Recommendations and conclusion

ACKNOWLEDGEMENT This study will not be completed if the author was not received great contribution and support from serveral individuals and organizations Then I want to send sincere thanks to these i[.]

This study will not be completed if the author was not received great contributionand support from serveral individuals and organizations Then I want to send sincerethanks to these individuals and organizations

I am greatly indebted to my advisor Assoc Prof., PhD Le Thanh Tam for herunreserved help, advice, directing, insight guidance, critical review of my thesisdissertation, invaluable support from the first days of the author's implementation ofthis project

I am also deeply grateful National Economic University for offering me achance to conduct this study to finished my course

Finally, I would like to thank my family, friends and staffs of Agribank’s branchlocated in Bo Ha town who have wholeheartedly supported to help me finish thisresearch

Once again, I sincerely thank individuals and organizations and wish to dedicatethe success of this dissertation to these individuals and organizations

This study identifies factors that influence the decisions to participate creditsmarket from formal and informal sources in areas of the East of Yen The district – amoutainous area of Bac Giang province Employing information from Agribank Bo Ha– Bac Giang II bank’s branch and collected data through question people live this area,the econometric results reveal a set of factors that have a positive effect on the choices

of formal credit, but negative in the choice of informal sources From regression result,

we find out that income, education level, marital status, gender, and take a positiverelationship in option from formal credit but nagetive within the choice of informalsource Another factors that statistically explains only the choice of formal sourcesand a variable that only influences the use of informal sources (location) The studyhelps to improve our understanding of why participation in the formal sector in localarea remains low relative to its informal counterpart From the results, some keyrecommendations are proposed to improve quality of local institutional financialmarket as well as ceiling unexpectation corollary of local shadow credit market

LIST OF CONTENT

ACKNOWLEDGEMENT 1

ABSTRACT 2

LIST OF CONTENT 3

LIST OF TABLES 4

LIST OF ABBREVIATION 5

CHAPTER 1: INTRODUCION 6

1.1 Rationale: 6

1.2 Research Objectives: 9

1.3 Research Question: 9

1.4 Research Scope: 9

1.5 Structure: 11

CHAPTER 2: LITERATURE REVIEW 11

2.1 Theoritical Framework: 11

2.1.1 Overview about credit: 11

2.1.2 Overview about informal credit market : 17

2.1.3 Characteristics of the rural credit market in Vietnam: 27

2.1.4 The households and individuals participate in the rural credit market: 29

2.2 Literature review: 31

2.2.1 A brief literature view about determinants effect on credit accessibility: 31

2.2.2 Summery literature review: 37

CHAPTER 3: DATA AND METHODOLOGY 40

3.1 Data: 40

3.1.1 Methods of collecting data: 40

3.1.2 Method of depth – interview: 40

.3.1.3 Survey method through questionnaires: 40

3.2 Methodology: 41

3.2.1 Model research: 41

3.2.2 Explanatory variables of the study 42

3.3 Hypotheses: 45

CHAPTER 4 EMPIRICAL RESULTS AND DISCUSSION 48

4.1 Descriptive statistic result: 48

4.2 Regression result: 54

4.3 Result discussion: 57

4.3.1 Age: 57

4.3.2 Formal education level: 58

4.3.3 Gender: 59

4.3.4 Marital status: 59

4.3.5 Income: 60

4.3.6 Saving: 61

4.3.8 Occupation of respondent: 62

CHAPTER 5 RECOMMENDATIONS AND CONCLUSION 64

5.1 Conclusion: 64

5.2 Recommendation: 64

5.2.1 Recommendation for Goverment and relevant deparments and agencies : 64

5.2.2 Recommendation for local authority: 66 5.2.3 From Vietnam Bank for Agriculture and Rural Development perspective:.67

LIST OF TABLES

Table 2.1 Summary literature reviews 38

Table 3.1 The results of data collection are based on online surveys and distribution of offline interviews 42

Table 3.2.The hypotheses of each independent variable to formal credit accessibility .46

Table 3.3.The hypotheses of each independent variable to informal credit accessibility .47

Table 4.1 Statistical sample characteristics by factors 49

Table 4.2 Statistical sample characteristics by credit sources 50

Table 4.3: Distribution of participation in credit markets 52

Table 4.4:Destination of personal loans and others financial services 52

Table 4.5:Reasons for stopping participation in the formal credit market 52

Table 4.6: Reasons for not participating in the formal credit market 53

Table 4.7: Destination of informal credit 54

Table 4.8: Summary of data and correlation coefficient between variables 56

Table 4.8: Summary of data and correlation coefficient between variables 57

Table 4.10: Binary Logistic regression results of factors affecting credit accessibility of people in the East of Yen The district 58

LIST OF ABBREVIATION

Agribank Vietnam Bank for Agriculture and Rural Development

et al et alii, 'and others'

VBSP Vietnam Bank for Social and Policy

LUC Land Use Certificate

PCFs People’s Credit Funds

CHAPTER 1: INTRODUCION

Nowadays, institutional financial market have been taken great deal of attentionfrom all our society.The appearance of informal credit is uncontrollable, from urban torural areas across Vietnam Besides the contribution of informal finance to Vietnam'sfinancial market, its negative aspects and consequences are most noticeable In fact, inrecent years, the shadow credit market has caused many consequences for theeconomy and society, negatively affecting the lives of thousands of people andhouseholds Implicit forms of credit tend to diversify and are difficult to control bygovernment agencies It not only stop at the traditional forms such as usury, hir, they,wards, associations informal credit in the 4.0 period has developed on the onlineplatform in the form of money loan applications from prime banks, financial supportservices This situation makes unofficial credit market more easily accessible to people

in need of loans At the same time, it also causes more difficulties in thoroughlysolving informal credit, underground credit under the guidelines of the Ministry ofFinance, the State Bank of Vietnam and the Government

The fact is that bankruptcy, default and problems caused by informal credit tend

to occur more in rural areas across the country Not only that, the subjects affected bythese problems are often manual labor and small businesses Due to limitations infinancial infrastructure and financial literacy in rural areas across the country, they aregenerally lower than in urban areas As a result, people in these areas seem to be morelikely to opt for informal credit and are less likely to consider other credit optionswhen there is a need for a loan

The restriction towards the thorough disposal of unofficial credit is a challengeposed not only to the competent authorities, but also to the problem of our country'sfinancial system Banks are not outside "this fierce battle" In recent years, Agribankhas made significant contributions in the fight for informal credit restriction With thecharacteristics of a 100% state-owned bank, a network of branches and transactionoffices throughout the country, Agribank has been actively implementing theguidelines and directions of the State Bank, the Ministry of Finance as well asauthorities to reverse the problem of underground credit As one of the branches in thesystem of Vietnam Bank for Agriculture and Rural Development, Agribank Bo Ha -Bac Giang II branch always tries to limit the negative situation related to non –

institutional financial market locally However, branches also face many difficulties incoming from individuals and business organizations in the form of informal creditInparticular, in recent years, due to the prosperity of the economy and positive signalsfrom our country's capital market, the demand for loans of people in the province hastended to increase rapidly During this period, the restrictions on credit extension ofbank branches revealed the restrictions This has led many customers not satisfied withthe quality of local banking products and services At the same time, localunderground credit flourished, attracting a large number of customers In fact, localforms of underground credit have become one of the serious rivals of bank branches.

In fact, local financial activities are influenced by the cultural factors, customs andlifestyle of the local area Compared to banks, tacit credit seems to take full advantage

of the understanding of the above factors, making customers happy with their productsand services Despite having to pay a much higher cost for loans, many individuals andorganizations still decide to opt into the informal credit market Although a muchhigher level of risk is accepted than entering the formal credit market, borrowers andlenders in many cases still choose to opt for tacit credit Especially, this situationhappened in the eastern area of Yen The district long time ago Eventually in recentyears, along with the development of this area and country economy, the informalcredit market has grown strongly When looking back just a few years ago, there werebroken cases in many localities, many families were in distress because of the problem

of usury But the existence of informal credit is still well recognized and involved bymany individuals and organizations So, what are the factors affecting the people'sdecision to participate in the informal credit market in 7 communes and 1 town in theEast of Yen The district? Finding the cause of this situation will help localgovernments, authorities and credit institutions officially limit the development andimplications of underground credit

The credit market in rural areas in developing countries has received the attention

of many economic researchers all over the world It can be said that resolving theissues that are being posed to this market is one of the keys to improving poverty KHoff, JE Stiglitz (World Bank; 1993) consider rural credit markets to be the center ofintervention policies for economic development in developing countries over the pastdecades In developing countries, many stimulus policies, interventions and supportpackages have been issued by the government or implemented by non-governmentalorganizations However, most of these policies failed to achieve initial goals, such asimproving financial markets in rural areas or developing sustainable credit institutions(Adams, Graham, and von Pischke 1984; Braverman and Guasch 1986; Adams and

Vogel 1986) An adversity in the development of the rural credit market is theexpansion of the underground credit market Many studies on rural credit marketconsider the objective independent existence of formal and informal credits (Gan et al(2007), Pham Thi Thu Tra and Lensink (2007) and Li et al (2011)) find out the factorsthat influence households' decision to participate in the credit market According toKochar (1997), unofficial credit plays an important role in making decision toparticipate in credit market in rural India Along with that, research on the factorsaffecting the decision to participate in the non – institutional financial market alsoreceived much attention However, the conclusions on the factors affectingparticipation in the underground credit market are very different The cost of a loan isone of the most important factors influencing borrowers' decisions (Adams and Vogel(1986); Chung (1995)) On the other hand, according to Pham Thi Thu Tra andLensink (2007), the risk is the factor that borrowers consider most when makingdecisions to participate in the credit market In a study conducted in 1981 by Stiglitzand Weiss, they argued that asymetric information was a direct influence on decisionsmade by credit market participants Pitt and Khandker (1998) argue that geographicand economic factors influence people's informal credit market participation Theinformal credit in Vietnam has also received special attention from domestic andforeign researchers The research is mainly done sporadically but the importance ofthis market is mentioned in the studies of Pham Bao Duong and Izumida (2002),Putzeys (2002), Quach Manh Hao (2005) , Pham Thi Thu Tra and Lensink (2007),and Pham Dinh Khoi (2013) The studies are of particular interest to rural creditmarkets, rural informal credit markets, and the relationship between access to formaland informal credit sources, poverty reduction as well as regional economicdevelopment.

Informal finance studies are conducted mainly in rural areas ofdeveloped countries Most of these experimental studies are large-scale with many countries in different regions, and studying in manyrespects It seems that in recent years few studies have focused onanalyzing the determinants which impact on selecting decisions inparticipation credit market in rural areas especially informal creditmarket In addition, the role of the formal credit institutions such asbanks or microfinance organization have not discerned in acoincidence of fierce development of informal lending in smallcommunity For that reason, the aim of the author is figure out factors that makepeople tend to be choose informal credit market rather than formal with the help from

branch of Agribank in areas of 7 community at the East of Yen The district From that,some recommendations for authority and banks are offered This is exactlythe reason why this research is done.

1.2 Research Objectives:

 General Objectives: This dissertation aims at find out

factors which have impacts on decision making process of people inparticipating credit market with all the collected data andinformation from Agribank Bo Ha ‘s branch and people settle down inthe East of Yen The district

 Specific Objectives: First, we want to discern whether some

chosen elements have influence on people when they access to localcredit market The results of this study will provide additional scientific evidence

to support or disprove this relationship Second, figuring out factors effectinginformal credit market choice of local people is key idea Withknowing about these factors, formal credit institution could find away to prevent issues of shadow credit market Third, we want tofind the expectation of people had experiences in participatinginformal credit market From that, some recommendations areproposed to local bank branchs and other financial institution in YenThe district in order to drive the efficiency of local formal creditmarket In this study, Agribank Bo Ha’branch plays a role asoutstanding formal credit organization in privincial areas

 How to optimize the positive impact and vice versa?

 What banks should do to prevent the fierce development ofinformal lending at local areas?

1.4 Research Scope:

Scope of the study: The study was conducted in seven communes and one town

in the East of Yen The district, Bac Giang province

Reasons for choosing research area:

- Eight eastern communes is an economic center area of Yen The district withspecial geo-economic characteristics The location is located in the east of Yen Thedistrict The east is adjacent to Lang Giang district, Bac Giang province, the north isadjacent to Huu Lung district, Lang Son province with convenient transportationsystem including route 292 (Cau Go - Kep) connecting to 1A road, 242 roadconnecting Bo town Ha with the center of Huu Lung district town, Lang Son province.Not only that, the locality also has economic potential for fishing due to the passing ofThuong and Soi rivers In recent years, the local mineral mining output has increasedsignificantly, creating many jobs for local labour workers force Due to favorabletransport conditions to areas with minerals such as coal, limestone the local miningindustry promises to become a key economic sector of the locality Yen The has longbeen famous for its "hill chicken" specialty, one of the main domestic animals Thequality of local poultry has long been affirmed by the mountainous terrain and thelong-standing experience of poultry care Forest product exploitation in recent yearshas also been promoted The area of hills and mountains in the locality is dominant, so

it is very suitable for the cultivation and exploitation of forestry products With suchstrengths, it will create favorable conditions for development and expansion of localindustries such as transportation, forest product processing, handicraft processing ofconstruction materials, havrvest fruits tree crop, keeping cattle and livestock

- In fact, the area of 7 communes and one local town has only one branch ofVietnam Bank for Agriculture and Rural Development, with no transaction officesunder the branch Besides, branches of Vietnam Bank for Social and Policy orVietnam Development Bank are not available in the survey area All services of thetwo banks are implemented by a commune or town staff Basically, this form has notbeen effective due to the fact that it has not really been able to reach the subjects whoneed to borrow capital in the area With this type of activity, it is difficult for bankcredit officers to cover and assess the needs and potential of a loan in a commune ortown unit On the contrary, when people in the area have a need for loans, the time andprocess until disbursement is relatively long In general, the financial infrastructure inthe area is rudimentary Access to financial services of local people in sevencommunes is extremely low For these reasons, local informal credit was flourished.The form of representation of local unofficial credit is also quite diverse, including:borrowing from friends, relatives and other relationships, pawn shop, mortgage, usury,

predator loans… Individuals and organizations operating in the above forms arepresent in all communes and towns Especially, many establishments have held high-interest loans or high-value property pledges for many years in the locality, whichhave received the trust and support of local resident Informal credit has become astrong competitor to the banks Informal credit channel are becoming the choice ofmany locals However, the factors that affect the decision-making process of financialparticipation in the region are not yet uncertain.

The area of seven communes and a town in the east of Yen Thedistrict has geographical features favorable for economicdevelopment and expansion Local economic potentials have beenexploited However, besides the limitations on the topography andintellectual level of the local people, then the level of people 'saccess to credit is relatively low The informal credit market hasexisted for many years and gained the support of locals, eventhough it has caused consequences for many families The policies

to promote the development of local financial markets for localities

of authority and agencies have not really been effective There are

no official studies on the status of the local unofficial credit market.Local authorities and local formal credit institutions do not seem tounderstand the needs and expectations of customers Theunderground credit market is responding very well to the demand forcredit of local people The development of local financial marketshas not kept pace with economic development Therefore createdobstacles for the promotion and improvement of the economy of thestudy area There should be solutions to untie the credit bottlenecks

in the locality to develop the local economy

1.5 Structure:

The structure of the study consists of 5 chapters, not includingappendices and references

Chapter 1 Introduction

Chapter 2 Literature review

Chapter 3 Data and Methodology

Chapter 4 Empirical results and Discussion

Chapter 5 Recommendation

CHAPTER 2: LITERATURE REVIEW

Or credit is the borrowing relationship, the use of mutual capital betweenborrowers and lenders based on the principle of repayment

Credit is a category of commodity economy, with the process ofbirth, existence and development along with the development ofcommodity economy Credit has the following important properties:

- Credit is primarily a transfer of the right to use an amount (incash) or property (in tangible asset) from one subject to another,rather than changing its ownership

- Credit always has a term and must be "refunded"

- The value of credit is not only preserved, but also enhanced bycredit income

 Fuction of credit:

There are three function of credit:

 Concentration and redistribution capital function

This is the most basic function of credit, thanks to this function,the monetary capital in society is regulated from "surplus" to

"deficitation" to use to develop the economy

Both focus and redistribute capital are implemented on theprinciple of repayment so credit has a clear advantage, it stimulatesidle concentration of capital by mobilizing and promoting the use ofcapital for the needs of production and life, making the efficiency ofusing capital in the whole society increase

 Saving cash and circulation fees for society function

Credit activities facilitate the introduction of credit circulationtools such as promissory notes, checks, payment cards, etc.,replacing cash circulation and reducing the cost of printing money,transporting and preserving money Through the Bank, customers

can transact with each other by bank transfer or clearing and alsothanks to credit activities, the capital sources in society aremobilized to use for production and circulation In general, thecapital transfer rate in the whole society increased.

 Control bussiness activities function

Through circulation of credit sources in the economy, the Statecan control the production activities and business activities ofborrowers Especially with rural credit market where GOV couldmoniter the destination of credit sources of households andindividuals through their borrowing purposes and their use of capital.From that, the rural development situation can be closely monitoredand appropriate adjustments made as needed

2.1.1.2 Credit relationship:

In the commodity economy, at the same time there are alwayssome people who temporarily have excess capital, have idletemporary capital and need to lend Besides, there are always somepeople who are temporarily lacking in capital and need to borrowmoney This phenomenon gives rise to an economic relationshipwhose content is capital shifted from temporary surplus places todeficient conditions provided that repayment of the loan principaland interest is the profit gained from the use of the loan This is thecredit relationship

Credit, which comes from Latin as credo - is trust, credibility and

is defined in many different ways:

- Credit is the borrowing relationship on the principle ofrepayment

- Credit is the process of centralizing and redistributingmonetary capital or in kind on the principle of reimbursement

- Credit is the temporary transfer of a value from the owner tothe user so that after a period of time, it will recover a value greaterthan the original value

- Credit is the transfer of capital in the form of currency or inkind of an organization or individual to another organization orindividual for use within a certain period of time on the principle ofrepayment

-Credit from the viewpoint of modern economists is: “On thebasis of trust, it means that lenders rely on borrowers to use capitaleffectively and timely repayment of both capital and interest ”.

 -Louis Baudin defined credit as: "an exchange of current assetsfor a future asset"

  Although there are concepts of credit in different expressions,

it can be summarized as follows: In the credit relationship, the lenderonly cedes the right to use the capital to the borrower for a time.However, the borrower must return the loan without giving theownership and the borrower must return it to the lender when thetime is agreed This reimbursement is not only a preserve of valuebut is also increased in the form of interest rates

2.1.1.3 Theory about credit acessibility:

Credit is a scarce resource and the borrower's ability to accesscredit depends on the lender's risk assessment Access to creditbegins with the theory of credit demand of an individual or ahousehold with the utmost expectation of their expectation fromborrowing from credit providers Each unit of money has its ownopportunity cost, which is the interest rate, so the decision toprovide credit depends on the interest rate However, Stiglitz andWeiss (1981) show that the demand-based credit supply anddemand theory cannot explain the borrower's ability to accesscapital due to the decision that credit supply is not adjusted byinterest rates in the market while lending decisions depend on howthe lender chooses the borrower based on the borrower'sinformation

According to Stiglitz and Weiss (1981), asymmetric information

in loan contracts makes it impossible for lenders to distinguish thelevel of risk between a low-risk borrower and a high-risk borrower,and the level of risk try to repay the borrower's loan Asymmetricinformation creates problems of adverse selection and moral hazard.The problem of adverse selection arises in the process of selecting aborrower, in which the distinction between a low-risk and a high-riskborrower is reflected in the interest rate However, raising interestrates to compensate for the high transaction costs of loans can

eliminate borrowers with low risk of borrowing, resulting in lendersonly lending to high-risk projects Ethical risks relate to thesupervision and implementation of the lending mechanism Inparticular, the ability of the borrower not to make an effort to repaythe loan after receiving the loan because they know the lender bears

a portion of the risk In general, lenders decide to extend credit andhow much to grant based on a set of information they obtain fromthe borrower This means that not all borrowers will receive creditwith the loan profile Aghion and Morduch (2005) point out thatcredit restriction is a common problem faced by small-scaleenterprises and farmers regardless of their ability to repay debt

In other words, the credit flow does not simply follow the supplyand demand theory, it is a deliberate process in which individualsapply for a loan and then the lender determines the amount of theloan based on how Lender's assessment of the borrower (Aleem,1990) Lamberte and Llanto (1995) observed lending activity in therural financial market in the Philippines and suggested that lendingactivities were divided into three phases: screening, decision(accepting or rejecting), and Determine the loan amount Insummary, credit flows depend on the market structure and thenature of asymmetric information Adams and Vogel (1986) arguethat in the centralized credit market, the information is lessdispersed, lending decisions tend to be rigid, so transaction costs arehigh On the contrary, with the level of dispersed information andflexible financial markets, the transaction costs of lending operationscan be reduced

2.1.1.4 Form of formal credit:

Credit research often focus on analyzing certain criteria such astime, borrower, purpose and expression of capital and creditrelationship Each of the above criteria is a different classification toform different types of credit

a,Based on the term in the established credit relationship: Based on loan duration, credit is divided into short-term,medium-term, and long-term credits

+ Short-term credit: is a loan with a term of no more than 12months.

 Purpose: To meet the working capital needs arising in thecourse of production and business activities of enterprises on thepurchase of raw materials and production costs Short-term creditsare useful when used as working capital or as a supplement toworking capital For small-scale livestock farms, it helps householdsbuy seeds, buy food, fertilizer, pesticides or hire workers

+ Medium-term credit: Over one year to 5 years

 Purpose: Borrowing capital to repair, restore and replacefixed assets or improve production rationalization techniques, renewtechnological processes and build small works with quick paybackperiod

+ Long-term credit: With a loan term of more than 5 years

 Purpose: Using loans almost like medium-term credit butwith large-scale projects, the payback period is longer

b, Base on purposes of loans:

Based on the purpose of use, the credit loan is divided intocredit for production, circulation and consumption credit

  + Credit for production and circulation of goods: Meetingcapital requirements in the course of production and business inorder to reserve raw materials, lend production costs or meet theshortage of capital in liquidity relations payment betweenbusinesses

  + Consumer credit: Lending to meet consumer needs such asbuying to buy goods, building houses or other necessary facilities

c, Based on the expression of the loan

Based on the expression of credit loans, it is divided into cashcredit and in-kind credit

+ For credit in the form of a loan relationship, such as borrowingmoney from each other, participate in predatory loans by money ofothers, etc

+ Credit in kind form expressed on borrowing relationship isdone in kind of goods such as borrowing goods from each other,

particaipation in “hui” or “họ” with paddy, unpaid buying andselling…

d, Based on entities participating in the credit relationship:

Based on subjects in credit relationship, credit includes thefollowing types:

+ Commercial credit: it is a credit relationship betweenbusinesses in the form of goods purchase and sale The legal basisfor determining the debt relationship of commercial credit is the debtacknowledgment This type of paper is called a promissory note ornegotiable note

+ Bank credit: It is the credit relationship between banks andother credit institutions with businesses and individuals Thecharacteristic of this type of credit is that both deposits and loansare made in monetary form

+ State credit: It is the credit relationship between the State andpeople of all strata or socio-economic organizations The stateborrowed capital from civil strata or socio-economic organizations byissuing bonds or treasury bills The State can lend to residents fromVietnam State Treasury (VST) under the Government's socio-economic development programs

 + Private, personal credit: This is a credit relationship between

an individual and a private loan with interest or between individualssuch as brothers, relatives, friends or neighbors

+ Some other forms of credit nature such as installment sales,pawn service or non-agricultural sale

e, Based on organizational aspect:

Based on the aspect of organization, credit institutions dividedinto formal credit and informal credit

+ Official credit: is a form of capital mobilization and lendingthrough formal credit institutions registered and publicly operatedunder the law, or subject to the administration and supervision of theGovernment water levels

"Formal credit is a form of credit organized according to nationallaws, including state and private banks, credit cooperatives andsome other forms," Frank Ellis said '

  This includes banking system, state treasury, people's creditfund system (PCF), financial companies, a number of savings andloan organizations funded by social organizations, non-profitorganizations domestic and foreign governments, internationalorganizations, programs and projects of sectors implemented withthe Government's credit capital and international monetary andfinancial institutions such as the World Bank (WB), AsianDevelopment Bank (ACB), International Monetary Fund (IMF) and theUnited Nations International Fund for Agricultural Development(IFAD).

+ Informal credit: is a credit made by organizations andindividuals outside the formal organizations These providersinclude: family and friends, lenders, traders, other suppliers, savings

or savings revolving organizations, installment sales, and evenmortgage servicing Fixed assets

2.1.1.5 The role of credit:

Firstly, as a tool of concentration and distribution of capital,credit contributes to reducing the idle cash coefficient, improvingcapital efficiency, contributing to the increase of the capital turnover,saving cash in saving and help to overcome monetary inflation.Thus helping to increase the flexibility of the economy

Secondly, credit contributes to providing a volume of capital forbusinesses, thereby increasing the scale of production and business,renewing equipment, applying new scientific and technical advancesand improving productivity labor and production quality, createcapacity and encourage investment in big projects, branches andfields that are important to the national livelihood and promote thedevelopment of production forces

Thirdly, Credit contributes to promoting the process ofexpanding the monetary exchange relationship between countries inthe region and the world

Fourth, Temporary credit supports consumption capital forresidents to improve their lives

Through credit relationships, low-income people and thedisabled have access to housing, transportation, phones, etc.Because they can use the installment loan method.

Fifth: As a tool of macro - regulation adjustment of the GOV.The economic structure is determined by the investmentstructure, but credit is decided by the investment structure TheState adopts the activities of commercial banks, mainly creditactivities to adjust the economic structure

2.1.2.Overview about informal credit market :

2.1.2.1 Concept of informal credit around the world:

There are many different views and perspectation about informal credit in theworld

Author Frank Ellis stated that "Unofficial credit is credit provided byorganizations and individuals outside the formal organizations (such as commercialbanking systems, people's credit fund systems, agencies," sponsor) do it ”

  German economic scholars argue that informal credit is “the mobilization ofnon-custodial sources, such as those of friends, relatives, lenders, gold and silvershops, etc officially not under the control of the State but still following certainprinciples, borrowers and lenders often have close social relationships, so help themavoid credit risks ''

  Economists in Indonesia say that credit is not a form of credit has not beeninstitutionalized

Professor Franz Heidhues said: “In most developing countries, the structure ofthe rural credit finance market consists of formal and informal institutions co-existingside by side The criteria for classifying formal and informal financial institutions andtheir activities are subject to the laws and principles in the financial market of theGovernment or banks? Therefore, unprofessional (or possibly semi-formal) financialinstitutions operating under the principles of the Government or banks are not calledinformal The informal finance and finance division includes people who specialize inlending money, traders, pawn shops, friends, cousins, credit group and savings-revolving organizations and others ”

Authors Le Xuan Ba and Tran Thi Que said that informal credit iscredit provided by organizations and individuals outside the formalorganizations

Author Lam Tri Dung claimed: “Informal credit includes directfinancial transactions between rural economic entities and indirectfinancial transactions without credit institutions operating within theframework of the Law on Credit Institutions (temporarily calledregular credit institutions) ”

Some Vietnamese authors state that: "Unofficial credit is creditprovided by organizations and individuals outside the formalorganizations", this category includes lending with usury, playingmiddlemen, surname, job pawn loans, loans from friends andrelatives

Although these forms of informal credit operate outside theframework of the law, it has great significance in providing andsupplementing investment capital for the economy, especially inhouseholds when the capital market The official is not strongenough

 In short, informal credit is a form of credit that operates in thefree market style, not under the control or direct managementand supervision of the State authorities at all levels

2.1.2.2 Characteristics of informal credit:

Informal credit is an important form of credit relations in rural areas It is similar

to the formal credit of supply, demand, prices, etc However, the informal credit alsohas the following characteristics:

Firstly, informal credit has many forms of participation, in terms of scale, interms of participants and types of loans

Second, informal credit operates purely on mutual trust The lender is based onthe creditor's ability to repay the debt, to determine whether to lend or not, theunsecured loans, only based on the debtor's debt acknowledgment borrow withlenders Therefore, forcing borrowers to pay the loan is very difficult and expensive.Therefore, lenders should carefully screen borrowers before lending

Third, lenders are ready to meet the needs of the borrower atany time, regardless of the working hours When the borrower needsand agrees to pay the lender a so-called price (interest rate) under

an agreement that a transaction can be made

Fourth, diversity of scale, amount of capital provided and loanperiod Borrowers can borrow very small amounts of money in a veryshort period of time

Fifth, interest rates depend on the relationship between theborrower and the lender If the borrower has a good relationship withthe borrower, the interest rate may be lower than the interest rate ofthe borrower who has no relationship with the lender like sibling,friends, relatives, etc.

Sixth, the credit market is divided, interest rates vary fromregion to region

Seventh, the risk of debt default of lenders when borrowers become insolvent due

to the application of high interest rates, this risk increases with the support of the law,the risk of the loan project increases So, lenders lose because the probability of failureincreases with interest Therefore, lenders often target borrowers with a lowerprobability of failure (risk)

* According to Hoff and Stiglitz, the informal credit market also has thefollowing problems:

- Screening: Due to different ability to pay debts

- Monitoring: Difficult, it is necessary to set up an incentive mechanism

- Coercion: It is difficult to force borrowers to repay

  * To resolve this problem, you can use either of the following mechanisms:

- Indirect mechanism: Creditors design contracts in such a way as to obtainspecific information of each potential borrower about the level of risks in theirprojects; encourage them to make the necessary efforts to reduce their solvency

- Direct mechanism: Creditors invest in screening potential borrowers andforcing them to pay their debts

2.1.2.3 Form of informal credit:

Non - institutional credit apppears in most villages, communes, residential areas,even in offices This form of credit meets an important part of the capital needs ofresidents

  There are currently the following major forms of informal credit:

a, Private credit (predatory credit form):

Private credit is a credit activity of exclusive owners who specialize in lending.They consisted of private money traders and some of the rich in the countryside Ingeneral, the loans of these lenders are largely self-owned, very few are other sources.The borrowers are usually individual producers, small traders who haveunexpected, short-term capital needs for production, business or to cover a due

financial liability and households poverty needs to borrow for living needs in the harvest months.

pre-The loan procedure is very simple, requiring only a signed contract between thetwo parties, even in many cases only need an oral agreement between the two parties.The lender understands and trusts the borrower The interest rate, term, and mode ofpayment depend on the relationship between the lender and the borrower The loanmay be in cash or in agricultural products

b,Groups of credit, credit self-cooperation:

The most common forms of informal credit cooperatives in rural areas are “hui”,

“ho” or “phuong”

 They are a form of customary property transactions based on the agreement of agroup of people gathered together to determine the number of players playing, playingtime, playing money, playing game bastard, bailiffs, and rights - obligations of theirmasters and their members “Phương”(surname) is the main form of informal creditthat is very familiar to our people, especially to farmers and small traders “Phuong” isthe result of the need to cluster and solidify each other in life and business to increasestrength to survive in a fiercely competitive environment

 Although they have different names in each locality, the same economic content

is the informal cooperation of households on credit This form of credit is quitecommon in rural areas and has the following characteristics: It is a form of capitalcontribution according to the prescribed level of a certain group of people together tocreate a larger amount of capital for someone in the history group Use for a specifiedperiod of time Demonstrate cooperation and frugality in creating capital for each otheramong neighbors Individuals participating in this form as both lenders and borrowers.However, the way it works varies by form

c, Lending from friends and relatives:

This is a form of credit among relatives, brothers, friends, villages In rural areas,this form of credit is very popular and diverse, not just a credit relationship, but also atraditional blood relation This borrowing relationship often happens when farmersface unexpected difficulties such as production risks, families with big jobs such asfunerals, weddings, house construction, sickness, etc invest for production The loan

is completely supportive, helping each other without interest

d, Predatory lending:

Merchant credit is a form of buying and selling subject to goods among traders,providing services The business owner who sells the goods is the lender, the buyer isthe borrower In this credit relationship, loan capital is in kind, paid capital is in cash,

simple borrowing procedure is just the delivery of goods and supplies and the signing

in the purchasing book (debt book) of the goods owner The repayment period isusually based on the production and business cycle, the interest is calculated on theprice of goods and supplies when lending or not including interest depending on therelationship between the buyer, the seller, the characteristics of the goods and amount

of debt This interest rate usually fluctuates greatly from 0 - 5% / month

e, Pawn shop

This is a short-term loan from pawn owners The borrower brings valuableobjects to the pawnbroker and is entitled to a loan that usually does not exceed 70% ofthe value of the mortgage at the agreed interest rate and time When the loan is due,the borrower must pay both the interest and the principal to recover the pledged object

If this is not possible, the pawnshop owner has the right to dispose of the pledgedproperty

g, Pre – selling commodity:

Pre-sale of products means the pre-sale of harvested products such as harvested young rice, un-harvested fruit trees, unexposed cattle, etc to a certain ownerfor debt payment or need money to solve something in the family

un-2.1.2.4 The objective existance of informal credit beside formal

credit:

In the rural credit market, informal credit remains fairly common

as an objective indispensable need in most developing andunderdeveloped countries

According to research by Karla Hoff and Joseph E Stihlitz: “Theformal and informal sector coexist, despite the official interest ratebeing much lower than the interest rate calculated in the informalmarket Because of its convenience in lending, the private sectorcan lend without a mortgage, loan at 0% interest rate, the borrowercan borrow at any time ”

Professor Franz Heidhues said: "In most developing countries,the structure of the rural credit financial market consists of formaland informal institutions co-existing side by side."

The reasons for the existence of informal credit forms in thefinance market is:

- Formal credit institutions do not have sufficient access to allstrata of society, in particular formal credit often ignores the poorbecause they are people who cannot afford collateral

According to a World Bank survey of poverty assessments inVietnam, “Poor farmers have access to the most formal credit andget most of the credit from the informal market with high interestrates much more than the formal area they can reach ”

- The weakness of credit institutions: Depends on governmentagencies, weak risk assessment techniques, weak governance, hightransaction costs The procedures are still rigidity with a long waitingperiods Besides, the distance from Agribank’branch or VBSP tohousehold settlement is too far

- Asymmetric information: Information asymmetry exists whendifferent lenders have different information about their debtors (Hoffand Stiglitz (1999); Quach (2005)) For local creditors it is oftenadvantageous to monitor debtors, while formal credit institutionsfind it difficult to carry out the necessary oversight

Thus, informal credit exists mainly based on the shortage ofmoney in the demand of the credit market, in addition it is due tosome more convenient reasons than formal credit as:

-

-

-

-

-

on the relationship between the borrower and the lender

-

Nehman (1973) conducted a study on a Brazilian credit marketand found that many farmers in need of small loans did not borrowfrom the formal sector, because when considering the actualborrowing costs (including interest rates) and the cost of loantransactions), small loans from the informal sector will become moreattractive than those from the formal sector

  These are the absolute advantages of informal credit thatformal credit cannot obtain The existence of informal credit is not

only non-contradictory, but also complementary to formal credit inproviding credit to farmers.

Therefore, the existence of informal credit is an indispensablefactor in the economy It is not only meant to complement the formalforms of credit, but also from the actual needs of the economy Inthe course of economic development, as soon as the formal financialinstitutions become stronger, cover most of the credit activities insociety, the forms of informal credit still exist, in which a Not onlydoes the number of forms disappear, but they also tend to grow

2.1.2.5 The role of informal credit on market:

According to the authors Loren Bandt and Arthur Hosios: " Households everywhere need extra credit and they are willing tolook for informal credit "

Although formal credit has increased significantly in recentyears, informal credit remains a major force in the rural creditmarket While unofficial informal credit plays an important role inrural financial services, the activity of this sector is particularlyimportant for the poor

“Informal credit can be an important factor to strengthen formalcredit services.” According to research by author Kim Thi Dung,informal credit has the following roles:

- Informal credit is complementary to formal credit in providingloans to people in places and times where formal credit has not beenpromptly provided

- On the market side, informal credit is the object for formalcredit development

- Informal credit plays an important role in timely responding tocredit for people in both production and consumption Especially, it isvery important for poor households, those who are not yet well-off,those who have not yet been able to access formal credit

 Thus, informal credit plays an important role in providingcredit to rural areas It allows farmers and those in need of loans to

be able to borrow capital quickly and promptly to solve urgent tasks,difficulties and problems in production and business as well as dailylife of households farmer In fact, it is undeniable that the positive

aspect of informal credit contributes to the development of the localeconomy in particular When people's credit needs have not beenmet or met by official banks and credit institutions, implicit creditinstitutions exist and address these needs

2.1.2.6 Shadow credit in Vietnam:

Informal credit has not been adequately assessed both in terms of its objectiveexistence and its role In the past, informal credit, especially in private money, wasoften prohibited Since the renovation, along with the diversified product marketsystem, informal credit has also grown in scope and scope Informal credit hasprovided an important part of the capital needs for production and consumption ofpeople not only in rural areas but also in urban areas

Informal credit market in Vietnam is crucial element help to drive thedevelopment of nation economics It should be viewed as a nessity factor rather than

an evil (Nicolas Lainez;2014)

According to a study by Quach Manh Hao in 2005 on access to credit andreducing poverty, policymakers in Vietnam are generally pursuing policies to supportthe poor to access credit but These policies have failed to achieve the basic objectives

of the credit support policy

According to a report on the results of the Vietnam Living Standards Surveyconducted by the State Planning Committee and the General Statistics Office in 1992-

1993, up to 72% of rural households borrowed capital from the non-state sector.official

The results of a survey on the loan situation of 201 farmer households in 3districts of the Red River Delta (Dan Phuong - Ha Tay, Kim Thi - Hai Hung, Tien Hai

- Thai Binh) in 1993 by author Kim Thi Dung show that : “Up to 79.9% of ruralhouseholds borrowed from informal sources, most of them are medium and poor.”Alan Johnson - Advisor of Rural Finance Program, Vietnam - Sweden RuralDevelopment Program, studied the organizations and credit service providers forVietnamese rural households More than 50% of rural households are dominated byinformal credit

According to a study by author Kim Thi Dung in 1999 on the rural credit capitalmarket in Gia Lam district - Hanoi, it was found that up to 80.9% of households withloans participated from the informal credit source , accounting for 45.3% of totalsurveyed households, 100% of poor households have to rely on informal credit to meetthe family's capital needs

Also according to the above study by author Kim Thi Dung: Most of thehouseholds borrowed from the informal sector to be used for the purpose ofdeveloping production and business such as buying breeds of materials, fertilizer,animal feed, for cultivating, raising animals, raw materials, materials for trades andtrading services However, a significant number of households borrow forconsumption (food, education, funerals, marriages, house construction, debtrepayments), up to 14.9% of households and 3.6% Loan sales for this purpose Inwhich 36.4% of poor households borrow informal loans for consumption purposes There are many forms of informal credit in Vietnam, which are very diverseand plentiful depending on the locality Specifically, there are some forms as follows:

-

-

This form of service providers understand their customers, goodmanagement is encouraged by the members' personal interests Butthere may be a risk of currency depreciation, which cannot collectsavings between cycles, so the loan amount limits the member'sability to save during the period of rotation

Private loans are a flexible and diversified form of credit,suitable for the size of small, short-term loans (hot loans), interestrates are higher than bank interest rates Payment is flexible andcan be in cash or in kind depending on agreement between lenderand borrower

This method is convenient for customers in time and place,service providers always understand their customers However,these services are high prices for the poor, often short-term loans,interest rates may be high, the poor can borrow but it is difficult to

pay both principal and interest, leading to interest from the motherand her children vicious cycle of debt.

- Pawn shop loan: The borrower pledges his or her property, orjust his possessions, in exchange for a much lower value of theproperty After a specified period of time, if the loan amount(including interest) is not paid, the property or property will belong

to the pawnshop owner

This form is also quite popular in some localities as well as insome countries in the world However, this form is not popular butonly a temporary solution in some emergencies

- Sales by installments, business credit: The seller agrees to sellhis goods to the customer without having to pay at once, the number

of payments and the initial amount to be paid will be agreed.between buyer and seller Prices of goods are also determinedspecifically for each customer and each payment type

 This form is now very popular everywhere, both urban andrural It allows buyers to buy more goods for themselves with a fixedinitial price and the seller can sell more goods, in addition the seller

is entitled to a portion of the installment interest of the above goodsvalue

- Pre-sale of products: This is a form of sales that does not haveany goods in hand, sell the estimated number of products yourfuture will have (sold before the harvest season) Prices have beennegotiated in advance between buyers and the seller, until theseason comes no matter how much the market price changes, theprice of the product does not change The difference that falls in theperson that he must bear, as it is his risk

Although informal credit in rural Vietnam is so strong, there is

no sanctions yet, no legal documents regulating and managing theoperation of these forms, on lending rates max Whether or not onlytheir / their form of activity is mentioned in the revised Civil Code.However, it has only been mentioned and acknowledged activities,encouraging credit relations in the form of mutual assistance, butthere has been no document to guide implementation of this draft.Specifically :

Article 463, Draft Civil Code amended:

1 Playing them, poker, wards is a form of customary property transactions based on the agreement of a group of people gathered together to determine the number of players playing, playing time, playing money hah, recurring lordship, manner of chiefting, and rights - obligations of the employer and the members of the gang.

2 Play with the purpose of helping people in accordance with the provisions of law and being protected by the State.

3 It is strictly forbidden to organize play in the form of usury with the aim of illegally gaining profits.

2.1.2.7 Informal credit in others developing countries all over the

world:

- Bangladesh: The unofficial credit market is very large.Operators in this market include local lenders, merchants in themarket for outputs and inputs, vendors, landlords, friends andneighbors These deals are personal and the market is highlysegmented

- Mexico: Also bears common characteristics of credit markets indeveloping countries Formal and informal credit co-exist andcomplement each other in this South American country For Mexico,severe conditions are assumed, since, taking the World Bank'sGlobal Financial Inclusion indicators (2018a) as a reference, only10.4% of Mexicans obtained a loan from a formal financial institution

in 2014, while 26.0% obtained credit from relatives or friends , that

is, approximately 2.5 times more informal than formal For 2017,reports from the same source indicate that 5.7% obtained loans fromformal sources and 14.0% from family or friends

- Thailand: The underground credit market in Thailand has along standing history alongside the formal credit market In thisdeveloping country, the existence and development of informalcredit is considered a challenge or in other words, this problem isalways a big deal with economists The underground credit marketoffers different benefits for different income groups of ruralhouseholds Due to the benefits of the informal credit market,

limiting its growth and expansion is difficult for the Thai government(Carmen Kislat, 2015)

- India: As in Bangladesh, the informal credit market is verylarge Operators in this market include local lenders, merchants inthe market for outputs and inputs, vendors, landlords, friends andneighbors In India, women's savings and lending institutions arevery active in the form of credit groups Together they contribute avery small amount (about 10-20 rupies monthly), which is used forlending to group members, the principle of determining the firstrecipient of the loan is based on the following principle:

 + Priority to the owner

 + Determining the necessity of each member

 + Plan for using the loan

 + Solvency of members

- In rural Africa and Asia: the financial market is found to bepartitioned accordingly according to local and bloodline boundaries.Credit between people of the same village or bloodline account for97% of the total transaction value Mortgages are seldom used.Lending transactions across local or bloodline boundaries is rare It isfound that, even in rural areas where formal credit institutions exist,local market share and descent still occur

2.1.3 Characteristics of the rural credit market in

Vietnam:

Vietnam's agriculture and rural area currently accounts forabout 70% of the population and more than 72% of the labor forcebut accounts for less than 25% of the total outstanding loans to theeconomy of the credit institution system In addition, the averagegrowth rate of lending to agriculture and rural areas of this region isalso lower than the average growth rate of lending to the wholeeconomy every year

The rural credit market in Vietnam structures with both formaland informal finance exist side by side (for details, see T.T.T Tra andLenisk 2002) The formal sector led by Vietnam Bank for Agricultureand Rural Development (Agribank) has been holding to carry out anincreasing share in the market As of the end of 2018, the share of

the Agribank’s outstanding loans was 70% of the total provided byformal lenders The purpose of loans for rural households provided

by the bank is mainly agricultural production and keeping livestock.Most of agricultural loans have been short-term and medium -term production loans The given Agribank’s interest rates aredetermined within the interest rate framework specified by the StateBank of Vietnam (SBV) This exogenously predetermined interestrate policy significantly affects the business of the bank As Hoff andStiglitz (1993) pointed out that interest rates can function as anindirect screening mechanism for lenders to select good riskborrowers Therefore, as will be mentioned later, the bank couldovercome this situation by employing other devices to screenapplicants.To spur rural development, the SBV allowed ruralhouseholds to borrow up to 10 million Vietnamese Dong (VND)without collateral from the Agribank 1 When collateral was required,

a household could offer their Land Use Certificate (LUC) with valuespecified by the government as collateral Officially, land use pricesdetermined by the government are generally lower than those inmarket transactions The question that arises here is given theuncertain existence of the land market, whether LUCs as collateral isreally meaningful There are few cases where land has beenliquidated in the event of a farmer’s collapse It may serve only as akind of threat for rural borrowers to comply with credit contracts.Facing such a situation, the bank has employed various devices tosecure their loans First, the Agribank has a nationwide networkdown to the village level Second, the Agribank’s loans enjoy the fullsupport of rural organizations including political and administrativeorganizations as well as the indigenous village groups This isembodied in the group-lending technique Group-lending can taketwo forms:through joint liability groups (JLGs) and through jointborrowing groups (JBGs) in which lending goes directly to groupssuch as women’s unions and farmers’ unions Note that in the lattercase, group members are not liable for the debts of other members.While this does not involve joint liability, it does provide for jointmonitoring functions 2 Women’s unions, farmers’ associations, 3

and other mass organizations already in place within villages, aregenerally involved in organizing these groups In addition, whenthese rural mass organizations formulate groups, they require theapproval of the local authorities This is the equivalent of the groupbeing acknowledged as credible within the village as well as bypolitical and administrative organizations This procedure relievesthe lender from having to investigate the creditworthiness ofindividual borrowers This lending technique appears to beparticularly suited to the mutual aid traditions and behavior patterns

of rural Vietnamese villages especially in the North The informationasymmetry problem (Hoff & Stiglitz, 1993) facing most developmentfinancial institutions in low-income countries has been eased inVietnam because of this unique factor Other than the Agribank,there are some institutional lenders such as the Vietnam Bank forSocial and Policy (VBSP), the People’s Credit Funds (PCFs), Vietnamfor Development Bank (VDB) and some other private andcommercial banks involved in rural lending such as RuralShareholding Banks (RSBs) They do not appear, however, to havegreat influence on rural financing or else their lending policies differfrom commercial lending principles Hence, in analyzing creditrationing, these institutions are not be referred to In addition, thereare also noninstitutional sources of funds such as moneylenders,distributors, Rotating Savings and Credits Associations (ROSCAs),relatives and friends This informal finance used to play a large role

in rural Vietnam In general, distinct features of the informal financialoperations RURAL FINANCE IN VIETNAM 321 are: (i) supplying short

or even very short-term credit for urgent and indispensable demands

of farming households that are usually not met by the formal sector;(ii) interest rates charged by the informal financial entities aregenerally higher than in the formal sectors and there are widedisparities in interest rates in the informal credit market Borrowingfunctions of households are analyzed on the basis of the source ofborrowing—from formal or informal sources

2.1.4 The households and individuals participate in the

rural credit market:

Households and businesses are those with high capital needs

to smooth their bussinesses and support their life cycle In thecontext of scarcity of capital markets in rural areas, smallbusinesses, households and individuals with demand for loans oftenchoose to participate in both markets: institutinal and non -institutional credit market in their vincity

Borrowers always try to maximize the amount of moneyborrowed from formal credit institutions such as branches of VietnamBank for Agriculture and Rural Development, social policy banks,people's credit funds The mortgage for loans is mostly land,including farmland and household land, but also means productiontools and tools such as machines and valuable artifacts other value.These loans are usually medium-term loans Borrowers often find away to continue a credit contract after the previous contract expires.The reason is that the price of loans at credit institutions is relativelycheap compared to borrowing interest from the informal creditmarket Although the loan procedure is complicated, requires a lot ofdocuments, the processing time and the loan range are long.Besides, the amount of money that can be borrowed based on trustand collateral is often much lower than the real value, the type ofloan contract is not diverse But individuals and households with aneed for loans often look to credit institutions to be able to borrowfirst, in case the loan is not needed immediately The reason is thatcredit institutions operating in rural areas are under themanagement and administration of the state (in the case ofAgribank, currently still 100% state owned), because So theseorganizations receive absolute trust from the borrowers However,financial infrastructure in rural areas of our country must also bementioned In general, in rural areas across the country, the financialinfrastructure is still underdeveloped, people's choice of financialservices is very limited For example, in rural areas, the presence ofcommercial bank branches with diverse financial services, goodservice quality is almost nonexistent It can be said that people inrural areas do not have many options when participating in theformal financial market In recent years, it can be said that the

financial market on a national scale in general and in rural areas inparticular has experienced significant development and qualityimprovement The changing efforts of the banking and financeindustry are clearly visible Therefore, a part of people living in ruralareas are satisfied with using financial services Clearly, the servicequality and capacity of local bank branches and credit institutionshave improved and changed significantly compared to only 5 yearsago It is this improvement that makes a part of people who do nothave regular access to a variety of financial services and formsgenerate a sense of satisfaction with what benifited them by bankbranches and credit institutions

If the borrowers is unable to participate in the formal financialmarket or is not satisfied with services of financial formcomtemporary or the credit market at this time has not met theneeds of the customer, then entering into the informal credit market

is an option to fullfill their needs for capital There are two groups ofborrowers on the informal credit market First group, there are thosewho have credit contrains and unable to access to institutional creditsources Credit rationing happen to them may be because there is

no collateral for the loan or during the loan appraisal process, theborrower encounters reputation and honor issues The credibility ofthe borrower is a particularly important factor when it comes toparticipating in the local credit market The reason is due to thesocial and cultural characteristics of our country, in the villages, thevillage culture, the group culture has always been maintained andexisted in each hamlet Therefore, the credibility of the borrowerplays a particularly important role in whether someone can borrowfrom the formal and informal credit market When there is an urgentneed for credit, individuals will look to friends and relatives to seeksupport In the absence of social support, individuals are forced tolook to high-interest lenders in the informal credit market and try torepay their debt as soon as possible Loans from interest lenders inthis market are dozens, even hundreds of times higher than bankinterest rates, and borrowers are often bound by collateral In manycases, the borrower is bound to pay the debt and pay interest if he

or she doesn't want honor, the safety of himself and his family isthreatened Loans often serve the purpose of solving immediatefinancial difficulties or consumer loans in small amounts Such creditcontracts often have the potential to fail due to the borrower'sinsolvency or due to the borrower being able to pay the principal butunable to pay the interest due to the increase in interest fast.Second group, there are those who have not been satified with loansfrom formal credit sources These are usually small businesses andsmall businesses that need to borrow money to support theirbusiness cycle For this group of borrowers, the need for capitalneeds to be met as quickly as possible, so formal credit institutionsare often not their option In this case, participating in the informalcredit market is a mandatory option of the borrower No need orsimple collateral, borrowers can easily access capital but with a highinterest rate is inevitable The loan amount is often large, therepayment time is fast, so the borrower psychologically accepts arelatively high interest rate The procedure is streamlined, almostimmediately cashed out and the need for funds is only required in ashort time (the loan period is in days or months), so the borroweralways considers participating in the non-credit market Official first.

In addition, many individuals and businesses create a highreputation in the community, so it is easy to access the surpluscapital in the community with an interest rate equal or high muchless than bank interest rates This can be considered as a group ofhigh quality customers, because they have sufficient economiccapacity, adequate security assets but are limited by theadministrative procedures of the current financial system

2.2 Literature review:

2.2.1.A brief literature view about determinants effect on

credit accessibility:

The coexistance of formal and informal credit market is a

popular phonomenon all over the world particular in developingcountries (K.Hoff and J.Stiglitz)

There are a bunch of factor that frequently obstruct mobilizationprocess through formal channels such as problems of asymmetric

information, of incompatibility of incentives, institutional failures andtransaction costs (Jafee and Stiglitz, 1990; Besley, 1994; Con-ningand Udri, 2007; Giné, 2011).

The soci – demograhic factors and soci – economics factors playcrucial role in credit relationship These fators affect to bothborrower and lender in a credit contract (Yusuf et al., 1999;Omonona, 2000; Okunmadewa et al., 2005; Yusuf, 2006)

Imperfection market, (such as transaction cost, asymmetricinformation) is important factor prevent the poor from accessing tofinance services and credit market in Vietnam (Quach et al, 2005)Pitt and Khandker (1998) suggest that geographic and economicfactors affect access to credit markets Geo - economic factorsinclude network system, transport system and level of populationconcentration (population density)

David McKenzie, Christopher Woodruff (2008) points out thatfinancial market imperfections are factors that make it difficult forbusiness households to access credit In addition, the accumulation

of human capital of households is a factor that has a positive effect

on the ability of households to access credit in Mexico

Household income and especially the quality of education have

a decisive influence on credit access across the ages of Vietnameseyouth Meanwhile, over time, as an adult, the family income factor

no longer affects the person's ability to access credit Researchcontinues to claim that, as an adult, the quality of educationreceived by a person has the greatest influence on overall access tocredit (Yoon Sun Hur, 2016)

According to Kobil Ruziev and Peter Midmore (2014),understanding the demographics of borrowers is one of thestrengths of creditors in Uzbekistan Creditors of informal creditoften rely on these factors to look for high interest loan opportunitiesand a low-risk, stable income stream from loans Flexibility in loancontracts with the understanding of the characteristics of the localcommunity as well as the characteristics of the borrowers are the

factors that make creditors' success in the credit market black inUzbekistan

As result study of the formal and informal credit markets in fourprovinces and cities of Vietnam by Mikkel Barslund and Finn Tarp(2008), education level, credit history and differences ingeographical characteristics among provinces are the factors thatinfluence the informal selection of credit sources by householdsliving in rural areas

John E Akoten, Yasuyuki Sawada, and Keijiro Otsuka (2006)when studying the factors affecting the ability of small and mediumenterprises to access credit in Kenya, as a result, the age of theentrepreneurs has a profound influence on the choice of credit tosupport the circle capital of their business Young manager possesswith low levels of social capital Most of them have not reallyreceived the trust of formal credit institutions because their simplecredit history Hence they tend to opt informal credit rather thanbanks or local lendign funds In addition, gender is also one of thefactors influencing the choice of credit sources Accordingly, womentend to choose formal credit institutions such as banks or local fundsrather than men, while the participation rate in the shadow creditmarket is also lower compare to men Cause women is moretrustworthy from mainstream credit institutions than men in ruralareas, so they could access to formal credit forms easier than men.Guangwen and Lili (2005) try to discover factors which affect tocredit accessibility of farmers in Tongren district (China) by usingbinary Probit regression analysis model Authors have concluded thefactors affecting ability access to formal credit market is theeducation level and household wealth level; sources of income andencouraged policies for farmer of the locality; age, saving value andthe number of children under the working age in the household

Research on the shadow credit market and the relationshipbetween lenders - borrowers in this market in Thailand shows thatinterest rates are the decisive factor in selecting borrowers ofborrowers Moreover, lenders also use loan rates as a tool to