Aligning financial inclusion and financial integrity: Regulating and supervising microfinance in Vietnam

Abstract

Purpose

This study aims to consider the anti-money laundering/combating of financing of terrorism (AML/CFT) regime that applies to microfinance institutions (MFIs) and microfinance programmes and projects (MFPs) in Vietnam to identify ways in which to improve the alignment between financial inclusion and financial integrity objectives in relation to this sector.

Design/methodology/approach

This doctrinal study is informed by the Financial Action Task Force mutual evaluation methodology.

Findings

The AML/CFT regulatory framework for MFIs/MFPs is inadequate but improving. The money laundering and terrorist financing risks posed by microfinance are low and so is the capacity of many providers to comply with AML/CFT obligations. Given the low risk, there is space to simplify AML/CFT requirements for this sector in a manner that will better align financial inclusion and financial integrity policy objectives.

Research limitations/implications

This paper considers the implementation of AML/CFT obligations of MFIs/MFPs based on existing studies as well as own research relating to compliance and supervisory practices. Further empirical studies to determine for the whole microfinance sector could provide a more granular understanding of crime risks and compliance capacities in the sector.

Practical implications

AML/CFT regulators in Vietnam can take concrete steps to simplify the AML/CFT due diligence obligations of MFIs/MFPs and support these institutions to formalise and implement appropriate AML/CFT measures.

Social implications

MFIs/MFPs play a vital socio-economic role by providing financial services to the poor. Appropriate AML/CFT control measures can enable these providers to continue providing these services while strengthening economic formalisation and integrity goals of the government.

Originality/value

The paper provides novel supervisory perspectives on the AML/CFT regime in relation to MFIs/MFPs.

Citation

Tran, T.T.H. and De Koker, L. (2019), "Aligning financial inclusion and financial integrity: Regulating and supervising microfinance in Vietnam", Journal of Money Laundering Control, Vol. 22 No. 4, pp. 595-613. https://doi.org/10.1108/JMLC-01-2019-0004