Washington International Law Journal


Elin M. King


Despite its increasing as a development tool microfinance still faces significant barriers in reaching the poorest of the poor. Microfinance programs often respond well to short-term needs but are not designed to handle the long-term struggles faced by lending institutions. To resolve these problems, many in the microfinance field have begun to tout the concept of creating “enabling” legal and regulatory frameworks. Such an enabling environment would ideally eliminate unreasonable barriers to entry into the field, encourage innovation, and reinforce industry best practices. An enabling regulatory scheme could also increase legal certainty, encourage more investors to enter the field and allow microfinance institutions (“MFIs”) to raise money by accessing world financial markets. In an effort to create such an enabling environment, Vietnam passed a Microfinance Decree in 2004, creating a separate regulatory scheme for microfinance institutions. Prior to the passage of the Microfinance Decree, the legal status of microfinance institutions in Vietnam was very ambiguous. Although the Microfinance Decree creates a more predictable and stable environment, it does not achieve many of the goals of an “enabling” environment, and it threatens the viability of many of the MFIs already operating in Vietnam. The new framework makes strides by clarifying the legal status of MFIs and allowing them to become deposit-taking institutions under limited circumstances. The new law also contains provisions aimed at increasing professionalism and encouraging long-term planning. Unfortunately, the Microfinance Decree also contains provisions that may discourage commercial and foreign investment in microfinance and create unnecessary burdens for small MFIs. In order for Vietnam to truly enable the growth of microfinance it should enact new provisions to protect small MFIs, encourage new players to enter the microfinance field, and continue to develop the regulations underpinning the Microfinance Decree.

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