Small-scale financial institution Tinh Thuong One Member Co., Ltd. (TYM) still lacks receptiveness

(Baonghean) -On October 9, 2012, Nghe An newspaper published an article “Charity Fund… is there any charity?” reflecting: “Charity Fund” lends to women at excessively high interest rates and the fund takes advantage of the cover of charity to do business and evade taxes?

After the Newspaper published, on October 9, 2012, the Small-scale Financial Organization Tinh Thuong One Member Co., Ltd. (abbreviated as TYM - formerly Tinh Thuong Fund) sent Official Dispatch No. 108/CV-TYM to Nghe An Newspaper with the following content:

We see that the article has recommended that TYM should pay more attention to propaganda work, strengthen connections with functional agencies in the area where the Fund operates and must do a better job of inspecting and supervising the management, operation and implementation of tasks of TYM's staff at the grassroots level. The document also explains a number of issues raised in the article:

Firstly, TYM is a unit under the Vietnam Women's Union, providing microfinance support to poor women and receiving tax incentives.

TYM was established by the Vietnam Women's Union in 1992, as one of the Union's microfinance programs to contribute to the Government's poverty reduction program. With that purpose, TYM's mission is "Improving the quality of life of poor women through credit and savings support, creating opportunities for women to participate in economic and social activities, contributing to improving the status of women". In terms of legal status, TYM is a unit under the Union, performing political tasks assigned by the Union. Therefore, TYM's use of the name and image of the Union in TYM's activities and documents is in accordance with the law.

The Association has been licensed by the State Bank of Vietnam to establish and operate the Tinh Thuong Limited Liability Small Finance Organization (TYM) on the basis of converting the Tinh Thuong Fund under License No. 181/GP-NHNN issued on August 17, 2010. From this point on, TYM's activities are subject to inspection and supervision by the State Bank.

After being licensed, considering the nature of TYM's activities as a social enterprise, operating not for profit, TYM's tax payment will reduce its operating capital, which means reducing its ability to reach and support poor and low-income women, the Vietnam Women's Union has sent a document requesting the Ministry of Finance to consider exempting or reducing corporate income tax for TYM to use the exempted or reduced amount for the purpose of reaching and supporting more poor members. Recognizing TYM's positive contributions to poverty reduction, especially in remote, isolated and disadvantaged areas. On March 2, 2012, Deputy Minister of Finance Vu Thi Mai signed Official Dispatch No. 2818/BTC-CST to submit to the Prime Minister for permission to apply a pilot tax exemption and reduction policy for TYM Fund: tax exemption for 2 years from the time of taxable income, 50% reduction of tax payable in the next 4 years from the first year the small-scale financial institution Tinh Thuong LLC has taxable income. On April 2, 2012, Deputy Head of the Government Office Pham Van Phuong signed Official Dispatch No. 215/NPCP-KTTH in response to Official Dispatch No. 28/8/BTC-CST of the Ministry of Finance, accordingly, the Deputy Prime Minister, on behalf of the Prime Minister, agreed with the proposal of the Ministry of Finance in Official Dispatch No. 2818/BTC-CST.

Thus, it is completely legal that TYM has not yet paid taxes to the local budget.

Second, savings - a characteristic of microfinance and TYM. TYM requires each member participating in TYM to make a mandatory weekly savings payment with two purposes: To create a habit of saving for people from small amounts so that people can have their own capital after a period of participation, this savings is paid interest according to TYM's regulations. Second, to supplement the capital source to continue supporting loans to poor people in new areas, and at the same time increase the loan amount for customers in the next loans. Currently, the weekly deposit is 10,000 VND/1 member, not 1 million VND. On the other hand, TYM's mandatory savings mobilization is completely consistent with international microfinance practices and current laws in Vietnam. TYM's License issued by the State Bank of Vietnam also clearly states that TYM is fully entitled to mobilize mandatory and voluntary savings to serve its operations. These show that compulsory and voluntary savings products are legitimate and legitimate products.

Third, TYM operates on a completely voluntary basis.

Fourth, TYM does not take advantage of capital from many organizations and individuals to lend at very high interest rates. We would like to confirm that TYM does not take advantage of capital from any individual or organization. For capital obtained from savings mobilization, TYM is public and fulfills its commitment to calculate and pay savings interest rates. For capital borrowed from organizations, TYM fulfills its obligations stated in contracts and agreements signed between the parties, has approved the opinions of lawyers and registered with the State Bank of Vietnam. If there is information about capital abuse of organizations and individuals, we hope that you will provide it to us so that we can promptly adjust and handle it.

Fifth, regarding the fact that TYM is lending at high interest rates, we would like to clarify as follows: This is also a major concern of the Vietnam Women's Union and TYM. As a public service unit of the Union - the conditions to support the organization and operation of the apparatus are still too difficult (because it is only a mass organization); on the other hand, in carrying out the social mission assigned by the Union, TYM has spent a lot of money on training, community, educational, cultural, social activities... Most of the money for these activities is taken from TYM's operating results, accounting for an average of about 25% of annual operating results. In addition, with the characteristics of lending activities that are completely suitable and convenient for people such as lending small amounts (average 5 million VND/borrower), no need for collateral, the loan is paid in installments every week without creating a debt repayment burden, the loan is delivered directly to the people in each village and commune, every week the staff must go to each area where the people are living to collect principal and interest, carry out training activities/disseminate information in the cluster, and at the same time check and advise on the implementation of business projects. Personnel costs, costs for facilities and operating costs are therefore higher than the costs of normal credit activities. With such characteristics, TYM has also been allowed by the Government to lend at agreed interest rates according to Clause 4, Article 11, Decree No. 4/2010/ND-CP of the Government issued on April 12, 2010 regulating credit policies for agricultural and rural development. Based on the law's permission and the organization's cost calculation, TYM applies the current interest rate to cover costs, ensure sustainable operations and not cause a deficit of the 50 billion VND capital that the Government entrusted TYM with in early 2012 to provide capital for poor women.

Sixth, data on the performance of TYM - Nghi Loc Branch in the first 8 months of 2012, up to August 2012, the total outstanding debt of the branch reached more than 55 billion VND. Regarding performance results: the cumulative performance of the entire TYM after 20 years reached 78 billion VND. This performance result is used to continue to supplement the capital source to increase access to capital for low-income women, not for profit and not subject to tax.

With the desire to provide complete and accurate information to the people, we respectfully request that your newspaper promptly verify the information stated in the article and continue to share with TYM's activities. We hope that with the same goal of operating in accordance with the Party and State's guidelines and policies, your newspaper and TYM will find a common voice and have the most effective handling and coordination measures, bringing good results to the people.

First of all, Nghe An Newspaper and the author would like to thank the small-scale financial organization Tinh Thuong, which, after the article was published, readers gave timely feedback. At the same time, we would like to discuss the content of TYM's response to the information that the newspaper has raised as follows: TYM's response as above is still defensive, evasive, lacking in openness, and has not clearly answered the issues raised by the newspaper.

Regarding the lending interest rate, the article reflects that TYM lends at an interest rate set and currently implemented at 28%/year (loan amount of 10 million VND, payable in 50 weeks, 250,000 VND per week, of which 28,000 VND is interest, 20,000 VND is savings and 2,000 VND is insurance) which is too high and not 1.2%/month as TYM recommends. TYM believes that the lending interest rate is based on an agreement between the two parties. If so, then why does TYM recommend lending at an interest rate of 1.2%/month in printed documents? Is this due to an error in printing documents or is it intentional? On the other hand, even if there is an agreement between the two parties, the principle that TYM recommends for lending to poor and near-poor households must be followed, with a lending interest rate higher than the Policy Bank and lower than the Commercial Bank, and cannot do whatever it wants. Because this is a small microfinance organization "in terms of legal status, TYM is a unit under the Association, carrying out political tasks assigned by the Association", aiming to help the Government implement the poverty reduction program for women, and is using a part of the budget capital (50 billion VND) for lending. Also because the nature and purpose of TYM are different from other credit organizations, which are lending to poor and near-poor women with lower interest rates than commercial banks, the Government has a policy of tax reduction, exemption, and application of a corporate income tax rate of 20% throughout the period of operation. As for TYM's response to Nghe An Newspaper that it implements loans with agreed interest rates, it has turned TYM into a commercial credit organization. Thus, TYM enjoys preferential policies on tax exemptions and reductions according to Circular 116 and is called the Charity Fund, which is completely unworthy. With the current interest rate applied by TYM (28%/year), TYM needs to pay taxes equally like any other credit organization.

It should be added that Circular 116/2012/TT-BTC of the Ministry of Finance, signed by Deputy Minister Vu Thi Mai on July 18, 2012, effective from September 1, 2012 on "Guidelines for tax reduction and exemption for small-scale financial institutions, Tinh Thuong LLC", the time for calculating reduction and exemption is applied in the tax period of 2012 onwards, not all years 2010-2011 as TYM replied. This also means that in 2011, all branches of TYM operating in Nghe An had to pay taxes, but no branch registered to declare and pay taxes, which is a violation of the law.

In addition, the regrettable and serious mistake is that TYM - a financial and monetary business organization - a sensitive field "subject to inspection and supervision of the State Bank" but when operating in Nghe An, it did not have a written report to the State Bank Nghe An Branch and other local authorities.

Regarding savings, because the article reflects that each week the borrower must pay a mandatory and voluntary savings of 20 thousand VND, so at the end of the loan period of 10 million VND in 50 weeks, the borrower has a savings of 1 million VND (in fact, not 10,000 VND/week as TYM explained). This savings amount has been put into the loan capital by TYM, plus the amount of money the Government provides without interest so that TYM can lend at very high interest rates. Isn't that way of doing things exploitative?
Regarding the data on the performance of TYM - Nghi Loc branch in the first 8 months of 2012, in the article it was provided by Nghi Loc branch, so the discrepancy as TYM responded, please check again at TYM branch.

Small-scale financial institution with one member limited liability company (TYM) -