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Limited access to credit tough challenge for cooperatives’ growth

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workshop joint programme2Difficulties in credit access
Across the five value chains supported in the joint programme on green production and trade to increase income and employment opportunities for the rural poor, households and cooperatives are often confronted with the need to borrow money to meet the needs for buying raw materials, equipment, meet production orders or to manage price fluctuations. However, households and producer groups often face difficulties to access loans from the banks and in some cases, they have to borrow from locals money lenders against interest rates as high as 10 percent/month.

ILO study on needs for borrowing money and credit providers
Limited access to credit remains a major constraint limiting the growth of cooperatives. Against this background, ILO commissioned a study to determine the needs for borrowing money and map the available credit providers. The study revealed that the need for loans is particularly high for households in the seagrass, lacquer and sericulture value chains, which often have to cope with fluctuating and low prices for their raw material, and the need for increased spending during the peak season for planting and harvesting. Many households have loans outstanding, ranging from VND 3 million to VND 400 million, often combined from two or three sources, including private money-lenders.

The survey also indicates that cooperatives face many difficulties to obtain a loan because:

  • the financial health of the Cooperative is weak
  • lack of leadership and management capacity, and difficulties to prepare a business plan or financial statement
  • prevailing negative prejudices against cooperatives, caused by the massive collapse of cooperatives in the 1980s

As a result, Cooperatives often have no other option other than asking one of its members, who has land certificates that could serve as a guarantee, to apply for a loan.

Workshops to inform on study findings and get practical advice
Within the framework of the joint programme, ILO has built capacity among poor grassroots crafts producers and supported the establishment of business groups and cooperatives in four provinces to share information on the possible sources of micro-financial sources, as well as the specific conditions and requirements.
The training covered three main topics: basic understanding about microfinance; the importance of saving; and budgeting. The training effectively enabled groups to identify microfinance providers in their locality and to analyze advantages and disadvantages, as well as specific conditions and barriers to access credit. They also received practical advice and tools to manage their budget and practice savings. During the training, groups prepared their action plans applying knowledge gained, which they will share with other members of their business groups and family members. The prepared action plans will be implemented in coming months with the support of the Cooperative Alliance in respective provinces.

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Producer groups and cooperatives are in a better position to access credit




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