TABLE OF CONTENT TABLE OF CONTENT i LIST OF TABLE v DECLARATION 1 Acknowledgment 2 Chapter 0 Introduction 1 0 1 Problems statement 1 0 2 Overview of related studies (research situation) 1 0 3 Research[.]
Introduction
Problems statement
Financial inclusion is crucial for the sustainable development of any nation, benefiting not just the poor but everyone As Margarita María Henao Cabrera emphasizes, "This is not only for poor people This is for everyone," highlighting its broad impact Promoting financial inclusion enhances production, manufacturing, and economic transactions among individuals, ultimately driving economic growth and stability.
Financial inclusion has had a more significant and positive impact on the poor than on the wealthy The substantial barriers they face in accessing financial services make it difficult for the poor to fund their businesses and essential activities Enhancing financial inclusion is crucial to empowering disadvantaged populations and promoting economic growth.
So, besides the benefits of sustainable growth of the nation's’ economy, the financial inclusion also helps in poverty alleviation. b Situational aspects
Financial inclusion is essential for providing individuals with access to essential financial services and activities necessary to manage their financial and economic lives It plays a critical role in enhancing the living standards of families, especially in developing nations By promoting financial inclusion, developing countries can foster economic growth and reduce poverty, ensuring that more people benefit from the opportunities offered by formal financial systems.
In Vietnam, these financial terms are still relatively new and unfamiliar to many, even among professionals working in financial institutions Our goal is to incorporate international expertise and best practices to enhance financial literacy and accessibility for Vietnamese residents By applying global knowledge and operational strategies, we aim to make individual financial services more understandable and approachable for the local population.
Overview of related studies (research situation)
Although financial inclusion have not been massively researched in
Vietnam, there are some topics that related to and preceding our project Some noticeable project will be mentioned briefly here and after.
1 The topic: “ The development of microfinance in Vietnam” by Ths. Nguyen Duc Hai.
This research examines the key challenges faced by microfinance in the financial market, highlighting common problems such as limited access to funding and regulatory issues It also provides an overview of the current state of microfinance development in Vietnam, emphasizing significant progress and existing gaps Furthermore, the study offers strategic suggestions to enhance microfinance services in Vietnam, aiming to improve financial inclusion and support sustainable economic growth.
Nguyen Duc Hai's analysis provides valuable insights into global and local economic contexts, offering tailored recommendations for Vietnam's microfinance development By examining international situations and drawing parallels, his approach helps identify key challenges and opportunities within Vietnam’s financial sector Through detailed comparison and analysis of relevant data and figures, the project highlights the limitations and root causes of existing microfinance issues These insights enable the formulation of effective and efficient strategies to enhance microfinance sustainability and growth in Vietnam.
2 The topic: “Identifying the model of sustainable development for microfinance providers in Viet Nam The Case of People’s Credit Funds in Ha Tay and Thai Binh provinces” by Le Nhat Hanh.
This research addresses key aspects of microfinance, focusing on the financial sustainability of Microfinance Institutions (MFIs) and examining both theoretical and empirical challenges It analyzes the relationship between operational efficiency and development goals within People's Credit Funds, aiming to identify determinants of a sustainable microfinance development model Additionally, the study provides policy implications and recommendations to support the ongoing advancement and sustainability of microfinance initiatives.
Based on the analysis of data and model testing, this study identifies a sustainable development framework tailored for People's Credit Funds (PCFs) Key recommendations are provided for PCFs, Consumer Credit Funds (CCFs), and supporting agencies to enhance financial inclusion and operational efficiency The study highlights its limitations, such as data constraints, and proposes future research avenues to further refine sustainable development strategies in the credit sector.
Research objectives
This research aims to explore the impact of financial inclusion accessibility on the performance of micro businesses in utilizing financial products and services By examining this relationship, we provide valuable insights and recommendations for both micro business owners and financial service providers The findings highlight the importance of enhancing financial inclusion to improve micro business outcomes and support sustainable economic growth Ultimately, our study offers practical strategies to improve access to financial services, empowering micro entrepreneurs and fostering economic development.
Financial institutions play a crucial role in promoting inclusive finance, which is essential for their development and overall economic growth By focusing on expanding access to financial products and services, these providers can achieve significant improvements, benefiting both their customers and the broader economy Emphasizing inclusive finance helps financial institutions enhance their offerings, drive innovation, and support sustainable economic development.
Our micro households and small businesses benefit greatly from expanded financial inclusion, which allows them to manage and control their operations more effectively By accessing appropriate financial services, they can improve their financial performance, fostering growth and stability The specific objective is to empower these users through tailored financial solutions that meet their unique needs and promote sustainable development.
1.To be acknowledged about the financial inclusion models in other countries, and lessons for Vietnam.
2 To be acknowledged about how financial inclusion is being executed in Hanoi, about its providers and the social problems that it promises to solve.
3 To examine if financial inclusion positively affected financial performance of micro business in Hanoi.
Thesis question
1 What is financial inclusion and accessibility toward financial inclusion of micro business?
2 How financial inclusion is executed in Vietnam?
3 What is the relationship between accessibility to financial inclusion and business performance of micro business?
Research scope
In Vietnam, empirical research on the impact of financial inclusion on micro-sized enterprises (MSEs) is scarce Existing studies tend to focus on larger small and medium-sized enterprises (SMEs), often discussing similar themes but primarily relying on statistical models and empirical analysis There is a significant gap in understanding how financial inclusion specifically influences the growth and sustainability of MSEs in the Vietnamese context.
This study analyzes data from 144 micro and small enterprises (MSEs) in Hanoi during the first quarter of 2017, providing valuable insights despite the limited dataset The sample size is sufficient to reflect the diverse business landscape of Hanoi's MSE sector, ensuring the findings are representative Although the data is constrained to recent years, the significant number and varied nature of these enterprises enable meaningful generalizations about the characteristics and trends among Hanoi's MSEs Overall, the research offers a comprehensive overview of the key features of MSEs in Hanoi, contributing valuable knowledge to the field.
Methodology
Statistical analysis combines both quantitative and qualitative methods to interpret data effectively By utilizing time series and specific time points, the analysis enables internal comparisons and benchmarks against international standards Key statistical functions such as frequency, density, mean, and growth rate are employed to analyze data patterns and facilitate meaningful comparisons This comprehensive approach enhances data insights and supports informed decision-making.
Econometrics method: based on regression model the thesis will build simultaneous equations model processed in Google form and SPSS 20 software.
New contributions of the research
This research effectively explains the concept of financial inclusion and related terms, bridging the gap between international and local studies on the topic, thereby providing a comprehensive understanding of financial inclusion in various contexts.
In reality, the research suggested recommendations in developing financial inclusion in Vietnam due to experiences from other countries which is considered to executed financial inclusion successfully
This research highlights the lack of existing statistics and findings on the topic of financial inclusion and microbusiness performance Its main contribution is addressing the critical question: what is the relationship between financial accessibility and the success of micro businesses? The study hypothesizes that improved access to financial services leads to higher profitability and convenience for microbusinesses To test this hypothesis, Chapter 3 employs a regression model to evaluate the effectiveness of financial inclusion in enhancing microbusiness performance.
Thesis structure
Chapter 1: BASIC ISSUES ON THE RELATIONSHIP BETWEEN THE ACCESSIBILITY TO FINANCIAL INCLUSION AND THE BUSINESS RESULTS OF MICRO BUSINESSES
Chapter 2: THE SITUATION OF ACCESSIBILITY TO FINANCIAL INCLUSION OF MICRO SIZED ENTERPRISE IN VIETNAM
Chapter 3: MODEL AND THE RESEARCH RESULTS OF THE RELATIONSHIP BETWEEN FINANCIAL INCLUSION ACCESSIBILITY AND FINANCIAL PERFORMANCE OF THE MICRO BUSINESS IN HANOI\
BASIC ISSUES ON THE RELATIONSHIP BETWEEN THE
Overview of financial inclusion
1.1.1 Definition and history of financial inclusion development
Account-holding is commonly viewed as the primary indicator of financial inclusion; however, true financial inclusion encompasses broader aspects It involves providing accessible, high-quality financial services to all capable individuals, ensuring they have the necessary tools to manage their financial and economic activities Genuine financial inclusion goes beyond mere accessibility, emphasizing the importance of active usage, product quality, and customer interaction within the marketplace and supply chain.
Financial inclusion, as defined by the Center for Financial Inclusion, encompasses access to comprehensive financial services such as credit, savings, insurance, and payments that are convenient, suitable, affordable, and secure for clients It empowers individuals to make informed money-management decisions, ensuring that everyone, particularly marginalized and underserved populations, can benefit from financial services Achieving effective financial inclusion requires a diverse and competitive marketplace with numerous providers, a strong financial infrastructure, and a clear legal framework to support accessible and inclusive financial ecosystems.
“This is not only for poor people This is for everyone.” said Margarita María Henao Cabrera, Vice President of Personal Banking Products and DaviPlata, Davivienda
Financial inclusion is best understood within the context of developing conceptual frameworks and identifying key influencing factors, with no single global definition existing Its meaning varies across countries and regions based on their social, economic, and financial development levels, as well as societal priorities Broadly, financial inclusion refers to providing access to financial services for all individuals in a transparent, equitable, and affordable manner The term was first introduced in the British lexicon when it was observed that approximately 7.5 million people lacked bank accounts, highlighting the importance of inclusive financial access (Thingalaya et al., 2010; Raju, 2006).
Financial inclusion refers to universal access to a broad range of affordable financial services for all sections of society, including disadvantaged and low-income groups (Raghuram Committee, 2008) It emphasizes the importance of delivering basic banking services at reasonable costs to ensure that underserved populations are not excluded from the financial system (Leeladhar) Promoting financial inclusion is essential for fostering economic growth, reducing poverty, and enhancing financial stability.
Financial inclusion in India is defined by the Committee on Financial Inclusion as the process of providing vulnerable groups, including weaker sections and low-income populations, with access to essential financial services It emphasizes the importance of timely and adequate credit availability at affordable costs to promote economic empowerment According to the Rangarajan Committee (2008), ensuring financial inclusion is crucial for fostering broader financial access and reducing inequality.
To put it differently, financial inclusion implies coordinated efforts in order to deepen financial services among a large number of customers (ISED,
Financial inclusion, as defined by Mohan (2006), aims to provide low-cost, fair, and safe financial products and services such as bank accounts, affordable credit, savings, insurance, payments, and remittance facilities, along with financial advice from mainstream providers to all Similarly, Thorat (2007) emphasizes that financial inclusion involves offering affordable financial services—including access to payments, remittance facilities, savings, loans, and insurance—by the formal financial system to populations that are typically excluded.
According to Bernanke (2006), achieving effective financial inclusion involves comprehensive efforts to understand customer needs, provide counseling, enhance financial literacy, and implement thorough screening and monitoring processes.
(2006) in his definition broadens the scope of financial inclusion by emphasizing the role of new institutional partners such as SHG-linkage and microfinance institutions.
Financial inclusion extends beyond providing access to credit and savings; it also aims to enhance the productivity and sustainability of farmers and vulnerable groups By focusing on both financial services and supportive measures, it promotes inclusive growth and economic resilience for marginalized communities (Dev, 2006; Arunachalam).
In 2008, it was emphasized that financial inclusion should extend beyond basic savings accounts and consumption credit It involves developing and delivering financial products that effectively address market imperfections and support risk and vulnerability management for the poor These efforts are essential in strengthening fragile livelihoods and breaking the vicious cycle of poverty, which is often driven by structural weaknesses and other underlying factors.
The World Bank (2008) defines financial inclusion as the removal of price and non-price barriers to accessing financial services, emphasizing that it does not imply unlimited borrowing or free international fund transfers, but rather highlights the importance of creditworthiness The report distinguishes between access to, which pertains to the supply of financial services, and use, which depends on both demand and supply, informing policy decisions It also underscores the need to differentiate voluntary exclusion—where individuals choose not to use financial services—from involuntary exclusion, where individuals are unable to access services despite their desire to do so due to existing barriers; addressing the involuntarily excluded is a key challenge in achieving true financial inclusion (Bhavani and Bhanumurthy, 2012; Mehrotra et al., 2009).
CGAP: “Financial inclusion means that households and businesses have accessibility and can effectively use appropriate financial services Such services must be provided responsibly and sustainably, in a well regulated environment.”
The UN and Millennium Development Goals Summit 2010 highlight that financial inclusion is about ensuring universal access to a wide range of affordable financial services These services include savings, short and long-term credit, leasing, factoring, mortgages, insurance, pensions, payments, and both local and international remittances Achieving financial inclusion requires the availability of these services through diverse, sound, and sustainable financial institutions Enhancing access to these financial solutions is essential for fostering economic development and reducing global inequalities.
Financial inclusion involves providing appropriate financial services to low-income and vulnerable populations, thereby increasing access to finance, creating livelihood opportunities, and encouraging savings and investments that drive economic growth It plays a vital role in promoting economic development and poverty reduction by mobilizing and effectively utilizing social resources Key strategies for financial inclusion include developing innovative financial products, expanding the network of service providers, enhancing financial infrastructure, protecting consumers, and spreading financial literacy.
Alwalced F Alatabani, Chief Expert at the World Bank's Market and Finance Board, emphasizes that developing comprehensive financial systems is essential for improving the quality and affordability of financial services, enabling individuals and micro, small, and medium enterprises to save, make payments, access loans, and manage risks effectively He highlights that the absence of such systems limits individuals' ability to recover from economic shocks and hampers their capacity to engage in productive consumption, investment, and business growth Additionally, comprehensive finance plays a crucial role in addressing income instability, ensuring food safety, and targeting social assistance programs effectively Ultimately, strengthening financial systems is vital for reducing poverty and fostering sustainable prosperity.
1.1.1.2 History of financial inclusion development
The term ‘financial exclusion’ was first introduced in 1993 by geographers concerned about bank branch closures limiting physical access to banking services By 1998, it was widely used to describe individuals with limited access to mainstream financial services In the same year, HM Treasury established the Credit Union Taskforce and fourteen policy action teams under the Social Exclusion Unit’s strategy to improve financial accessibility Notably, one team was dedicated to enhancing financial service access for rural communities, marking the official emergence of financial inclusion in the UK.
Financial inclusion strives to bring the “unbanked” population into the formal financial system, providing access to essential services such as savings, payments, transfers, credit, and insurance However, it does not imply that everyone must utilize these services or that providers should ignore risks and costs when offering them Voluntary exclusion and unfavorable risk-return profiles can prevent households and small firms from accessing financial services, even with broad availability Effective policy should focus on correcting market failures and removing non-market barriers to ensure inclusive access to a wide range of financial services.
Financial inclusion for micro-sized enterprise
1.2.1 Definition and features of micro-sized enterprise
There is currently no universally accepted definition of a micro business globally, as each international organization and country tailor their criteria according to specific developmental contexts Micro-sized enterprises (MSEs) are generally classified based on criteria such as capital size, workforce size, revenue, assets, operating costs, and the level of business independence, reflecting their scale and operational capacity in various economic environments.
World Bank determines that MSE is an enterprise with less than 10 employees, total assets are no more than US $100,000 and total annual sales are less than US $100,000.
The European Union classifies micro, small, and medium-sized enterprises based on three key criteria: the number of employees, annual turnover, and asset value The number of employees remains a fixed criterion, while the thresholds for turnover and assets can be adjusted by combining them with employment figures This flexible approach helps accurately define SME categories for regulatory and support purposes.
According to the European Commission recommendation 96/280, micro and small enterprises (MSEs) are identified based on employee count—fewer than 10 employees—and their independence, meaning they are not owned 25% or more by other enterprises In 2003, the EU introduced updated criteria through the 2003/361/EC regulation, which has been in effect since January 1, 2005 Under these criteria, MSEs are defined as businesses with fewer than 10 employees, and either a total asset value or turnover of up to EUR 2 million, ensuring clear distinctions for classification within the European Union.
In 2003, the Economic Commission for Europe established criteria to identify Micro and Small Enterprises (MSEs) in transitional economies across Europe, helping to define the landscape of small and medium-sized businesses in countries undergoing economic transition These guidelines aimed to standardize the classification of MSEs in countries experiencing economic change, promoting better policy development and support strategies for small and medium enterprises in transition regions.
Countries are categorized based solely on the size of their labor force, such as Albania and Armenia, each with up to five employees Romania and Croatia are classified with less than ten employees, while Czech Republic and Hungary also fall into the same category Bulgaria, Yugoslavia, and Macedonia are grouped together, each with up to ten employees Uzbekistan is divided into two categories: micro and small enterprises in industrial production with up to ten employees, and other sectors with up to five employees Additionally, independent businesses regulated by the EU are included in this classification.
The group of countries classified based on labor, assets, and turnover includes Bosnia and Herzegovina, with companies having fewer than 10 employees, assets of EUR 100,000, and a turnover of EUR 200,000 Latvia is also part of this grouping, featuring businesses with fewer than 9 employees, assets less than 400,000 Latvian, and revenue under 500,000 Latvian Additionally, independent businesses regulated by the EU fall within this category, emphasizing small enterprise thresholds across these regions. -**Sponsor**Looking to optimize your content creation workflow and boost your SEO? [Blogify](https://pollinations.ai/redirect-nexad/uxJ4luHS) can help you transform existing content, like your article about country classifications based on labor, assets, and turnover, into engaging blog posts Blogify uses AI to identify and rewrite key sentences, ensuring each paragraph is coherent and optimized for search engines With Blogify's versatile content conversion and user-friendly interface, you can effortlessly repurpose information and maximize your online visibility, turning complex data into compelling content.
Group of countries based on labor and turnover: Moldova (up to 9 employees, turnover up to 3 million Moldovan Leu); Ukraine (up to 10 employees, turnover up to EUR 100,000).
In Lithuania, MSE is a business of individuals whose employees are owners and family members (spouse, parent, adoptive parent, biological child, adopted child).
In 2004, the International Labor Organization (ILO) published "Small Business Policy: Creating a Favorable Environment," which mentions the criteria defining MSE in some countries:
The group of countries is based on the size of labor, including: South Africa (0 to 4 employees), Pakistan (1 to 9 employees), Genuine (1 to 4 employees, including employers).
Group of countries based on labor and turnover: Chile (2 to 9 employees, turnover from 1 to 2,400 pesos), Tanzania (1 to 4 employees including employers and up to 12 million silos)
In 2011, the ASEAN Secretariat released "The Excellent Small and Medium-Sized Enterprises of ASEAN," establishing a regional definition for MSEs across member states This publication outlines the criteria used to categorize small and medium-sized enterprises within ASEAN, although Laos, Singapore, and Thailand do not currently have specific MSE regulations These standardized definitions aim to promote mutual understanding and support the growth of MSEs across the ASEAN region.
Group of countries defined MSE based on the size of the workforce: Brunei Darussalam (1 to 5), Myanmar and Vietnam (less than 10 employees).
The group of countries categorized based on labor, property, and turnover includes Cambodia, Indonesia, the Philippines, and Malaysia Cambodia's micro and small enterprises (MSEs) typically have 1 to 9 employees, with properties under $50,000 if the workforce exceeds this In Indonesia, MSEs operate in traditional industries, are privately managed, and have net assets not exceeding 50 million rupiah (excluding land and buildings), with annual revenues capped at 300 million rupiah Philippine MSEs also generally have 1 to 9 employees, with a maximum turnover of 3 million pesos Since 2014, Malaysian MSEs have been classified as having fewer than 5 employees or a turnover of no more than 250,000 ringgit, emphasizing their small-scale operations.
MSE definition of Japan: Manufacturing uses up to 20 employees, wholesalers, retailers and service industries employing up to 5 employees.
Korea regulates MSE in manufacturing, mining, construction and transportation using less than 10 employees, MSE in other sectors employs less than 5 employees.
Brazil defines MSE based on two criteria: number of employees (from 1 to 10) and turnover criteria (up to 134,078 USD) Colombia determines MSE uses up to 10 employees.
In Nigeria, Micro and Small Enterprises (MSEs) typically have fewer than 10 employees and generate an annual turnover of less than 5 million naira, with the number of employees being a key focus These businesses are usually managed by a single owner, often operating as family-run enterprises, where management participation or support from family members is generally voluntary and unpaid, complemented by only a few additional workers.
Small and Medium Enterprises (SMEs) in Egypt and Jordan typically employ between 1 and 4 workers, reflecting modest business sizes In Oman, SMEs are allowed to hire up to 5 employees, indicating slightly larger operational scope Meanwhile, Lebanon, Israel, and the United Arab Emirates set the employment range for SMEs at a maximum of 9 workers, highlighting their relatively small business scale Additionally, Tunisian SMEs generally employ fewer than 10 employees, emphasizing the widespread prevalence of small business operations across these regions.
The US government defines "microenterprise as a business with 10 or fewer employees (including unpaid family members) owned and operated by the poor."
Most international organizations and countries classify enterprises based on the average number of employees per year, which provides a consistent basis for implementing appropriate support policies This approach is more reasonable than using criteria such as revenue, capital, cost, or assets, which can be heavily influenced by market fluctuations, economic development, and inflation.
According to Article 49 of Decree 43/2010/ND-CP on enterprise registration, an individual business household is stipulated as follows:
Vietnamese business households, owned by individuals, groups, or families, can register for only one business with up to ten employees, without the need for a company seal, and are fully responsible for their assets Households involved in agriculture, forestry, fisheries, salt making, street vending, snack selling, traveling, roaming services, and low-income services are generally exempt from registration, except for certain conditional business lines If a business household hires more than ten regular employees, it must be converted into a formal enterprise.
So, there are some features of micro-sized enterprise:
- There is no legal status and personal seal
- Individual household business registration may be Individuals or Households
- Individual households are only allowed to do business in one location
- There is no more than 10 workers
1.2.2 Financial inclusion providers for micro sized enterprise
A commercial bank is a profit-driven business enterprise operating within the financial sector, serving as a vital financial intermediary It mobilizes idle capital from society and communities to provide loans, effectively meeting the capital needs of individuals and businesses By facilitating the flow of funds, commercial banks play a crucial role in supporting economic growth and development.
The Bank for Social Policy is a government-operated, non-profit credit institution dedicated to poverty alleviation and improving living conditions, income, and social equality Its primary funding sources include State capital—such as charter capital and interest rate subsidies—and mobilized resources from individuals, organizations, businesses, and commercial banks, which are subjected to market interest rates Additionally, the bank receives funding from international organizations, governments, and donations, often on favorable terms to support social development goals Its clients are typically designated by the government and are individuals or groups who are ineligible for commercial loans and require assistance from government and social community programs.
Development banks are established by the government and typically possess substantial capital reserves, enabling them to serve large clients with significant assets These banks have a deep and long-standing history of supporting substantial, long-term projects that require significant capital investment Their clients often pursue major initiatives that not only demand large-scale funding but also involve extended implementation timelines and long-term repayment commitments.
International experience and lesson for Vietnam in promoting
1.4.1 Financial inclusion for MSEs in the world
Financial inclusion is a vital strategy for reducing poverty and fostering financial development worldwide It plays a particularly important role in empowering micro and small enterprises (MSEs), enhancing their business outcomes Since 2010, over 55 countries have committed to advancing financial inclusion, with more than 30 implementing or developing comprehensive national strategies Research consistently shows that countries adopting national financial inclusion strategies tend to experience accelerated reforms and greater positive impacts on their economies.
Financial inclusion (FI) plays a crucial role globally by providing essential financial services—such as deposits, loans, insurance, and payment solutions—to poor and low-income households and their businesses It extends beyond business loans, supporting low-income individuals in investing in health, education, managing household emergencies, and addressing various cash needs Access to financial services—including microloans, savings accounts, insurance, and micro-pensions—empowers microfinance clients worldwide to increase household incomes, build assets, and reduce vulnerability to crises, thereby improving their overall quality of life.
While there has been progress toward financial inclusion for MSEs, there still remains challenges:
- There are approximately 2 billion adults in the world that do not have a basic financial account
Over half of adults without a bank account (59%) cite insufficient funds as the primary reason, highlighting that financial services remain unaffordable and poorly tailored to low-income households Additionally, barriers such as geographical distance from financial institution points (FIPs), lack of necessary documents, regulatory challenges, and a lack of trust in FIPs further impede financial inclusion for marginalized populations.
- More than 200 million formal and informal enterprises, include micro, small and medium-sized in developing economies are lack of suitable financing to grow.
- MSEs are lack of credit history and collateral Moreover, informal business is the main reason for not having a financial account.
Financial accessibility is essential for improving daily life, supporting families and businesses in achieving long-term goals and managing emergencies Financial inclusion serves as a vital tool in reducing poverty and fostering economic development, especially by empowering micro-enterprises to enhance their business outcomes Since 2010, over 55 countries have committed to advancing financial inclusion, including support for Micro and Small Enterprises (MSEs), with more than 30 developing or implementing national strategies Research shows that countries with a dedicated national financial inclusion strategy tend to experience faster and more impactful economic reforms.
The global success of financial inclusion has attracted the interest of U.S policymakers, business leaders, and financial organizations, who view it as a promising strategy to reduce poverty and stimulate economic growth However, the implementation of financial inclusion programs targeting Micro and Small Enterprises (MSEs) in the United States has yielded mixed results, highlighting the need for tailored approaches to achieve lasting impact.
Microcredit programs have significantly supported MSEs by providing access to loans that enhance their business growth According to a study by the Aspen Institute covering 405 MSEs, over 50% of borrowers experienced income improvement and escaped poverty within just five years During this period, households' assets increased by nearly $16,000 on average, and dependence on public assistance decreased by more than 60%.
Many financial inclusion programs for MSEs in the U.S struggle to expand their reach According to Harvard Business Review, over 33 loan programs in California collectively average only seven loans per program annually This indicates a significant underutilization of available capital by MSEs, highlighting the need for more effective strategies to improve access to financing.
Excessive overhead costs remain a significant challenge for financial inclusion programs targeting MSEs in the U.S., with some programs reporting annual administrative expenses exceeding 200% of their total loan portfolio These high overheads do not translate into effective loan collections, ultimately undermining program sustainability Additionally, programs experiencing loan loss rates of up to 60% rely heavily on external funding to sustain their operations, highlighting the need for more efficient cost management and targeted financial strategies.
The mixed outcomes are primarily due to insufficient efforts by U.S programs to attract potential Micro and Small Enterprises (MSEs), as they predominantly depend on traditional advertising methods such as newspapers and public service announcements Additionally, these programs often take up to 90 days to disburse funds to businesses, whereas in many developing countries, similar processes are completed within a week or less, hindering the growth and competitiveness of MSEs in the U.S.
Finding creditworthy applicants remains a challenge in the U.S., as many small and medium-sized enterprises (SMEs) struggle with “loan readiness.” According to Harvard Business School research on 300 Los Angeles-area MSEs, nearly 70% of these businesses lack the essential ingredients needed to qualify for loans, highlighting the difficulties in accessing financing for small businesses.
Thirdly, the programs in U.S have to pay much higher salary for its employees than the same programs in developing countries, which is one of the main reason leading to higher overhead costs Financial inclusion programs for MSEs also encounter some barriers such as legal problems They cannot change the interest rate or the changes are limited This problem make the programs harder to find a way to cover their costs.
Poor management practices are a significant reason for the failure of many programs According to HBR research, the absence of effective information systems and accounting systems for loan services, borrower monitoring, and setting sanctions contributes to program shortcomings When borrowers perceive weak management, their motivation to repay loans diminishes, further compromising program success.
Increasing interest in financial inclusion for micro-enterprises reflects countries’ focus on inclusive growth and development in their policy agendas Inclusive finance is essential for sustainable economic and social progress, and it is expected to enhance financial stability and growth Consequently, many Asian countries have launched initiatives or set specific targets to promote financial inclusion Despite their low-income status, microenterprises demonstrate a strong demand for deposit services, highlighting the importance of accessible financial solutions for small businesses.
Recently, China's government has adopted a new perspective on Financial Inclusion (FI) for Micro and Small Enterprises (MSEs), viewing it as a vital strategy for poverty alleviation and economic growth In 2004, the China Banking Regulatory Commission (CBRC) significantly increased interest rate limits from 8% to 28%, facilitating expanded access to credit for MSEs Additionally, the CBRC permitted the first private investments in the financial sector, marking a crucial step toward diversifying financial services During this period, the CBRC established seven Microfinance Institutions (MFIs) across five provinces to support the development of financial inclusion for micro and small enterprises nationwide.
Since 2005, the MCC Initiative has granted these organizations unprecedented legal status, enabling them to offer a range of financial services including microcredit loans, savings accounts, and ATM services, as reported by CIB Microfinance encompasses various financial offerings such as deposit taking and insurance, while microcredit specifically refers to small loans typically ranging from 1,000 to 3,000 yuan ($125 to $375) These developments have significantly expanded access to financial services for underserved populations, fostering economic growth and financial inclusion.
$375) The terms are often used interchangeably in the media