Trương Thanh Đức, chairman of the BASICO Law Firm and an arbitrator with the Việt Nam International Arbitration Centre, tells Kinh tế& Đô thị (Economic and Urban Affairs) newspaper why people’s credit funds should be persisted with despite several collapses.

What are the main reasons for the collapse of several people’s credit funds?

The people’s credit fund is a form of co-operative credit organisation operating on the principles of voluntary action and self-accountability. A key objective of the fund is mutual support – members support each other in production and improving their living standards.

Under Vietnamese law, administrators and management directors of a People’s Credit Fund must be financially knowledgeable, professionally capable people with a strong work ethic. The law also states clearly that members of the Management Council cannot serve as members of Control Board, Chief Accountant or Treasurer.

Under the Credit Law, legal entities which are members of the fund are not allowed to take loans higher than the sum they have deposited in the fund and the loan must not have a longer term than the maturity date of the deposit.

However, violations of these rules have been reported in many places, with the result that quite a few of the funds have collapsed. A case in point is the director of a people’s credit fund in Đồng Nai Province who fled with its money.

Who’s accountable when such things happen?

Under a Government’s decree on the operations of the people’s credit fund, the management boards have to be responsible for their operation. Under a circular drafted by the State Bank of Việt Nam, all people’s credit funds are to be assessed and ranked annually and in the worst case, a poorly performing fund will be forced to declare bankruptcy. In such a case, the State will act as guarantor to ensure law and order and to consolidate people’s confidence in the Government’s financial policies.

Can you tell us a bit more about financial settlement for a people’s credit fund that is on the verge of bankruptcy?

There are various options in such a situation. One is that the fund will be sold to willing investors and the money used to repay the depositors. If there is still not enough money to pay back the depositors, the State will provide some financial support to the fund in the interest of maintaining law and order as well as confidence of the depositors.

In case the fund goes bankrupt, the assets and cash that remain after due legal procedures are completed will be divided among the depositors.

So you don’t think that with what has happened in Đồng Nai and some other places, the Government should bar these people’s credit funds?

I don’t think that the Government should prohibit operations of people’s credit funds because they are suited to our rural areas. However, they must be strictly monitored and supervised. The State Bank of Việt Nam has already initiated a project on the development of people’s credit funds by 2020 with a vision until 2030.

We’re confident that if the funds are well managed and operated, they will become an important factor in pushing back the black credit market (including loan sharks) and be able to fill a gap that our commercial banks have not yet been able to cover.

What do you think is a good model for a people’s credit fund or what are some of the factors that can ensure its success?

The main principles are that the management board must take responsibility for the fund’s operations; they have to uphold the law and practice integrity in their work; and all transactions must be recorded in a transparent, accountable manner.

On the other hand, provincial/city State Bank branches should help local people’s credit fund to improve their management and operations, particularly their internal auditing capacity.

We should also advise people prudence in making decisions to deposit their money either in banks, people’s credit funds or other institutions. We should tell them that whenever they deposit their money in any institution, they must enter into legally valid contracts. — VNS