Summary Doctor of Finance - Banking thesis: Factors affecting the credit access for individual business household in Vietnam - TRƯỜNG CÁN BỘ QUẢN LÝ GIÁO DỤC THÀNH PHỐ HỒ CHÍ MINH

Research objectives: To propose recommendations to promote credit access for individual business households in Vietnam In order to achieve the above goal, research needs to address the f[r]

INTRODUCTION

1 Rational

In the present conditions, access to formal credit and the role of formal credit

institutions are especially important in timely response capital for households to

supplement business capital, ensuring the production, business and service activities to

develop continuously and sustainably Loan processes as well as credit products are

particularly suitable for business households because of the state's preference for this

object Most of the studies mentioned have evaluated the access to credit (both formal

and informal) on paperworks, without considering access to credit by the internet,

especially in developing countries Therefore, research on the access to formal credit

of individual business households in Vietnam is currently essential, when Vietnam is

increasingly integrating into the world economy

However, the access to formal credit of individual business households is still

limited due to insufficient collateral, ineffective business plans, and slow access to

technology, etc This means that the access to credit of individual business households

is problematic Credit access is becoming urgent in order to fulfill the Party's

requirements in the upcoming time: both to support the development of official credit,

to partly support the development of informal credit (in a beneficial way), but still has

to limit loan sharking Stemming from the reasons above, the topic “Factors affecting

the credit access for individual business household in Vietnam” was selected for

research

2 Literature review and research gaps

2.1 Literature review

2.1.1 General study of “Intention to use” models

In the world, the research direction on “Intention to use” is very popular and is

often explained by the application of: Theory of Reasoned Action (TRA), Theory of

Planned Behavior (TPB), Technology Acceptance Model (TAM), etc Theory of

Reasoned Action (TRA) was built and developed by Ajzen and Fishbein According to

this theory, human behavior is determined by the most important factor, which is the

"Behavior intention" (Ajzen và Fishbein, 1980) Besides, "Behavior intention" is

explained by “Attitude” for the behavior and “Subjective Norm” for that behavior

2.1.2 Research relating to factors affecting the ability to access credit

characteristics of the borrower

The research group on factors affecting credit accessibility based on the characteristics of both customers and credit institutions

2.1.3 Research on barriers to credit access

Research group on demand-side barriers to credit

Research on supply-side barriers to formal credit access

Research on barriers to access to formal credit services by the government

2.1.4 Research on access to informal and loan sharking The first group approaches the factors that lead to informal credit and loan sharking behavior

The second group approaches from the lender's behavior

2.2 Research gaps

The application of models TAM, TRA, UTAUT to study the factors influencing the “Intention to use” of formal and informal credit services is quite new The authors have not pointed out specific effects and lack of empirical evidence to measure the influence of these factors Differences in context, time, and socio-economic characteristics enrich the research, but reduce the accuracy and relevance of the research results if they are to be applied in developing countries like Vietnam

3 Research objectives and Research questions

3.1 Research objectives and research missions

Research objectives: To propose recommendations to promote credit access for individual business households in Vietnam

In order to achieve the above goal, research needs to address the following tasks:

- Systematize basic theoretical issues (theoretical framework) on credit access and factors affecting access to credit by individual business households in Vietnam - which are divided into formal credit access and informal credit access

- Assess the status of credit access of individual business households in Vietnam through surveys

- Analyze and evaluate factors affecting individual business households' access

- Propose policy implications to promote access to formal credit, and limit the

use of loan sharking by individual business households in Vietnam

3.2 Research question

The research aims to answer the following questions:

- What is included in the theoretical framework that the research uses?

- What is the current status of credit access of individual business households in

Vietnam?

- How these factors: “Expected effect”, “Effort to expect”, “Favorable

conditions”, “Social impact”, “Convenience”, “Financial literacy”, “Security” impact

on the credit access of individual business households in Vietnam?

- What are the policy implications to promote access to formal credit and limit

the use of loan sharking by individual business households in Vietnam?

4 Research subject and research scope

The research subjects are: access to credit by individual business households in

Vietnam - which is divided into formal credit access and informal credit access In

informal credit, the author focuses on access to loan sharking by individual business

households The thesis does not study the semi-formal credit

Research Scope: The research focuses on individual business households with

business registrations across the country

Respondents: owners of individual businesses

Research period: The study is conducted from 2017 - 2020, in which the survey

framework is from March 2019 to November 2019

5 Approach

This research approaches on 2 directions at the same time (1) the possibility

that individual business households can obtain loans, both formal and informal; (2)

Financial Inclusion

CHAPTER 1:

Theoretical basis for credit access of individual business households and

affecting factors

1.1 Overview of individual business households and credit access of individual business households

1.1.1 Overview of individual business households

A business household owned by an individual who is a Vietnamese citizen, or a group of individuals who are at least 18-year-old Vietnamese citizen They need to have full capacity for civil acts, or be owned by a household, register bussiness in one location only, employ no more than ten employees and take full responsibility with assets for the businessfor its business

1.1.2 Formal credit and informal credit

Formal credit is a service provided by licensed credit institutions, for example credit services provided by banks, finance companies, finance leasing companies, etc Informal credit is generally understood as the forms of borrowing outside the management and supervision of the financial and monetary authorities, including loans from individuals, loans through the form of tontine, or loan from family, friends or relatives

1.1.3 Credit access

Access to formal credit means that people, households, and business households know and can get loans from credit institutions In other words, this is a form of asset transactions between the credit institutions-called the lender- and the other party is the individuals and enterprises, called the borrower In terms of informal credit access, it can be understood that individual business households would use credit services not provided by licensed credit institutions or socio-political organizations This is almost the same as using loan sharking

1.2 Effects of credit access on individual business households

1.2.1 Positive effects

1.2.1.1 From formal credit

Access to credit institutions has provided borrowers with opportunities to create livelihood capacity and promote their self-ownership

1.2.1.2 From informal credit

it allows people in need of capital to borrow immediately, with simple procedures,

meeting the urgent needs of borrowers

1.2.2 Negative effects

1.2.1.1 From formal credit

Formal credit would increase the costs of individual business households in the

early stages, because of the requirements for proof of income, and reports proving the

solvency

1.2.1.2 From informal credit

The consequences of loan sharking are very serious (for developed countries,

informal credit and loan sharking are identified as one), and therefore it is necessary to

prevent and limit loan sharking as much as possible, in order to ensure social stability,

protect customers Studies have mentioned the negative effects of loan sharking on

many sites, focusing on economic security, living standards of the population, social

security and order, etc

1.3 Foundation theory and expected model

1.3.1 Foundation theories

1.3.1.1 Theory of Reasoned Action (TRA)

1.3.1.2 Theory of Planned Behavior (TPB)

1.3.1.3 Technology Acceptance Model (TAM)

1.3.1.4 Unified Theory of Acceptance and Use Technology (UTAUT)

1.3.2 Expected research model

1.3.1.1 Choosing theory as research foundation

This thesis approaches the fundamental model which is the TPB model and adds

additional data in the research of UTAUT

1.3.2.2 Building preliminary research model

For the first model, as for the formal credit approach, the author used the TPB

model to evaluate, which combined with the UTAUT model to give the dependent

variables For the second model, the author builds the model with four main factors:

“Expected effect”, “Expected effort”, “Social influence”, “Favorable conditions” like

the original theoretical model In addition, the UTAUT model also takes into account

the following factors: “Age”, “Gender”, “Experience of using” and “Voluntary use”

CHAPTER 2:

RESEARCH METHOD AND RESEARCH MODEL

2.1 Research Methods

2.1.1 Research process

This research uses both qualitative and quantitative methods to answer the research question Qualitative research methods used in the development of questionnaires and scales and quantitative research methods used after qualitative research has been completed and questionnaire has been adjusted

2.1.2 Qualitative research

Qualitative research objectives: To test, refine and determine relationships between variables in the original theoretical model (which was established based on theoretical review research)

Qualitative research method : In-depth interview, because this is the most appropriate way to check the suitability of the proposed research model, build the survey questionnaire and the appropriateness of research results

2.1.3 Quantitative research

Research quantitatively by collecting data from surveys on the target group of households that have used formal and/or informal credit (excluding loans from relatives or loans from tontine) The author processes the data using SPSS 25 and AMOS 20 software to analyze individual business household characteristics, scale reliability, Exploratory factor analysis (EFA), Confirmatory factor analysis (CFA), Structural equation modeling (SEM), the influence of moderator variables on the relationship of structural model

2.2 Research model and research hypothesis

2.2.1 Model of formal credit access

2.2.1.1 Collateral 2.2.1.2 Income 2.2.1.3 Business experience of the owners of household (KNCH) 2.2.1.4 Distance (KC)

2.2.1.5 Loan interest rate (LS) 2.2.1.6 Loan procedure (TTV)

2.2.1.7 Experience of commercial bank (KNNH)

2.2.1.8 Electronic banking services (NHDT)

2.2.1.9 Ability of individual business households to access bank credit

2.2.2 Model of informal credit access

2.2.1.1 Expected effect

2.2.2.2 Expected effort (NOLUC)

2.2.2.3 Social influence (XAHOI)

2.2.2.4 Favorable conditions

2.2.2.5 Financial literacy (HIEUBIET)

2.2.2.6 Convenience

2.2.2.7 Security (BAOMAT)

2.2.2.8 Intend to use informal credit

CHAPTER 3:

RESEARCH RESULTS

3.1 Overview of Vietnamese individual business households and credit access of individual business households

3.1.1 Situation of individual business households in Vietnam

Table 3.1 Individual business households in Vietnam divided by regions

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Red river delta 1,093.1 1,113.9 1,233.8 1,183.4 1,2132 1,228.0 1,256.7 1,330.1 1,324.377 1,357.069 Northern

Midlands and Mountains

369.6 380.4 430.4 423.2 436.3 440.3 450.6 487.1 481.628 493.655

Central 945.4 979.4 1,054.0 1,045.2 1,062.8 1,095.9 1,126.1 1,184.3 1,201.809 1,233.100 Central

Highlands 181.1 187.8 213.8 219.5 229.9 226.4 2,366.5 245.7 252.844 271.945 South East 664.8 672.0 748.9 752.2 779.9 820.1 856.3 900.9 942.680 978.384 Mekong River

Delta 871.0 902.8 947.9 912.5 935.6 944.1 983.6 994.5 995.397 1,045.242 Total 4,125.0 4,236.3 4,628.8 4,536.0 4,657.7 4,754.8 4,909.8 5,142.6 5,198.735 5,379.395

Source: General Statistics Office (2020)

Individual business households are distributed relatively evenly across the country In which, the Red River Delta, Central, Mekong River Delta and Southeast are the regions with the highest proportion, at 25.86%; 23.03%; 19.34% and 17.52% respectively The Northern Midlands and Mountains and the Central Highlands accounted for the lowest proportions, at 9.47% and 4.78% of the total number of households, respectively Based on population distribution, the proportion of individual business households between regions has not changed significantly for many years

3.1.2 Credit access of individual business households in Vietnam

An individual business household in Vietnam is a form of business organization

capital of business households is even more difficult when there was only 47.22% of

business households have access to formal credit at a reasonable interest rate – at about

8% - 14%/year This shows that households have to seek funding from the semi-formal

and informal sector However, if they access semi-formal capital (from the farmers',

women's union, youth union's funds), it will be not much, and it cannot be used in

long-term The reaon for this problem is that the semi-formal credit has a small

amount of capital, and must be used for regular needs (such as activities of the unions,

or rewards, etc) Therefore, they must use the informal credit to have enough capital

This capital source for individual business households comes from a number of

sources such as loans from individuals in the market, loans from pawn shops with high

interest rates (loan sharking), loans from funds (in the form of tontine)

3.2 Overview of research sample

3.2.1 Information on demographics

Table 3.2 Demographic results from research samples

Frequency Ratio

76.18%

Average income of the household

(monthly average, unit: million VND)

From 1 to less than 5

36.98%

Average number of employees per

household

Source: Author's calculations

households, accounting for about 6.37% This shows that, the education level of households has increased significantly to improve their own literacy The majority of these households and those with lower secondary and upper secondary education are located in rural areas, which have little conditions for economic development as well

as education The number of households with intermediate education accounts for the highest proportion - as the majority of household owners think that they only need vocational training to be able to do business Therefore, as for the group of households that are involved in technology (such as repairing machines, trading in machines) this is appropriate Some farming households related to agriculture are trained in intermediate-level occupations such as crops, livestocks, and fertilizers Most of the remaining households with higher qualifications (college - university - postgraduate) concentrate in urban areas, trading in high-tech goods (such as electricity, electronics, public services, etc.) This is consistent with the reality in Vietnam since these households have conditions (economically, geographically, etc.) to study

3.2.2 Access to credit of individual business households in Vietnam based on survey results

Among the surveyed households, there are 532 households using formal credit - loans from commercial banks, financial companies, local people's credit funds, microfinance institutions and Bank for Social Polocies Thus, it can be seen that: up to 74% of individual business households are eligible for access to formal credit - much higher than the survey results on individual access to credit in Vietnamese rural areas

in previous studies, which only fluctuated at about 20-40% depending on the region This shows that: households are also trying to improve their ability to access formal services

There are also certain differences regarding the average loan amount at a time:

45 households only need to borrow the amount of less than 30 million VND (i.e the amount is not large - it is difficult for commercial banks to lend money This is not small amount, compared to the people's credit funds and Bank for Social Polocies) This amount needs to be borrowed in a short period of time (less than 7 days), so the surveyed people answered that: they accept higher interest rates to be able to borrow, rather than waiting for banks or other institutions

For formal credit, one of the biggest obstacles, when surveyed, the households

Households fail to meet the requirements for loan applications, credit card payments or

collateral issues, as most households in rural areas do not have a House Ownership

Certificate to meet the borrowing needs or it is difficult for urban households to prove

their income if they borrow consumer oriented loans This has led households to use

informal credit - especially loan sharking Loan sharks usually disburse quickly: on

average, a loan only takes about 30 minutes, and accepts a small loan in a short time

This is also the consideration of state management agencies in the coming time

3.3 Research results of factors affecting credit access of individual business

households in Vietnam

3.3.1 For the model of formal credit access

The scale of independent variables includes 7 components: characteristics of the

household owner, experience of the household owner, distance, interest rates, loan

procedures, banking experience, e-banking services with 21 scales and these scales are

among the satisfactory factors, capable of converging and performing well of the

observed variables The scale of the dependent variable ‘The household's accessibility

to formal credit’ (4 observed variables), has converged and performed well on the

scales Thus, the Exploratory factor analysis (EFA) shows that the independent and

dependent variables all converge and represent well the observed variables in the scale

and are put in the next test with CFA analysis

At the same time, when considering the relationship between the independent

variables KC, LS, TTV, KNCH, KNNH, NHI, DDCH with the dependent variable Y,

it shows that the variables KC, TTV, LS and KNNH has the correlation coefficient

r<0, which means it has inverse relationship with the dependent variable All the

remaining independent variables have correlation coefficient 0.3 <r <0.7 Through the

analysis, it can be seen that the correlation coefficient between the independent

variables and the dependent variable shows a quite close correlation Therefore, the

variables can be put into the CFA model for analysis

Confirmatory factor analysis (CFA)

After linking the errors to improve the model to match the actual data, the

results of the Confirmatory factor analysis (CFA) had a coefficient of Chi-square/df =

1.889 (< 3); GFI = 0.885; TLI = 0.926 (> 0.9); CFI = 0.94 (> 0.9); RMSEA = 0.058

(<0.08)

Structural equation modeling SEM

The coefficients in the model are consistent with actual data The implementation results have Chi-square / df coefficient = 1.742 (<3); GFI = 0.896; TLI

= 0.938 (> 0.9); CFI = 0.950 (> 0.9); RMSEA = 0.053 (<0.08) The model showing the influence of the factors affecting the ability to access credit of commercial banks includes 8 factors that the author mentioned earlier

Figure 1 Result of structural equation modeling SEM

Source: Synthesis and analysis of the author

3.3.2 For the model of informal credit access

After the first time running EFA, the observed variables TL4, TL5 were excluded because the load coefficients were less than 0.5 Also, observed variables DK4 and TL6 were also eliminated because they did not converge with the observed variables corresponding to the independent variables After running EFA for the

Table 3.9 KMO and Bartlett test

Thus, after testing the reliability and value, scales that do not meet the

requirements are eliminated and the remaining scales selected have been tested to meet

the requirements Thus, the research model will be adjusted as follows:

Confirmatory factor analysis CFA

The results of the second CFA analysis of the indicators measuring the

appropriateness of the model show that Chi-quare/df = 2.201 < 3, TLI = 0.967, CFI =

0.974, GFI = 0.948, which are all greater than 0.9, the RMSEA value = 0.046 < 0.05,

so the model is suitable for the market Also all AVE values > 0.5, the reliability of

aggregated>0.7, scale reliability is guaranteed, distinctness is guaranteed AVE >MSV

P-value coefficients of observed variables representing the factors are <0.5, these

observed variables have the ability to represent the factors in the CFA model Thus, it

can be confirmed that the scale achieves convergence and unidirectional values

Therefore, the research scales for individual business households accessing informal

credit have satisfied analytical requirements

Structural equation modeling SEM

Source: Synthesis and analysis of the author

Test the effect of moderator variable in the “Intention to use” structural model

Table : Results of the second test on the impact of the moderator variable

Effect direction Estimates

Standard error (S.E.)

Critical ratio (C.R)

P-value

Intention to use

Intention to use

Number of years_

Expected effort (SVN_NOLUC)

Intention to use

Gender_Financial literacy (GT_HB)

Intention to use

Number of years_

Financial literacy (SVN_HB)

Source: Synthesis and analysis of the author

CHAPTER 4:

RESULTS DISCUSSION AND RECOMMENDATIONS

4.1 Discuss research results

4.1.1 For factors that affect access to formal credit

There are 8 factors identified that affect households' access to credit in

Vietnam, including: Collateral, Income, Household's Experience, Distance, Interest

rates, Loan Procedures, Banking Experience and E-banking Service

4.1.2 For factors that affect access to informal credit

Expected effort

Based on the results of this study, the factor “Expected effort” has a significant

negative impact on households' access to informal credit (with the meaning of

“intention to use”), and the efficiency coefficient is -0.106 and corresponding

coefficient Sig = 0.04 < 0.05, so this factor has the opposite impact to the hypothesis

H2a

Social influence

Based on the results of data analysis in this study, the factor “Social influence”

have positive effect to the “Intention to use” of informal credit of individual business

households with the efficiency coefficient is 0.678 and the corresponding coefficient is

Sig = *** < 0.05, so the factor effects the same direction as hypothesis H3a

Financial literacy

The research results of data analysis surprisingly show that the factor “Financial

literacy” has a positive effect on the “Intention to use” of informal credit of individual

business households with the efficiency coefficient is 0.096 and the corresponding

coefficient is Sig = 0.047 < 0.5, so this factor has the opposite impact to the

hypothesis

Gender

Research results have shown that the factor “Gender” has the effect of

regulating the relationship between the factors “Social influence”, “Financial literacy”

and “Intention to use” in the structural model

Number of years of business

The research results show that the number of business years of households has

literacy” and “Intention to use” in the structural model

4.2 Recommendations

4.2.1 Recommendations for state management agency and law agency

4.2.1.1 To increase access to formal credit services

● About Collateral The author proposes policies to support credit institutions in reducing costs and risks on these loans, such as reducing tax on profits from unsecured loans; requesting the local SBV, trade authorities, and local tax authorities to cooperate closely and enthusiastically with commercial banks, so that banks can get authentic information, thereby approving loans more easily without the need for collateral; having policies to encourage the acceptance of all types of assets formed in the future or intangible assets such as intellectual property, patents, etc

● About Geographical Distance The State Bank of Vietnam should have recommendations on policies to support commercial banks in expanding branches in difficult areas, uneven terrain, and need support to access credit capital for production and business investment

● About Loan interest rate The State should have supportive policies on interest rates for business households in specific and spearhead industries such as industries that require high technology application, agriculture, industrial crops, etc

● About loan procedures

- Include the optimization criteria of loan procedures in the criteria for rating of credit institutions

- Clear regulations on maximum number of days to deal with credit applications, and a clear corridor on some cases that frequently arise

● About Electronic Banking Service

- Include the e-banking quality improvement criteria in the criteria for rating credit institutions

- Organize exchange programs, guide and clarify the benefits and risks of e-banking to household owners

when dealing with electronic banking

4.2.1.2 To limit loan sharking

The first recommendation is to review and supplement the system of legal

documents in order to detect, prosecute, investigate and strictly handle acts of usury or

loan sharking

Secondly, the Government should soon issue regulations as a legal basis for the

management of financial activities that apply new technology and are in danger of

becoming loan sharking in Vietnam

The third recommendation is that the Government and the State Bank of

Vietnam soon issue a loan program (including regulations on the conditions for

participation of credit institutions, regulations to promote the development of loan

products) to limit, prevent and eliminate loan sharking

As a fourth recommendation, the Government should soon direct ministries and

departments to complete regulations and facilitate the application of digital

identification, the use of digital signatures and the ability to access basic information

needed in order to help Credit institutions develop financial products associated with

new technology (Fintech)

In the fifth recommendation, the Government soon drastically directs all levels

of government, related ministries and departments from central to local level to have

the responsibility and actively limit, prevent and eliminate loan sharking

4.2.2 Recommendations for credit institutions

4.2.1.1 To increase access to formal credit services

● About Collateral

- Improve the qualifications of credit officers, strictly require the veracity of

information of credit application dossiers

- Enhance the ability to value intangible assets such as copyrights, intellectual

property rights, future assets from credit or assets such as inventories

- Expand types of collateral, especially intangible collateral (intellectual property

rights, patents, ), collateral generated from future loans, and at the same time, improve

the capacity to valuate these types of collateral

● About income Vietnamese credit institutions should promote services associated with credit such as periodic savings for credit repayment financing

● About geographical distance

● About loan procedures

- Simplize credit granting procedures to quickly respond to the needs of business households For example, VPBank already has a service that can provide credit in only 2 days for loans from small households

- The process should be clearly posted in all credit institutions' media channels and concurrently concise, easy to remember and clear so that household heads can easily grasp and no longer be hesitated to approach

- Errors in the credit application file should be supported with clear and quick corrections, avoiding the need to travel and correct many times

● About the experience of commercial banks

- Constantly innovating, in accordance with market conditions to be able to maintain the advantage of its experience and reputation

- Focus on developing new products, catching up with new technology trends

● About Electronic Banking Service

- Promote the media on e-banking services through channels

- Focusing on product development, diversifying types of services

- Promote electronic payment activities, provide supports and incentives for customers and household owners using this service such as discounts

4.2.2.2 To limit loan sharking

- Enhance determination and prepare financial resources for credit development

to prevent and eliminate loan sharking, which can be called “Loan program to limit, prevent and eliminate loan sharking”

- Select staff and conduct training courses to build and develop a separate workforce to operate the loan products under this special Credit Program

- Credit institutions need to develop a coordination mechanism with authorities, mass organizations and career organizations in localities to conduct surveys and

would help to develop suitable loan products (both in terms of loan size, term, disbursement method and debt collection)

4.2.3 Recommendations for household demand for loans

Households which demand loans are targeted entities and are the beneficiaries

of the “Loan program to limit, prevent and eliminate loan sharking” However, recommendations to these subjects include only 2 groups: (1) raising awareness and a sense of responsibility to avoid “pitfalls” of loan sharking; and, (2) cooperate closely with credit institutions, local authorities and mass organizations to be best served

4.2.4 Recommendations for local government and public organizations

Local governments, mass organizations and career organizations need to identify their important role in the implementation of the “Loan program to limit, prevent and eliminate loan sharking” in credit institutions

4.2.5 Recommendations for security agencies, media agencies, technical and technological support organizations

First of all, the Ministry of Public Security is the place to keep a very large data system, including basic and important information of all citizens If credit institutions are coordinated and helped to share these databases, it will allows them to early apply modern technology to identify customers, significantly reducing the time, effort and cost to make loans to prevent and eliminate loan sharking

The Ministry of Information and Communications should direct the propaganda activities of mass media as well as direct Information and Communication agencies in localities to give maximum priority to propagandize against loan sharking