Module 8 - Vietnam: Mobile Banking for Rural People

The Rural Finance Project was approved in 1996 with World Bank funding of US$110 million. The project has supported several key components of the country assistance strategy, including: (1) assisting in the transition to a market economy; (2) strengthening the rural finance system through finance to agriculture, SMEs, and technical assistance; and (3) reducing poverty by promoting growth. Living conditions are to be improved by encouraging private sector investments, strengthening the banking system, and increasing access of the rural poor to financial services. The seven banks that participated in the project had to complete an institutional development program prior to being admitted. The dominant bank within the project is a public bank. The project has supported several financing initiatives, reflecting the various challenges facing Vietnamese communities. One innovative feature of this rural finance project is its mobile banking operations.¹⁰

Project Objectives and Description

Mobile banking provides banking services to remote and mountainous areas without bank branches, through the use of specially equipped vehicles. The project’s institutional building component financed 159 vehicles at a cost of US$22,000 each. These vehicles were distributed to bank branches to provide financial services, including arranging and disbursing loans, collecting loan repayments, and taking deposits. Each vehicle carries three bank employees.

The mobile banking operation has been effective, with 315,000 rural people receiving financial services. Experience so far indicates that each month, on average, one mobile banking unit mobilizes about 2,000 deposit accounts (US$1.2 million), releases about 1,900 loans (US$1 million equivalent), and collects 1,400 loan repayments (US$650,000 equivalent). The operation is profitable, generating a net monthly income before taxes of about US$1,000, after deductions are made for provisions (reserve for defaulted loans), the cost of running and maintaining the vehicles, the cost of funds, and operating costs.

Given its financial viability, the public bank will maintain its mobile banking operation. A follow-up project (Second Rural Finance Project) initiated in 2002 builds on the experiences and success of the earlier project. An additional 210 vehicles will be provided to several participating banks.