ILO Office in Vietnam INTRODUCTION OF RISK MANAGING FINANCIAL SERVICES Lessons learnt in Viet Nam PROJECT “E XTENSION OF MICROFINANCE AND MICROINSURANCE FOR INFORMAL WOMEN WORKERS”

ILO Office in Vietnam 2 1.General Facts 2.The Project 3.Lessons Learnt 4.Future Perspectives

ILO Office in Vietnam 3 I. GENERAL FACTS Steady growth of Viet Nam economy: average of 7.5 %/year in the last 10 years Transition from centralised to market economy, progressive integration into globale economy  Poverty reduction success  But new challenges

ILO Office in Vietnam 4 Social protection mechanisms still limited; most workers - especially in the informal sector – not included. Social protection is a high priority for GoV (aiming toward universal coverage, however unprobale to reach in the near future)  Given the limitation of the formal system, the ILO wished to work on alternative to current social protection mechanisms in this transition period.

ILO Office in Vietnam 5 II. THE PROJECT Launched on 2003 Part of the French government program on “Pilot test in the field of social protection” in 3 countries An ILO – MOLISA partnership A SFP’s research action project

ILO Office in Vietnam 6 Goal and Purpose Goal: Development of innovative social protection mechanisms to reduce the vulnerability of poor women in the informal economy Purpose: Identification and pilot testing of risk managing financial products

ILO Office in Vietnam 7 Methodology Demand-oriented & participatory approach; partnership with microfinance organisation 1) Initial assessment of demand & supply 2) Identification of 3 MFIs 3) Technical assistance to partner MFIs to develop and pilot test financial products 4) Capacity building & awareness raising 5) Sector promotion at meso level

ILO Office in Vietnam 8 The pilot tested products Voluntary savings (with TYM Fund) Observation: low-income clients need and can save for emergency and/or assets building Intervention: Introduce a more flexible, more accessible savings product Results: Doulbe in savings clients and savings balance 1,500 savings clients; 20,000 potential clients of the MFI High satisfaction from clients Challenges: MIS cannot accommodate the flexible product Perspective: New MIS, new product designs Saving with TYM family savings is much more convenient than saving in the bank (client)

ILO Office in Vietnam 9 The pilot tested products Mutual Protection Fund (with Dong Trieu Fund) Old product: Member Mutual Assistance Fund One premium, cover both credit-life, death benefits, and serious illnesses (30 deseases) No statistic research, no market research Premium set “at convenience” (low enough so that client can pay!) Book keeping: integrated into microfinance operation book keeping.

ILO Office in Vietnam 10 The pilot tested products New product: Mutual Protection Fund Actuary research New products: Loan Protection product Mutual Assistance product Bookkeeping system redesigned

ILO Office in Vietnam 11 The pilot tested products Mutual Protection Fund Loan Protection Product (compulsory)  Eligibility: all members taking a loan  Insured event: member’s death  Benefit: outstanding loan balance written off  Price: a % of loan amount  Protection term: loan term

ILO Office in Vietnam 12 Mutual Protection Fund Mutual Assistance Product (voluntary)  Eligibility: all members (between )  Insured event: illness (more than 5 days of hospitalisation), ceasarian, death of members; death of husband & children  Benefit: death benefit for member, husband & children under 18 (from $25 to $62/person); health benefit for member only up to $12.50/year  Price: $ 0.12/month  Term: monthly The pilot tested products

ILO Office in Vietnam 13 Mutual Protection Fund Results:  All loan clients covered with Loan Protection; 75% members (4,400) have Mutual Assistance  Claims paid to 148 people in 2006  Positive net income  Client satisfaction Challenges:  Lack of specialised management  Weak information system  Lack of legal framework The pilot tested products The programme has linked our arms. We do this to support each other (client in Dong Trieu)

ILO Office in Vietnam 14 The pilot tested products Credit-life insurance (with Ninh Phuoc Fund) Partner-agent model:Insurance company adjusted an existing product, MFI sell and service the product Covered initially death/total permanent disability of client only, expanded to husband after 1 st year Result: More than 2,000 clients and their husbands covered Low income women in poor rural areas now aware of insurance benefits Challenges: Small scale of the MFIs Perspectives: Potential to introduce other products (cross selling) Potential to duplicate model

ILO Office in Vietnam 15 Systematic pilot testing process 1. Compose pilot test team 2.Develop testing protocol 3. Define pilot test objectives 4. Prepare all systems 5. Modelling financial projections 6.Document Products: Definition & procedures 7. Train relevant staff 8. Develop customer marketing materials 10. Continuously evaluate the Pilot test 9. Start product test

ILO Office in Vietnam 16 III. LESSONS LEARNT 1.Partners 2.Products 3.Sustainability 4.Delivery models 5.Inclusion in national strategy

ILO Office in Vietnam 17 Finding right partners MFIs are good partners to start with when introducing RMFS to low-income clients Social mission Grass root level network Market knowledge MFIs also present some challenges (Viet Nam case): Small scale Limited system (MIS) and management capacity  Who will be the next partners?

ILO Office in Vietnam 18 Developing appropriate products From client’s perspectives Product should meet the needs of clients Payment mechanism should meets clients’ cash flow Client should be well informed about the costs and benefits of the products before they actually purchase  If all the above condition are met, then clients can afford the price and will pay! A cross example: First-cycle subsidise may be necessary to initiate demand (CEP’s health insurance product)

ILO Office in Vietnam 19 From the institution’s perspectives  Product design should take into account the institution’s capacity  Product should bring a benefit to the institution Developing appropriate products

ILO Office in Vietnam 20 Reaching sustainability “How” may be as important as “How much” Pricing exercise should consider all institutional costs of offering a product Sustainability should be considered both from financial perspective and institutional perspective

ILO Office in Vietnam 21 Building on delivery models to expand outreach Partner-agent model has great potential to reach large number of clients. Players of the future will not be limitted to MFIs  Role of the ILO: facilitating partnerships

ILO Office in Vietnam 22 Inclusion in the national strategy National strategy Role of microfinance in proverty reduction recognised Universal health care program Move toward sustainable mechanisms ILO’s contributions Sector promotion Promotion of sustainable products and delivery models Advocacy

ILO Office in Vietnam 23 IV. FUTURE PERSPECTIVES Scale up! Update research on Expansion of Savings and Insurance Services Prepare for expansion: New project proposal under development

ILO Office in Vietnam Thank you for your attention! QUESTIONS?

ILO Office in Vietnam 25 Nguyen Thi Bich Van Tel: (84 4) , ext. 228 Fax: (84 4)