‘Weak’ management hurts PCFs

Lax control and poor management are harming the viability of PCFs, experts say

Tam Binh credit fund was a good performer until three months ago, when a monthly audit uncovered that almost half the fund’s equity, or $30,000, had been embezzled by its treasurer.
The official had been siphoning away money unnoticed until the amount grew too large to ignore.
Subsequently, despite three months of great efforts, Tam Binh was unable to repay the $26,700 it owed its 44 depositors.
It is currently under liquidation.
Lax control seems only part of the malaise.
Poor management also plagues these funds, with four others shutting down almost at the same time as Tam Binh.
Their reason? Modest profits.
After the disaster of two decades ago – when more than 7,000 PCFs collapsed due to weak State control and hundreds of thousands of people lost their money and trust in the financial system – the government began rebuilding the PCFs in the 90s.
Since then, more than 1,000 new PCFs have been established to provide micro-credit to rural borrowers.
However, the new model, with an apparently more rational and advanced management mechanism, seems to have fared no better.
In the course of 10 years, 112 PCFs, which suffered losses of $2.5
million, have been shut down.
A report by the State Inspection team at the end of last year said, nevertheless, that most of the existing 889 PCFs were healthy and classified 90 per cent of them as “good”.
However, this assessment is not accepted by all experts.
Ha The On, general director of the Ho Chi Minh city branch of Vietnam Deposit Insurance Company (DIC), the state-owned insurer of deposits
who paid off Tam Binh’s depositors, is one such expert.
He said there were many weaknesses in the management of regional PCFs in the south, both in terms of business and human resource and listed violation of lending regulations, accounting lapses and speculation, and embezzlement by staff.
“There seem to be huge risks that can drive PCFs to bankruptcy at any time,” On warned.
He admitted however that his agency, entrusted with monitoring the PCFs’ performance, has done little.
It organises just one inspection a year – always at the end and not of all PCFs; they are chosen at random.
“This is complicated work given there are so many PCFs in the country,” its chief executive, Do Khac Hai, said.
“DIC was established just three years ago and we remain short of experience, inspection means and skilled staff.”
He claimed further that it was impossible for his agency to check cases like Tam Binh. “I think all PCFs should improve their management. That’s the best and only way out.”