Graduation Thesis 1 Banking Academy STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty GRADUATION THESIS ODA MANAGEMENT IN THE THIRD RURAL FINANCE PROJECT AT TRANSACTION CENTER III – BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM Lecturers: PHAM THI HOANG ANH (Ph.D) NGUYEN PHUONG LAN (M.A) Student’s name: NGUYEN THI TRANG DAI Class: ATCA – K11 Hanoi, 6th June 2012 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 2 Banking Academy ACKNOWLEDGEMENTS First of all, on the completion of the study, I would like to send my sincere thanks to my supervisors, Ms Pham Hoang Anh, PhD, Faculty of Banking and Ms Nguyen Phuong Lan, MA, Faculty of Foreign Languages, Banking Academy for their continuous supports of my study and research including their clearly explanation, correction, insightful comments, criticism and suggestions. Secondly, I would like to express my deepest gratitude to Transaction Center III – Bank of Investment and Development of Vietnam in general, and all the staff of the Project Management Unit in particular for offering me an internship opportunity and providing me with a good working condition. I also owe a great debt of gratitude to my family and friends who have constantly encouraged and supported me during the time of conducting the research. Last but not least, I would like to thank readers who share their interest and feedback on this study.
Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 3 Banking Academy ABSTRACT The graduation thesis presents a comprehensive review of Offical Development Assistance (ODA) as an essential factor in Vietnam economic development. In general, the thesis throws some light on the theoretical framework and gives an overview of ODA in Vietnam in recent years. In particular, it focuses on a new model of ODA management through the Rural Finance Projects (especially the third project) funded by The World Bank and implemented at Transaction Center III – Bank of Investment and Development of Vietnam. The thesis shows that the projects have achieved several successes, contributing to the development of rural economy as well as enhancing the capacity of Vietnam’s financial system.
Broad conclusions and recommendations to further ODA management in Vietnam are also developed. Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 4 Banking Academy TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF TABLES AND FIGURES CHAPTER 1: INTRODUCTION. Aim and scope of research .3 CHAPTER 2: THEORETICAL FRAMEWORK ON OFFICAL DEVELOPMENT ASSISTANCE (ODA). Definition of ODA.
Classification of ODA. Advantages and disadvantages of ODA.7 CHAPTER 3: ODA MANAGEMENT IN THE THIRD RURAL FINANCE PROJECT AT TRANSACTION CENTER III – BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM. Overview of ODA in Vietnam. ODA management in The Third Rural Finance Project at Transaction Center III – BIDV.
Introduction of The Third Rural Finance Project (RF III). ODA management in The Third Rural Finance Project at Transaction Center III – BIDV. Implementation progress of Credit Components A and B. Situation of ODA management of Component C.
General assessment of the Third Rural Finance Project. Evaluation of ODA management in The Third Rural Finance Project at Transaction Center III – BIDV .29 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 5 Banking Academy 3.32 CHAPTER 4: RECOMMENDATIONS FOR IMPROVING ODA MANAGEMENT AT TRANSACTION CENTER III – BANK OF INVESTMENT AND DEVELOPMENT OF VIETNAM .38 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 6 Banking Academy LIST OF ABBREVIATIONS ADB Asia Development Bank BIDV Bank of Investment and Development of Vietnam BSA Bank Supervision Agency CCF Central People’s Credit Fund FDI Foreign Direct Investment EAB Eastern Asia Commercial Joint Stock Bank HO Head Office MB Military Bank MFI Microfinance Institution MLF Microfinance Loan Fund MOF Ministry of Finance MPI Ministry of Planning and Investment NGO Non-governmental Organization NPL Non Performing Loan ODA Offical Development Assistance OECD Organization for Economic Cooperation and Development PCF People’s Credit Fund PFI Participating Financial Institution PMU Project Management Unit RDF Rural Development Fund RF I First Rural Finance Project RF II Second Rural Finance Project RF III Third Rural Finance Project SGIT Saigon Bank for Industry and Trade SBV State Bank of Vietnam SHB Saigon – Hanoi Commercial Joint Stock Bank SME Small and Medium Enterprise Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 7 Banking Academy TA Technical Assistance UNs United Nations UNDP United Nations Development Programme UNICEF United Nations Children’s Fund US$ United State Dollar VAPCF Vietnam Association of People’s Credit Fund VBARD Vietnam Bank for Agriculture and Rural Development VIB Vietnam International Bank VND Vietnam Dong VPBank Vietnam Prosperity Commercial Joint Stock Bank WB World Bank Western Bank Western Commercial Joint Stock Bank Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 8 Banking Academy LIST OF TABLES AND FIGURES Table 3.1: Information of Designated Account Table 3.2: Classification of loans by terms Table 3.3: Outstanding loans structure of Project by regions by Quarter 4/2011 Table 3.4: Implementation expenses and disbursement of Component C Table 3.5: Intermediate Outcome Indicators of the Project Figure 3.1: ODA commitment, signed agreement and disbursement – Comparison among different periods Figure 3.2: Trend of ODA loans and grants over the period Figure 3.3: Top ten donors of gross ODA (2009-10 average) Figure 3.4: Outstanding loans of the Project from Q2/2009 to Q4/2011 Figure 3.5: Outstanding loans of PFIs/MFIs by loan-term by Quarter 4/2011 Figure 3.6: RDF III and MLF III sub-loans by sectors in Quarter 4/2011 Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 1 1 Banking Academy CHAPTER 1: INTRODUCTION 1. Rationale The process of industrialization and modernization, together with Vietnam’s affiliation in the international trade has brought not only opportunities but also challenges to our country. One of the main targets of the Government is to reach the average per capita income of US$ 1,500 by 2020, requiring approximately 8%/year of average growth and an increase of at least 20% in invested capital, of which ODA (Offical Development Assistance) is a key factor in the development of the national economy, as Hayami and Godo (2005) said: “For such developing countries, in which the investment needs for development tend to exceed domestic saving capacities, net capital import from abroad represents a possible escape from the vicious circle of slow economic growth and low savings” (pp.
According to statistics from the Ministry of Planning and Investment (MPI), ODA capital has been effectively used and since 2006, ODA capital disbursement in Vietnam has been on the increase, especially by the end of 2011, the amount of ODA capital disbursed for Vietnam was valued at more than US$ 33 billion, accounting for 61 percent of total agreed ODA capital. However, this growth is still assessed to be lower than many other countries, especially in the rural economy, mainly due to insufficient access to credit in rural areas. Therefore, the question raised here is how to manage ODA in an effective way to bring the best to rural areas in particular and to the whole economy in general. That is the reason why Transaction Center III – Bank of Investment and Development of Vietnam (BIDV) was established in 2002 with the main role of acting as the Project Owner (wholesale bank) in lending and managing the ODA from the World Bank to Participating Financial Institutions (PFIs) so as to improve access to financial services for rural enterprises.
This is truly a very new model of banking business in Vietnam, helping banks not only strengthen their capacities to compete with foreign banks but also develop new banking products and spread their branches over the country. Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 2 Banking Academy Through three rural finance projects with the World Bank, especially the third project (launched in 2008 and expected to finish in 2013), Transaction Center III – BIDV has achieved several successes. However, some drawbacks still remain. That is why I decided to choose “ODA management in the Third Rural Finance Project at Transaction Center III – Bank of Investment and Development of Vietnam” as the subject of my graduation thesis in order to bring a deeper view of ODA disbursement in this entity, therefore give some recommendations to improve its managerial effectiveness.
Literature review In literature, much effort has been spent investigating the relationship between ODA and economic development. According to Estache (2004), there are 102 studies that have examined the impacts of ODA on growth, investment and productivity. The majority finding is the positive impact of infrastructure and economic growth on investment. Also, Sturm (2001) found that foreign aid has made a statistically significant contribution to public investment, which in turn contributes to economic growth.
More specifically, Ernst van Koesveld, a member of UNDP, in his “Overview of Offical Development Assistance in Vietnam” (2000) provided analysis of the developments and trends in ODA flows in Vietnam or in 2009, Adam McCarty, together with Alexander Julian and Daisy Banerjee gave a comprehensive evaluation of the implementation of the Paris Declaration and of the 2001 DAC recommendation on untying ODA with reference to Vietnam, etc. However, analysis on how to manage ODA effectively is still limited, therefore I hope my graduation thesis, in a small-scale, could make a contribution to the research on this matter, bringing a particular view of a new model of ODA management in Vietnam. Aim and scope of research The aims of my graduation thesis are to: Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 3 Banking Academy 1. Confirm the theoretical background of Offical Development Assistance (ODA) 2.
Investigate the current situation of ODA management in the Third Rural Finance Project at Transaction Center III – BIDV. Give some recommendations to improve the efficiency of ODA management at Transaction Center III – BIDV. Based on these aims, the thesis presents a review of ODA’s theoretical background in categories of definition, classification, advantages and disadvantages and analyzes ODA management model in the Third Rural Finance Project that Transaction Center III – BIDV implemented from 2008 up to 2011. Research questions This graduation thesis focuses on answering the following questions: 1.
How is ODA capital disbursed in the Third Rural Finance Project at Transaction Center III – BIDV? 2. What are the achievements and drawbacks of ODA management in the Third Rural Finance Project and the reasons for these pros and cons? 1. Research methodology To carry out this study, my thesis has employed a dialectical and historical materialism method, combined with statistical and comparative methods, as well as access through the data, documents, charts, diagrams provided by Project Management Unit, Transaction Center III – BIDV to analyze the Transaction Center’s general performance in managing ODA. Nguyen Thi Trang Dai – Foreign Languge Faculty Graduation Thesis 4 Banking Academy CHAPTER 2: THEORETICAL FRAMEWORK ON OFFICAL DEVELOPMENT ASSISTANCE (ODA) 2.
Definition of ODA Offical Development Assistance – ODA is a kind of indirect foreign investment aiming at pushing economic growth and social welfare in developing countries. It reflects the relationship between developed countries or international organizations and developing countries via providing development assistance. For developing nations in general and Vietnam in particular, ODA is a key factor in the investment capital structure of the whole society. The role of ODA is more pronounced in economic growth, hunger eradication and poverty reduction.
ODA is a term coined by the Development Assistance Committee of the Organization for Economic Co-operation and Development to measure aid since 1969. It is defined as: “Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent (using a fixed 10 percent rate of discount). By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (bilateral ODA) and to multilateral institutions.