Vietnam: Living on credit

Living on credit

Find out about Ngoc Dung’s family struggle to face their debts; thousands of Vietnamese have to borrow money to make the ends meet but these loans often lead to more poverty…

For the past several years, Viet Nam has experienced significant economic growth and development. These profound societal changes have kept the poorest families in a state of dependence on the often unjust informal credit system.

living on creditVõ Nguyèn Ngoc Dung is heading up the main street of Can Thó, the biggest city in the Mekong Delta in Southern Viet Nam. School is over and she is slowly walking home. She moves slowly, going from one passer-by to another, from outdoor café to stand in the hopes of selling all of her lottery tickets before that evening’s drawing. At 10 years old, like many of the children in her neighbourhood, Ngoc Dung has to work. Her grandparents took her in after her parents left to find work in Saigon, and cannot do without her meagre income. Võ Thi Hai, her grandmother, sells pastries in the street and Nguyen Van Sen, her grandfather, resells ice at retail price. These are precarious lines of work that pay less and less as time goes on. However, they constitute the sole income of Ngoc Dung’s family. Without it they wouldn’t be able to eat or pay for school. But like many families in the slum where they live, it is impossible to save money for future health issues or the inevitable maintenance a house requires. Ngoc Dung’s family is completely vulnerable. The city of Can Thó, with its countless river channels, floods from July to November each year. Twice a day, at high tide, the houses in the neighbourhood are flooded. Last year, Lé Van Tôt, one of Ngoc Dung’s neighbours, was forced to borrow money to pay for the work needed to raise his house out of the water’s reach.

Living on creditLé Van Tôt, who is in poor health, cannot work. His wife, Câm Sano, sells soup to the neighbourhood labourers every morning. She has difficulty earning 30,000 dong (1 EUR) per day, which doesn’t allow her to meet all the household expenses but is enough to place the family above the poverty threshold set by the Ministry of Labour, Invalids and Social Affairs (MOLISA). Because of that, Lé Van Tôt’s family cannot apply for loans geared to the most disadvantaged and that are a part of the poverty-reduction policy implemented by the central Vietnamese Government. Having no material goods to use as collateral, they cannot take out a traditional loan from the State Bank of Viet Nam or from one of the four large public banks such as the Viet Nam Bank for Agriculture and Rural Development (BADR), dedicated since 1992 to financing family farms, or the Viet Nam Bank for the Poor. In principle, these public institutions are intended to provide Vietnamese access to property and business development opportunities within the framework of poverty-reduction policies. But in reality, these banks “gradually come to target a clientele that, though not wealthy per se, have property in their possession that can be used as collateral,” explains Nicolas Lainez, an anthropologist writing a thesis on credit issues in Viet Nam. In particular, he points out that a number of Vietnamese households are currently excluded from the very rigid and costly financial system, one which requires a large number of administrative and material guarantees that they do not have. living on creditFor that reason, some Vietnamese, like Lé Van Tôt, turn to informal credit, a parallel financing system in which private lenders charge extremely high rates of interest. During the 2000s, use of the informal economy was still very widespread in Viet Nam. There are great advantages to these loans for families without guarantees or a steady income. The system is based on trust. The applicant is introduced to the lender by an intermediary who serves as guarantor. If the applicant disappears, the lender turns to the guarantor to honour his friend’s debt. The tradition is so widespread that there is a proverb that says “There are four stupid things in life: acting as a go-between, acting as guarantor for a debt, acting as lookout for turtledoves, playing the praise drum” (Trên d?i có bu?n cái ngu, làm mai, lãnh n?, gác cu, c?m ch?u).

In other words, the intermediary, the guarantor of a debt, the watchman who signals the hunter when the turtledove (a difficult bird to capture) appears, and the praise drum player, who keeps the rhythm for the ca trù singer (a form of sung poetry), all play the important role of mediator, though the risk they undertake goes unacknowledged.

This system of informal loans implies dependency for the poorest families and often lead to a vicious circle in which these families are trapped, sometimes for life. Stay tuned to read the second part of this article to understand how the loan system operates in Vietnam … 

Text and photos: Antoine Besson. Originally published in Enfants du Mekong magazine.