial Institutions in US dollars or Vietnamese dong, depending on the nature and requirements of eligible and appropriate sub-projects, in accordance with Vietnam’s foreign exchange management regulations, at interest rates determined according to the following principles:

8.1.1. For loans in Vietnamese dong, a floating interest rate that may be adjusted quarterly will be applied, equivalent to the actual weighted average cost of funds that can be lent within the banking system. The weighted average interest rate of deposits will be used as a reference rate to calculate the cost of funds for loans to Financial Institutions. This reference rate takes into account costs related to the reserve requirement set by the State Bank of Vietnam. Reference rates for short-term loans (not exceeding twelve months) are the weighted average interest rates of demand deposits and three-month time deposits. Reference rates for medium- and long-term loans (over one year) are the weighted average interest rates of six-month deposits and longer-term deposits in the banking system.

8.1.2. For loans in US dollars, a floating interest rate that may be adjusted quarterly and not less than the six-month LIBOR plus at least a 1% annual margin to cover the operational costs of the PMU associated with secondary loans, including provisions for loan losses, will be applied.

8.2. For onward loans implemented by Financial Institutions, interest rates consistent with each Financial Institution's interest rate policy but conforming to the interest rate regulations published by the Governor of the State Bank of Vietnam during specific periods shall be applied. Borrowers may choose a fixed interest rate throughout the loan term or for a certain period, or a periodically adjustable floating interest rate. In cases where a Financial Institution provides onward loans at a fixed interest rate, the State Bank of Vietnam will determine the applicable fixed interest rate for secondary loans to that Financial Institution in a manner approved by the IDA.

Article 9. Inspection and Handling of Violations:

9.1. The State Bank of Vietnam will conduct periodic or spot inspections of the use of borrowed funds by Financial Institutions.

9.2. If a Financial Institution fails to pay the principal and interest of a secondary loan when due, based on the actual circumstances of the loan and the financial condition of the Financial Institution, the State Bank of Vietnam has the right to declare the outstanding balance of the overdue loan from the RDF Fund as due or declare the secondary loan (the loan with unpaid principal and interest) as overdue; simultaneously, the State Bank of Vietnam will not consider granting further loans from the RDF Fund to the borrowing Financial Institution. The State Bank of Vietnam will calculate a monthly penalty fee equal to 150% of the current applicable interest rate on the overdue amount and may apply other necessary sanctions.

Article 10.Pledge, mortgage, and insurance:

All activities related to the pledge and mortgage of refinancing loans from the RDF Fund, secondary loans, and activities related to the insurance of pledged and mortgaged assets must comply with Vietnamese regulations on pledge, mortgage, and insurance.

Article 11. Micro-project financing:

For each accepted micro-project, Financial Institutions must provide at least 10% of the project cost as a loan from their own funds. The minimum contribution of the borrower for each micro-project shall be determined by the Financial Institution based on the assessment of each micro-project, but not less than 15% of the project cost, which may be in cash or foreign currency, except for land. In all cases, refinancing loans from the RDF Fund for each micro-project shall not exceed 75% of the project cost.

Article 12. Reporting System:

Periodically or upon request, Financial Institutions must provide reports and other information to the State Bank of Vietnam to meet supervisory purposes or to report to IDA.

Article 13. Auditing:

Annually at the specified time, Financial Institutions must submit to the State Bank of Vietnam their audited financial reports by an independent auditing company approved by the State Bank of Vietnam.

III - IMPLEMENTATION PROVISIONS:

Article 14. Heads of relevant units under the State Bank of Vietnam, Directors of Provincial and Municipal Branches of the State Bank of Vietnam, and General Managers (Directors) of selected Financial Institutions participating in the rural finance project are responsible for implementing this regulation. Any supplementation or amendment to this regulation shall be decided by the Governor of the State Bank of Vietnam.