Evaluating the group lending development at the Viet Nam bank for agriculture and rural development: A case study in Bac Giang branch ii

Vietnam Journal 
of Agricultural 
Sciences 
ISSN 2588-1299 VJAS 2020; 3(3): 679-688 
https://doi.org/10.31817/vjas.2020.3.3.02 
https://vjas.vnua.edu.vn/ 679 
Received: June 1, 2020 
Accepted: November 10, 2020 
Correspondence to 
dqgiam@vnua.edu.vn 
Evaluating the Group Lending Development 
at the Vietnam Bank for Agriculture and 
Rural Development: A Case Study in Bac 
Giang Branch II 
Do Quang Giam1, Dao Thi Hoang Anh1, Vu Ngoc Huyen1, Lai 
Phuong Thao1, Dao Huu Bao2 & Do Thi Minh Van3 
1Institute Faculty of Accounting and Business Management, Vietnam National University 
of Agriculture 
2The Vietnam Bank for Agriculture and Rural Development-Bac Giang Branch II 
3Master student, University of Paris Dauphine & ESCP Europe 
Abstract 
Group-based lending is a form of loan provision for individuals and 
households in rural areas for production and consumption purposes. 
Proceeding from the imbalance between demand and supply on 
small-scale capital, and also Government policies on sustainable 
poverty reduction, the Vietnam Bank for Agriculture and Rural 
Development (Agribank) has coordinated with its local authorities 
and socio-political organizations to provide loan services via group 
lending. The purpose of this paper was to evaluate the status of group 
lending development of the Agribank-Bac Giang Branch II. The 
paper used secondary data collected from the branch and primary data 
gathered from 50 representative customers and 10 credit officers 
related the group lending of the branch. Data analysis methods 
consisted of descriptive statistics and comparative analysis, 
incorporated with the measurements for bank performance and 
quality. The findings show positive prospects in both the bank and 
customers for the development of group lending activity and 
obstacles in the group lending development of the branch. The paper 
also proposes some solutions for the branch to tackle difficulties and 
promote the development of group lending in the branch in Bac 
Giang province. 
Keywords 
Group lending development, microfinance, microcredit, Agribank, 
Vietnam 
Introduction 
Microfinance has developed in many countries for decades since 
it first appeared and succeeded in 1976 in Bangladesh with the 
purpose of poverty reduction, and since then, has propagated to several 
Evaluating the group lending development at the Vietnam Bank for Agriculture and Rural Development 
680 Vietnam Journal of Agricultural Sciences 
neighboring countries (Odongo & Lilian, 2013). 
Nowadays, it has become a useful tool for 
reducing poverty, enabling poorer households to 
build assets, increasing incomes, and decreasing 
a family’s vulnerability to shocks. In Vietnam, 
microfinance is identified as a credit service that 
provides low-income households and individuals 
with small loans without guaranteed assets to 
help them engage in productive activities or 
small start-up businesses, contributing to their 
enhancement of income and living conditions 
(Vietnamese Government, 2005). The formal 
system, organized from the central Government 
to the local levels in Vietnam, consists of the 
People’s Credit Funds, Vietnam Bank for Social 
Policies, and Agribank. The involvement of 
commercial banks in microfinance is extremely 
necessary to extend credit to meet the needs of 
households (Robin et al., 2002). Although the 
poor or low-income residents have great demand 
for financial services such as credit, savings, and 
insurance, it is very difficult for them to access 
credit by themselves, especially from formal 
credit sources, therefore, getting a loan via a 
lending group becomes a better solution for this 
problem. Realizing the importance and 
significance of lending groups, the President of 
Agribank issued regulations on lending for 
households and individuals through the 
group/mobile group in the Agribank system 
(Agribank, 2016). Accordingly, lending groups 
were voluntarily established from households 
and individuals living in the same settlement or 
unit, managed by the Vietnam Farmer’s Union, 
Vietnam Women’s Union, and other socio-
political organizations. The strength of this 
model is that Agribank has cooperated with these 
organizations to effectively provide loans to meet 
the needs of households and individuals via the 
lending groups. Through these organizations, the 
borrowers are guided to plan and manage 
consumption, investments, and income, as well 
as to cope with risks. 
The Agribank-Bac Giang Branch II was 
selected for a case study since the branch is one 
of the biggest commercial banks in Bac Giang 
province. In general, clients of the branch are 
small farm households living in rural and 
mountainous areas in Bac Giang province. 
Currently, the branch targets lending for 
agricultural production and rural development to 
gain benefits from the lending purposes, while 
narrowing down lendin ... c Ngan 135,998 18.12 199,462 21.44 235,998 19.24 46.67 18.32 
Lang Giang 110,555 14.73 155,666 16.73 196,892 16.05 40.80 26.48 
Yen The 88,688 11.81 103,442 11.12 166,882 13.61 16.64 61.33 
Son Dong 85,163 11.35 98,223 10.56 155,222 12.66 15.34 58.03 
Luc Nam 191,707 25.54 202,336 21.75 255,663 20.84 5.54 26.36 
Bac Giang City 43,868 5.84 45,665 4.91 48,665 3.97 4.10 6.57 
Bo Ha 68,998 9.19 98,556 10.59 138,558 11.30 42.84 40.59 
3. Classified by purposes 
For agricultural, production, and business 600,352 79.98 697,678 75.00 883,112 72.00 16.21 26.58 
For consumption 150,313 20.02 232,560 25.00 343,433 28.00 54.72 47.68 
4. Classified by forms of guarantee 
Without collateral 701,356 93.43 837,556 90.04 1,021,338 83.27 19.42 21.94 
With collateral 49,303 6.57 92,682 9.96 205,207 16.73 87.98 121.41 
5. Classified by loan terms 
Short and medium terms 287,505 38.30 384,188 41.30 570,343 46.50 33.63 48.45 
Long-term 463,160 61.70 546,050 58.70 656,202 53.50 17.9 20.17 
 Source: Agribank-Bac Giang Branch II (2019). 
Evaluating the performance of group lending 
development of Agribank- Bac Giang Branch II 
Table 3 shows that the ratio of total 
outstanding loans to total deposited amounts at 
the Agribank-Bac Giang Branch II increased 
over 3 years (2016-2018), and reached 81.29% in 
2018, which is a little bit lower in comparison to 
the average of the Agribank system in 2018 
(84.84%) (Agribank, 2019). For the group 
lending activities, although it accounted for a 
small proportion of the total outstanding loans, 
there was an increasing trend over 3 years (from 
11.3% in 2016 to 13.4% in 2018). The growth 
rate of outstanding loans through group lending 
was remarkable (23.92% and 31.85% in the 
period of 2016-2018), showing that the group 
lending activities attracted the participation of 
individuals and households. The average loan 
size per member of the groups was about 40-60 
million VND over the period, within the 
permitted limits from the confirmed information 
of loans without collaterals (the highest limit was 
100 million VND). The bad debt ratios of the 
group lending at the branch were small and had a 
decreasing trend over the period, especially in 
2018 when it was only 0.17%, lower than that of 
the direct lending method (0.53%) (Agribank, 
2019). 
Evaluating the service quality of the group 
lending 
In this section, we use primary data collected 
from 50 representative customers and 10 credit 
Do Quang Giam et al. (2020) 
https://vjas.vnua.edu.vn/ 685 
 Table 3. The performances of group lending at the branch in 2016-2018 
No. Norm Unit 2016 2017 2018 
1 Total deposits mil. VND 8,466,000 9,816,000 11,308,000 
2 Total outstanding loans mil. VND 6,635,000 7,807,000 9,192,000 
3 Outstanding loans of the group lending mil. VND 750,665 930,238 1,226,545 
4 Number of members persons 18,050 20,630 22,491 
5 Bad debt of the group lending mil. VND 1,880 2,050 2,080 
6 Growth of loans via the group lending % - 23.92 31.85 
7 Total outstanding loans/Total deposit= (2)/(1) % 78.37 79.53 81.29 
8 
Outstanding loans of the group lending/ Total 
outstanding loans = (3)/(2) 
% 11.314 11.915 13.344 
9 Average outstanding loans/Member = (3)/(4) mil. VND 41.59 45.09 54.53 
10 Bad debt ratio of group lending = (5)/(3) % 0.25 0.22 0.17 
 Source: Agribank-Bac Giang Branch II (2019) 
 Table 4. Cronbach’s Alpha Test 
Factors Cronbach’s Alpha 
1. For credit officers 
- Loan process and services quality 0.8523 
- Information technology 0.8073 
2. For representative customers 
- Quality of the group lending product 0.7155 
officers as mentioned above to evaluate the 
service quality of the group lending according to 
the following criteria: 
For the 10 credit officers: (i) Loan process 
and services quality with 4 observed variables; 
(ii) Information technology with 2 observed 
variables; 
For the 50 representative borrowers of the 
groups: Quality of the group lending product 
with 6 observed variables. 
Calculation results of Cronbach’s Alpha 
coefficients in Table 4 show that Cronbach’s 
Alpha is satisfactory (>0.6) and the observed 
variables have a total correlation coefficient of 
over 0.3. Therefore, it can be concluded that the 
variables used in this study are appropriate and 
reliable (Nunnally & Bernstein, 1994). 
Evaluations from the credit officers engaging 
in the group lending 
The credit officers assessed that it was not so 
convenient and simple to complete a loan 
application due to the large number of documents 
and stages. Therefore, in order to shorten the 
process and improve the service quality, most of 
the bank staff participated in short-term training 
courses on these issues organized at the 
Agribank-Bac Giang Branch II. However, the 
most important issue limiting the enthusiasm at 
work is that the remuneration policy is not 
appreciated by the credit officers. Besides, 
operation on the IPCAS system is sometimes 
very slow due to unstable internet connection 
quality, so this reduces the performance of the 
credit officers (Table 5). 
Evaluations from the customers of the group 
lending 
Under the implementation of group lending, 
access to bank loans for individuals and 
households has increased. Table 6 indicates that 
although the credit officers serve devotedly, 
customers of the group lending still believe that 
the loan process and procedures are quite 
complicated. It takes time for filling out and 
appraising applications to complete all the 
Evaluating the group lending development at the Vietnam Bank for Agriculture and Rural Development 
686 Vietnam Journal of Agricultural Sciences 
 Table 5. Evaluation of the credit officers for the group lending quality 
Criterion 
Scale (%) 
Mean Strongly 
disagree (1) 
Disagree 
(2) 
Neutral 
(3) 
Agree 
(4) 
Strongly 
agree (5) 
1. Loan process and services quality 
- Loan application is simple and fast 0.0 30.0 40.0 20.0 10.0 3.1 
- Loan procedure is quick 0.0 10.0 50.0 20.0 20.0 3.5 
- Credit officers are trained with improved 
qualifications 
0.0 0.0 30.0 60.0 10.0 3.8 
- Remuneration policy encourages credit 
officers 
0.0 0.0 70.0 20.0 10.0 3.4 
2. Information technology 
- IPCAS system can satisfy management 
requirements 
0.0 0.0 70.0 30.0 0.0 3.3 
- Internet quality is very good 0.0 50.0 40.0 10.0 0.0 2.6 
 Source: Surveyed data (2019) 
 Table 6. Evaluations of the representative customers of the lending groups 
Criterion 
Scale (%) 
Mean Strong 
disagree (1) 
Disagree 
(2) 
Neutral 
(3) 
Agree 
(4) 
Strong 
agree (5) 
- Loan process is simple 0.0 26.0 50.0 20.0 4.0 3.0 
- Service attitude is whole-hearted and 
thoughtful 
0.0 0.0 16.0 40.0 44.0 4.3 
- Levels of the loans and interest of the group 
lending is reasonable 0.0 16.0 56.0 24.0 4.0 3.2 
- Level of commission for the group leader is 
reasonable 0.0 32.0 44.0 24.0 0.0 2.9 
- Number of members in each lending group is 
reasonable 0.0 16.0 44.0 40.0 0.0 3.2 
- Utilities and services accompanying the loan 
packages are reasonable 0.0 46.0 54.0 0.0 0.0 2.5 
 Source: Surveyed data (2019) 
the procedures. While the levels of the loans and 
interest of the group lending are considered to be 
quite reasonable for small farms, some big farm 
households want to expand the loan sizes since 
each member of the group basically borrows 
within the permitted limits without collateral. 
The commission paid to the group leader has not 
yet been associated with the credit quality 
criteria, and the commission level is not 
attractive to encourage the group leader to 
present their responsibility to monitoring the 
activities of the group. Customers also reported 
that the number of group members is really 
appropriate. However, the products and services 
of the group lending associated with the loan 
packages are limited or not available, i.e., 
technology transfer or agricultural technique 
guides, so the agricultural activities of 
individuals and households are still based on 
their experiences, and this can easily lead to 
increased credit risk and decreased credit service 
quality. 
Conclusions 
With the focus on expanding the formal 
credit activities according to the government 
policies, development of group lending at 
Agribank-Bac Giang Branch II has achieved 
certain results. The credit balance has been 
Do Quang Giam et al. (2020) 
https://vjas.vnua.edu.vn/ 687 
expanded while the proportion of outstanding 
loans via group lending has increased in recent 
years. This reduces the workload of credit 
officers. In addition, the bad debt ratios of the 
group lending are controlled at low levels and 
have a downtrend over the years, which 
contribute to the reduction of the overall bad 
debts ratio of the branch and consequently 
increase the credit quality. However, through the 
evaluations of customers and credit officers of 
the group lending, some obstacles limit 
development of group lending such as the 
complexity of loan documents, lack of customer 
information management, unspecified 
regulations in the loan packages, and ineffective 
attraction to customers of the group lending. 
In order to strengthen the group lending 
development for the branch in Bac Giang 
province, some crucial policy implications 
should be considered by the government and 
president of Agribank such as (i) Building 
flexible lending mechanisms by improving loan 
processes and procedures; diversifying lending 
methods; increasing the level of loans without 
collateral or considering the form of security with 
future properties to create favorable conditions 
for borrowers in accessing bank loans; (ii) 
Consolidating and perfecting the network of 
customer information collection and processing 
for common use of the bank in order to reduce 
the time for loan processing; (iii) Improving the 
capability of credit officers in particular and bank 
officers in general based on the criteria of 
recruiting new employees, and requiring staff to 
participate in professional training courses; (iv) 
Strengthening the implementation and 
coordination between banks, local authorities, 
and social associations through seminars, and 
improving the responsibilities of the parties to 
achieve common benefits; and (v) Introducing 
mechanisms on commission levels to the group 
leaders by linking the payments to certain 
performances in order to create pressure for them 
as well as leverage that stimulates the development 
of the group lending, e.g., reducing overdue debts, 
bad debts, and actual interest rates. 
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