Often the lender and the applicant belong to the same neighbourhood, which increases trust but also the ability to monitor the family in debt. In Can Tho, for example, next to Ngoc Dung’s home, twenty-four private lenders fight over the same neighbourhood. Lé Van Tôt was able to do the work necessary to save his house, and still continue to send his children to school. To do that, he borrowed 3 million dong (approximately 105 EUR) and pays back 300,000 dong (10.5 EUR) per month. For a family with a small income, this is an enormous sum, and they can barely manage to repay the interest on the loan. There is a strong possibility that Lé Van Tôt and his family will be in debt for life unless they come across a new revenue stream. To repay his debt, someday he will need to take out a new loan, or accumulate loans in a vicious circle of debt that is widespread in Viet Nam. “When we don’t pay our debts, the lenders send people to abuse us,” Lé Van Tôt confides. This statement conveys a situation that is similar to the system of usury employed by the mafia. “Hasty judgment about the informal economy in Viet Nam should be withheld,” warns Nicolas Lainez. According to him, lending is a business like any other with its advantages and drawbacks. These professional creditors can be divided into two categories. The first category is comprised of chủ lớn (big bosses), and they are the ones in possession of money. They loan this money to the second category of lenders, retailers, the chủ nhỏ (little bosses), at a rate of between 3% and 5% per month. These retailers are the neighbourhood lenders or they lend to other retailers. “Money costs even more when it has gone through two or three hands,” the anthropologist points out, thereby explaining the exorbitant interest rates charged by private lenders. So the business is a double-edged sword. It makes it possible to get money quickly and at little cost. But it incurs a huge risk of debt. “It’s not rare to hear of private lenders going bankrupt or becoming indebted themselves because of too many outstanding loans,” Nicolas Lainez notes.
While many poor Vietnamese families are in debt stemming from the informal credit system, and can barely repay their loans (which are sometimes combined with bank loans), this practice is losing steam. A third of informal economy credit transactions were recorded in the 2000s while 77.5% of Vietnamese households used these loans in the 1990s. This sharp decrease is due, in particular, to macro-economic reforms implemented in the country during the Doi Moi in 1986, in conjunction with the poverty-reduction plans launched by the Vietnamese Communist Party. But since 2008, strong inflation, increase in the cost of living and the fact that certain free public services have become paid services (such as education or healthcare) have caused a shift back to the use of informal credit.
Today Ngoc Dung sells lottery tickets after school and thus takes part in the family economy. Her little six-year-old cousin, Nguyen Binh An is also looking for work. His father is a chiffonier while his grand-father is motorcycle taxi driver. But ever since the inhabitants of Can Tho have acquired the means to pay for their own motorcycles, that line of work no longer brings in very much revenue. Ngoc Dung and Binh An belong to a generation that some would willingly refer to as “those left behind by economic growth”. However, both attend school. They have support. Their parents don’t hesitate to take on debt so that in the future, thanks to their academic efforts and their work, they can finally leave their misery behind and come to the aide of their family. In the small and dirty houses of the Can Tho slum, “hope” is not an empty word.
Sidebar : Where does this informal credit system come from?
Specialists say that informal credit is a practice that has existed everywhere from time immemorial. In southern Viet Nam however, some explain its significant development was a by-product of the presence of the prosperous Chinese community during the period of French colonialism.
At the time, the Chinese living in Viet Nam were indispensable business partners, particularly in the sale of rice, pepper, wood and opium. The widespread diaspora and their tendency to loan money to both the rich and the poor without distinction quickly made the Chinese community a vital and choice ally for the French, who wished to turn Saigon into the “new Singapore”. Every bank and large trading house had their Chinese business agent and representative.
But the Chinese met a formidable adversary in 1875. The Bank of Indochina was created by France to control the Indochinese economy using its exclusive right to produce Indochinese piastres. To compete with that powerful institution in the business world, the Chinese community developed informal credit, which was already widely used in the Chinese tradition, on a massive scale. With the parallel economy in the hands of the ethnic Chinese, the Chinese community had a guaranteed place as primary intermediaries, both in commerce and in banking, thereby sapping colonial influence. This policy seemed to bear fruit. In 1936, the Chinese community held an estimated 46,000 hectares in Cochinchina. Even in 1972, out of the 32 existing banks in Saigon, 28 belonged to the Chinese.
Vietnamese families do not hesitate in contracting debts to ensure their children can attend school and build a brighter future for their families, but their position remains unstable as they are abused by an unfair arrangement which mostly benefits to the richest, leaving the poorest behind.
Text and photos: Antoine Besson. Originally published in Enfants du Mekong magazine.