All systems are go for Capital Aid for Employment to the Poor (CEP Fund) to scale up and cover all 22 rural and urban districts in Ho Chi Minh City. This expansion and institutional capacity building program has been made possible by an A$5.5 million (US$2.9 million) five year grant from the Australian Government's Overseas Aid Agency (AusAID). This represents one of the first major commitments by AusAID to a Grameen Bank Adaptor (GBAR) in Asia and represents a logical outcome to CASHPOR's earlier two year capacity-building program, sponsored by the Consultative Group to Assist the Poorest (CGAP), in Vietnam. Indeed, it was CASHPOR that recommended CEP Fund to AusAID through the Grameen Foundation Australia.

CEP Fund, managed by Madame Nguyen Thi Hoang Van, was established in November 1991 and operates as an "action plan" of its parent, the HCMC Labour Confederation. It is currently reaching over 28,000 poor and poorest clients, 87% of whom are women, through 8 branches. Of its three financial services programs, one is based on the Grameen Bank methodology. This was started in 1993, specifically to extend microfinance services to the poor and the poorest women in regions surrounding Ho Chi Minh City. As of March 31,2001, the GB-style program was reaching 8,918 clients.

Despite its strong operational and financial statistics among the best of our CASHPOR members, CEP Fund has been unable to undertake large-scale expansion in the past due to a particular problem. The only source of significant domestic funding for MFis is the Vietnam Bank for the Poor (VBFP), which creates two separate but related problems:

	VBFP does not provide funding to cover operating deficits, which are inevitable when expanding;
	VBFP also requires that any funds borrowed from it, be on-lent to the poor at an interest rate of no more than 0.6% per month, (or 7.2% per annum) which will not allow for sustainability.

CEP Fund is committed to operating in a sustainable manner; since it cannot do so at the VBFP mandated rate of interest, it has foregone accessing these funds. It has, therefore, been limited to borrowing from the Government through the National Program for Hunger Reduction and Poverty Eradication and the HCMC Labour Confederation. Often these loans have not been of the amount required and have also been restricted in use.

CEP Fund's only clear path to significant scaling up, therefore, is to source funds internationally. But again, its hands are tied by local regulations. Its status as a "social organization" with a poverty reduction focus, allows it to charge sustainable interest rates, to a certain extent. However it is prohibited from receiving any loans in foreign currency. So CEP's only alternative is to access foreign grants, and any major grants must be approved by the Government of Vietnam. While it has received some smaller grants from NGOs and one private donor, large-scale funds from donors for microfinance have generally been unavailable. Despite a strong operational and financial track record and the institutional capacity to scale-up, CEP's fast track approach to poverty reduction was, therefore, impeded by rules and regulations outside its control. That was until CEP knocked on AusAID's door in May of 2000.

Like CASHPOR, AusAID believes in the power of the demonstration effect. It is hoped that the success of the expansion program with CEP Fund will highlight to the various microfinance stakeholders in Vietnam what can be achieved by an MFI when given the opportunity to scale-up its operations on a sustainable basis.

Of the total grant amount, A$4 million (73% of the total) is available for on lending. These funds will provide loans to 15,500 new clients and will also increase the loan size of approximately 5,000 existing clients. The remainder of the grant is for institutional capacity building, including training and recruitment to expand the management capacity of head office, physical facility expansion and improvement of quality assurance systems, management information systems and others. This financing indeed breaks new ground in Vietnam and promises large scale outreach to the poor and the poorest.

AusAID : A Growing Interest in Microfinance

Until recently, microfinance was not a major part of AusAID's development strategy. With an Australian Government commitment to increase the focus on microfinance, which resulted in the establishment of a dedicated microfinance unit in AusAID Canberra, in 1999, this is beginning to change. Stav Zotalis, stav-zotalis@ausaid.gov.au. together with Kieran Donaghue kieran-donaghue@ausaid.gov.au, have been working closely with individual AusAID country desks, to raise awareness and to facilitate the incorporation of microfinance, where appropriate, into country-specific aid programs. CEP Fund grant is a result of the close work between the microfinance unit and the Vietnam Desk. Opportunities in Bangladesh, the Philippines, Indonesia, and East Timor are currently being examined.

While it remains to be seen if large-scale funding, like that for CEP Fund, will become institutionalized in AusAID, funding (often limited) may be available through local AusAID offices, housed within the Australian Embassy or High Commission. We recommend establishing a track record with these local offices, which work cooperatively with the unit in Canberra, as soon as possible!