Strengthening legal frameworks to enhance governance efficiency of People’s Credit Funds in Vietnam

Abstract

People’s Credit Funds (PCFs) are cooperative financial institutions that play a vital role in delivering financial services to rural areas in Vietnam, promoting financial inclusion and reducing informal credit. However, the governance efficiency of PCFs is currently hindered by legal inadequacies, including regulatory overlaps between the Law on Cooperatives and the Law on Credit Institutions, restrictive provisions on geographical scope and personnel requirements, and a lack of effective supervision mechanisms. Based on a comprehensive review of existing literature analyzing the legal issues hindering the governance efficiency of People’s Credit Funds (PCFs), this paper proposes three key legal reform directions: (i) clarifying the scope of application between the Law on Cooperatives and the Law on Credit Institutions; (ii) strengthening multi-tiered supervisory mechanisms and establishing a system-wide protection fund; and (iii) considering the enactment of a dedicated law or the inclusion of a separate chapter on PCFs within the current Law on Credit Institutions. The study also draws on legal and governance experiences from countries such as Germany, the United States, and Canada to suggest reform pathways suited to Vietnam’s specific context.