Aligning financial inclusion and financial integrity. Regulating and supervising microfinance in Vietnam
| Pages | 595-613 |
| DOI | https://doi.org/10.1108/JMLC-01-2019-0004 |
| Published date | 07 October 2019 |
| Date | 07 October 2019 |
| Author | Thu Thi Hoai Tran,Louis De Koker |
Aligning financial inclusion and
financial integrity
Regulating and supervising microfinance
in Vietnam
Thu Thi Hoai Tran
Department of Anti-Money Laundering, State Bank of Vietnam, Hanoi, Vietnam, and
Louis De Koker
School of Law, La Trobe University, Bundoora, Australia
Abstract
Purpose –This study aims to consider the anti-money laundering/combating of financing of terrorism
(AML/CFT) regime that applies to microfinance institutions (MFIs) and microfinance programmes and
projects (MFPs) in Vietnam to identify ways in which to improve the alignmentbetween financial inclusion
and financialintegrity objectives in relation to this sector.
Design/methodology/approach –This doctrinal studyis informed by the Financial Action Task Force
mutual evaluationmethodology.
Findings –The AML/CFT regulatoryframework for MFIs/MFPs is inadequate but improving. The money
laundering and terrorist financing risks posed by microfinance are low and so is the capacity of many
providers to comply with AML/CFT obligations. Given the low risk, there is space to simplify AML/CFT
requirementsfor this sector in a manner that will better align financial inclusion and financialintegrity policy
objectives.
Research limitations/implications –This paper considers the implementation of AML/CFT
obligations of MFIs/MFPs based on existing studies as well as own research relating to compliance and
supervisory practices.Further empirical studies to determine for the wholemicrofinance sector could provide
a more granularunderstanding of crime risks and compliance capacitiesin the sector.
Practical implications –AML/CFT regulatorsin Vietnam can take concrete steps to simplify the AML/
CFT due diligence obligations of MFIs/MFPs and support these institutions to formalise and implement
appropriateAML/CFT measures.
Social implications –MFIs/MFPs play a vital socio-economic role by providing financialservices to the
poor. Appropriate AML/CFT control measures can enable these providers to continue providing these
serviceswhile strengthening economic formalisationand integrity goals of the government.
Originality/value –The paper provides novel supervisory perspectives on the AML/CFT regime in
relationto MFIs/MFPs.
Keywords Microfinance, Vietnam, Developing country, Financial inclusion, Risk-based approach,
AML/CFT
Paper type Research paper
1. Introduction
Since the mid-1980s, Vietnam’s microfinance industry has played a meaningful role in the
reduction in poverty levels of Vietnamesepeople. Vietnam is, however, challenged to ensure
that this industry continues to thrive while also meeting its international anti-money
laundering and combating of financing of terrorism (AML/CFT) obligations. This means
that it must ensure that its regulation and supervision of this industry as well as
Aligning
financial
inclusion
595
Journalof Money Laundering
Control
Vol.22 No. 4, 2019
pp. 595-613
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2019-0004
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
institutional compliance of microfinance providers conform to the global standards set by
the inter-governmentalFinancial Action Task Force (FATF).
Ensuring an appropriate balance in relation to both AML/CFT and financial
development and inclusion policy objectives is vital. Lax AML/CFT controls providespace
for criminal abuse of the industry. Overly conservativecontrol measures, on the other hand,
not only undermine financial inclusion and the economic development benefits of the
microfinance industry but, by sustaining the informal cash economy, also limit the
effectiveness of AML/CFTmeasures (FATF, 2017, pp. 41-42).
This paper exploreswhether AML/CFT controls measures imposed on VietnameseMFIs
and MFPs and the current supervisory approach are appropriate. The assessment is
informed by the methodology for assessing compliance with the FATF recommendations
and the effectiveness of AML/CFT systems (FATF methodology) adopted by the FATF
(2013), as amended from time to time.
The paper commences with a brief literature review on microfinance and financial
integrity. It then considershow AML/CFT measures have been implemented in the industry
before investigating how the authorities supervise the implementation of AML/CFT
measures in MFIs/MFPs. The paper concludes with recommendations on addressing the
current deficiencies in the system and on a more effective approach that will promote both
financial inclusionand financial integrity.
2. Financial inclusion and anti-money laundering/combating of financing of
terrorism
2.1 Microfinance and financial inclusion
The Basel Committee on Banking Supervision defines “microfinance”as the provision of
financial services in limited amountsto low-income persons and small, informal businesses
(Basel Committee on Banking Supervision, 2010,p.1).“Financial inclusion”, on the other
hand, is generally used as a broader concept.The Global Partnership for Financial Inclusion,
for example, uses it to refer not only to the full range of financial products but also to
“effective access”,which essentially means:
Convenient and responsible service delivery, at a cost affordable to the customer and sustainable
for the provider, with the result that financially excluded customers use formal financial services
rather than existing informal options (GPFI, 2011, p. 15).
Financial inclusion, therefore, involves providing access to an adequate range of safe,
convenient and affordable financial services, especially to disadvantaged and other
vulnerable groups, for example, low-income, rural and undocumented persons, who have
been under-served or excluded from the formal financial sector. Financial inclusion also
involves making a broader range of financial productsand services available to individuals
who currently have access to only basic financial products (FATF, 2017, p. 12; Conroy,
2003). Microfinance development is a precondition for financial inclusion, as it focuses on
serving the majority of the population that has difficulty to access to formal financial
services, which mainly providesfor higher-income groups (Conroy, 2008).
In Vietnam, the terms “microfinance”and “financial inclusion”are often used
interchangeably. Given the focus of this paper, the authors will use “microfinance”as
defined by the BCBS, and our use of “financial inclusion”is similarly focused on the
provision of financial servicesin limited amounts to low-income persons and small,informal
businesses. These financial services include savings, payment, credit and insurance for
households and small businesses.
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