Enabling financial inclusion through fintech bachelor thesis of banking and finance

The main findings are fintech proxy via mobile phone used to use of specific services, mobile phone used to pay utility bill, mobile phone used to receive the payment, mobile phone owner

MINISTRY OF EDUCATION TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

MINISTRY OF EDUCATION TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

CODE: 7340201

SUPERVISOR

HẠ THỊ THIỀU DAO Assoc Prof, PhD

HO CHI MINH CITY, 2021

ABSTRACT

Financial inclusion is an issue of global concern with the goal of developing a financial system that serves all society members, providing appropriate and convenient services at an affordable cost for all individuals and businesses, contributing to the country's sustainable development Indeed, Decision No 149/QD-TTg highlights the goal "at least 80% of adults will have bank accounts." dated on 22 January 2020 in Vietnam New financial technologies (fintech) are seen as key enablers of financial inclusion This study uses probit regression to examine the impact of fintech on financial inclusion by using the Global Findex database The study uncovers new evidence that fintech is a key to enable financial inclusion The main findings are fintech (proxy via mobile phone used to use of specific services, mobile phone used to pay utility bill, mobile phone used to receive the payment, mobile phone ownership) and other determinants such as the education and income, which have positive and statistically significant relationship with financial inclusion Overall, the study's results

offer recommendations to policymakers in Vietnam

COMMITMENT

This thesis is the author's study The research results are honest in that there is

no previously published content or other content done by someone else except fully cited citations in the thesis

Ho Chi Minh City, ………

Author

Trần Thiên Phúc

ACKNOWLEDGEMENTS

After four years of studying at the Banking University of Ho Chi Minh City, I achieved a lot of knowledge and experience from talented, devoted, and enthusiastic lecturers, who always support students and improve academic development

Firstly, I would like to express my gratitude to my family, who always encourage and care for me My sister has been my wonderful caregiver since starting

my project, and I want to thank her for all the supports she has given me

Secondly, I cannot thank my supervisor, Hạ Thị Thiều Dao, Assoc Prof, Ph.D., enough for the efforts you have given me to support me to finish the project successfully

Finally, last but by no means least, thank you to all my colleagues who has shared their valuable feedback to complete my publication

TABLE OF CONTENTS

ABSTRACT i

COMMITMENT ii

ACKNOWLEDGEMENTS iii

CHAPTER 1 INTRODUCTION 1

1.1 RESEARCH MOTIVATION 1

1.2 RESEARCH OBJECTIVE 4

1.2.1 Overall objective 4

1.2.2 Specific objectives 4

1.3 RESEARCH QUESTIONS 4

1.4 RESEARCH SUBJECT AND SCOPE 4

1.5 RESEARCH METHODOLOGY 5

1.5.1 Regression method 5

1.5.2 Data sources 5

1.6 RESEARCH CONTRIBUTION 5

1.7 RESEARCH STRUCTURE 6

CHAPTER 2 LITERATURE REVIEW 8

2.1 DEFINITIONS AND MEASUREMENT 8

2.1.1 Fintech definition 8

2.1.2 The measurement of fintech 10

2.1.3 Financial inclusion definition 14

2.1.4 The measurement of financial inclusion 15

2.2 REVIEW OF PREVIOUS STUDIES 17

2.2.1 Fintech and financial inclusion 17

2.2.2 Financial inclusion and other determinants 20

CHAPTER 3 METHODOLOGY 24

3.1 REGRESSION METHOD 24

3.1.1 Binary model 24

3.1.2 Estimation 25

3.2 TESTING 27

3.2.1 Wald test 27

3.2.2 The Lagrange multiplier or score test 28

3.3 RESEARCH DATA 29

3.4 RESEARCH MODEL 30

CHAPTER 4 RESULTS AND DISCUSSION 33

4.1 FINANCIAL INCLUSION AND FINTECH 33

4.1.1 Financial inclusion 33

4.1.2 Fintech 33

4.2 FINANCIAL INCLUSION AND OTHERS DETERMINANTS IN VIETNAM 34

4.2.1 Financial inclusion and gender 34

4.2.2 Financial inclusion and income 35

4.2.3 Financial inclusion and education 36

4.3 EMPIRICAL RESULTS 37

4.3.1 Statistics 37

4.3.2 Testing results 38

4.3.3 Discussion 38

CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS 45

5.1 CONCLUSIONS 45

5.2 RECOMMENDATIONS 48

5.3 LIMITATIONS AND FUTURE RESEARCH 50

eKYC electronic Know Your Customer

EVN Electricity of Vietnam

FI Financial Inclusion

Fintech Financial technology

GDP Gross Domestic Product

GPFI The Global Partnership for Financial Inclusion GSMA Global System for Mobile Communications ICF Information & Communication Technologies IFI Index of Financial Inclusion

IMF International Monetary Fund

PCA Principal Component Analysis

SBV State Bank of Vietnam

SFA Singapore Fintech Association

SME Small and Medium Enterprise

SMS Short Message Services

UK United Kingdom

USA United States of America

LIST OF FIGURES AND TABLES

Table 2.1 Measurement of Fintech 11

Table 2.2 Fintech indicators 12

Table 2.3 The Summary table of literature review on the determinants of financial inclusion 21

Table 3.1 Definition and measurement of variables 30

Table 4.1 Adult with an account (%) 33

Table 4.2 Adults with mobile money account (%) 34

Table 4.3 Aldults with utility bill payments (%) 34

Table 4.4 The size of the gender gap in account ownership (%) 35

Table 4.5 Poorer adults are less likely than wealthier ones to have an account (%) 36

Table 4.6 Less-educated adults are less than well-educated ones to have an account (%) 36

Table 4.7 Summary statistics 37

Table 4.8 The determinants of financial inclusion in Vietnam 39

Table 5.1 Mobile cellar subscriptions and individuals using Internet in Vietnam 47

Figure 5.1 Adult having the formal account 46

CHAPTER 1 INTRODUCTION

Chapter 1- Introduction, the thesis will present the research motivation, research justification, research question, determine objectives, scope, method and give a basic view about the research problem and research structures

1.1 RESEARCH MOTIVATION

Financial inclusion is a topic that has been strongly thesaurus in the digital age The more underserved SMEs and individuals access financial services when participating in the economy, the more benefits governments and banks observe So this win-win relationship will stimulate the economy and has a significant role in promoting financial inclusion Firstly, to shed light on the question ―Individuals are looking for more convenient and secure ways to accumulate, hold, and transfer value‖ Karlan et al (2016), Demirgüç-Kunt et al (2017) highlighted that inclusion could enable individuals to take the initiative in saving, borrowing, and paying In this manner, underserved financial services people can access services to improve their life Fintech plays a key role in reducing the financial fee, helping them become affordable

to use these services Secondly, the more financial services are served, the more benefits for entrepreneurs and SME owners to expand their business, stimulating the economy Capital flows will be more efficient when capital is spread evenly across economic sectors, not just large enterprises—thereby increasing credit, promoting financial inclusion Lu et al (2020) found that financial inclusion has respectively positive impacts on the credit availability to listed SMEs Hua & Huang (2020) pointed out that promoting financial inclusion through fintech enables a vast number of SMEs and low-income households to access financial services Thirdly, the more tightening the economic components‘ relationship, the faster the cash flows will increase Thereby, the government benefits from effective monetary policy enforcement Saraswati et al (2020) aimed to analyze the effects of financial inclusion on the

effectiveness of the Indonesian monetary policy within the framework of monetary policy's transmission mechanism through interest rate channel with both the cost of capital effect and the substitution effect Additionally, the results demonstrate that the financial inclusion level affects the inflation rate as a proxy of the Indonesian monetary policy's effectiveness, both in the short and long run Thereby, the government can perform monetary policy effectively Therefore, financial inclusion has been becoming

a global issue to develop a financial system that serves all members of society Accordingly, financial inclusion provides the most convenient and affordable services for all individuals and businesses, making a pivotal contribution to the country‘s sustainable development In the current context, promoting financial inclusion is a priority policy of many countries worldwide, including Vietnam

Beginning with industrial revolution 4.0 with a foundation including the internet

of things, big data, artificial intelligence, cloud computing, blockchain, …, and the remarkable development of many new technologies in two decades have opened up enormous potent in improving access to finance Technology innovations such as mobile banking, digital payment can reduce transaction costs and overcome these geographical barriers existing for a long time to finance

Fintech‘s emergence and boom in recent times are expected to boost financial inclusion by enhancing finance access for market factors At the same time, fintech also helps to create new business models, boost competition, and reduce financial accessing costs It also provides tools, the foundation to increase the connection between supply and demand, regulation and monitoring financial resources, prevent and control risks (Ozili, 2018) On the other hand, the impact of fintech on financial inclusion can be reversed for some groups on the market, especially adverse society

As Ryu (2018) pointed, fintech can make it a barrier to a segment of the market (group lately adopters) when approaching this type of financial service due to limitations from educational attainment, technology ability, career, working environment where you

live In imperfect market conditions about political institutions and legal systems, especially financial technology law, fintech can increase the risk to the service user (Ryu, 2018)

On the one hand, developed countries like the USA, UK, and Australia always discover financial inclusion strategies to help people live a more standardized life High technologies, including blockchain, AI, and eKYC, are applied to financial industries to help people access services such as managing financial risk, investment, and lending (Chou, 2019; How et al., 2020; Ozili, 2020) With the early introduction of M-PESA, developing countries in Africa soon developed vital financial inclusion, and now they mainly build more infrastructure for emerging foreign banks and innovative financial services However, in Vietnam, with mobile phone penetration: 70 percent of the total population ~ 150 million devices and smartphone penetration: 45 percent ~ 50 million, ranking 15th in the world (SFA, 2020), has now started to digitize payment activities payment, which was made ten years ago in African Thereby the proportion

of adults with an account in financial institutions is much lower than the others, only

30 percent less than half that of the world (67 percent) and only approximately twice compared to countries with the same income (56 percent) (World Bank, 2018)

one-Since 2016 the government has issued Decision No 2545/QD-TTg, the Scheme

on non-cash payment The empirical goal is to stimulate digital payment in commerce (70 percent of utility service provider units accept non-cash utility bill payment, 50 percent of individuals use non-cash payment in shopping and consuming)

e-To focus on modern, convenient payment instruments in order to serve rural and urban areas, which contributes to promoting financial inclusion and enhancing individuals (age 15+) having an account at the financial institution at least 70 percentages However, until now, Vietnam does not achieve the set goals Consequently, the impact

of fintech on financial inclusion is a question that needs studying in Vietnam There should be a theoretical study as well as experimental evidence to examine this impact

Hence, ―Enabling financial inclusion through fintech‖ research is conducted, which aims to shed light on the question and add to the gap in research in Vietnam Based on the research, the author also provides additional empirical evidence of the impact of fintech on financial inclusion with the primary data Global Findex Database 2017 in Vietnam

1.2 RESEARCH OBJECTIVE

1.2.1 Overall objective

This study systematically analyses to find out fintech, that affects financial inclusion, thereby proposing development directions and minimizing risks in order to increase positive influences and minimize negative indirectly to Financial inclusion in Vietnam

1.2.2 Specific objectives

 Determining the fintech that affects the financial inclusion

 Examining the level impact of fintech on financial inclusion in Vietnam

 Proposing recommendations so as to promote financial inclusion in Vietnam

1.3 RESEARCH QUESTIONS

After identifying the research objectives as outlined above, a few research questions are issued

 Which factors of fintech affect financial inclusion?

 How do fintech influence financial inclusion in Vietnam?

 What recommendations are concluded about financial inclusion in Vietnam?

1.4 RESEARCH SUBJECT AND SCOPE

The research subject is fintech that affects financial inclusion, and the factors of fintech affect financial inclusion

The research scope includes 1000-observation survey in Vietnam by World Bank in 2017, the Latest Global Findex Database

1.5 RESEARCH METHODOLOGY

1.5.1 Regression method

Quantitative regression is conducted in this study The author uses probit regression with maximum likelihood estimation to analyze the microdata and test the research hypothesis by Stata 16 software

To examine the effect of fintech on the financial inclusion of Viet Nam, the dataset of 1000 observations will be used

1.5.2 Data sources

The research data uses the Global Financial Inclusion (Global Findex) Database, provided by the Development Research Group, Finance, and Private Sector Development Unit The Global Findex database indicators are drawn from survey data covering almost 150,000 people in 144 economies-representing more than 97 percent

of the world‘s population One thousand observations are surveyed in Viet Nam about age, education, gender, household income quintile, level of financial usage,

The Global Findex Database secondary data in three years will be used to test potential determinants of financial inclusion and investigate the financial exclusion gap

to promote financial inclusion in Vietnam

The microdata of Vietnam Global Findex Database in 2017 (the latest data) will

be used to determine the impact level of factors on financial inclusion

1.6 RESEARCH CONTRIBUTION

The study identifies fintech that affects financial inclusion in Vietnam Then evaluating the influence of factors on financial inclusion The research uses the theory and empirical research of domestic and foreign authors on each factor's impact on

financial inclusion to analyze and study this problem for financial inclusion with 1000 observations in 2017 To the best of my knowledge, this is the first study to use quantitative regression to analyze the microdata of the Vietnam Global Findex Database of the World Bank to uncover the financial inclusion issue in Vietnam

From the results received in the research process, the thesis will make recommendations to improve financial inclusion in Vietnam Besides, the following research directions are proposed to solve the problems that the research is still limited

1.7 RESEARCH STRUCTURE

Excluding to appendix, table of content, and references, the study is presented in five chapters:

Chapter 1: Introduction

This study summarizes its motivation, objectives, scope, and subject The methodology

is listed briefly in this chapter, along with contributions and compositions of this study

Chapter 2: Literature reviews

This study systematizes a range of literature reviews and studies about fintech and financial inclusion

Chapter 3: Research methodology

The thesis introduces quantitative analysis

The thesis examines aspects of each factor in the model, which are applied to analyze their influence on financial inclusion

Chapter 4: Research results

This part of the thesis analyzes selected aspects of each factor in the model that influences the financial inclusion in Viet Nam

Chapter 5: Recommendations and conclusion

This section proposes recommendations as policy implications for the development of financial inclusion in Vietnam

CHAPTER 2 LITERATURE REVIEW

In chapter 2, the thesis will briefly present the fintech and financial inclusion definitions and the literature review Besides, the thesis will lead previous studies related to the topic, which is also the basis for forming research models and methods

2.1 DEFINITIONS AND MEASUREMENT

2.1.1 Fintech definition

Fintech is the term used to describe the use of technology in services themselves Fintech companies are often startups using new business models and products to compete with core banking, insurance, or payment services (ASIC, 2016)

According to Karakas & Stamegna (2017), fintech stands for financial technology, which is a broad term used mainly to refer to companies using technology-based systems in some way to provide services directly or try to make the financial system more efficient Initially, this term referred to technology applied to support the operations of commercial and standards firms Today, the fintech interpretation has expanded to include any new financial sector changes, including new changes in financial education and training, retail banking, investment, or innovation Fintech operations progress and expression have also become synonyms for financial services that emerged in the 21st century Moreover, fintech encompasses a wide range of services and products in the foreground, such as payments using money, loans, business, consulting, fundraising, virtual money, and projects that will expand further

in the coming years

According to World Bank (2017), Financial technology -Fintech- is creating new opportunities and challenges for the financial sector – from consumers to financial institutions and regulators Fintech offers several opportunities for governments, from making their financial systems more efficient and competitive to broadening access to

financial services for the under-served populations However, it can also pose potential risks to consumers and investors and, more broadly, to financial stability and integrity

Today, there are many definitions of fintech, a fintech company, and definitions refer to the use of new technology to create new financial services that better respond

to financial and commercial transactions The role of fintech is increasingly important

by connecting the five elements of the fintech ecosystem Adding to this point, Lee & Shin (2016) explained, a symbiotic and stable ecosystem would promote fintech to develop The five elements of the fintech ecosystem include:

First, fintech startups: These companies are the hub of the ecosystem, significantly impacting essential services with low operating costs, targeting multiple market niches, and offering a wide variety of services, service for individuals more than the financial institution

Second, technology developer: Technology developer provides a technical background that creates an enabling environment for fintech startups to apply technology to improve many services

Third, policy managers: Policy regulators have created a sound environment for fintech Regulations facilitate fintech startups to provide more financial services with less cost and easier access to service communications systems for customers

Fourth, main customers: Individuals and organizations, generating revenue for a fintech company In addition to the revenue stream from the institutional customer group, individual customer groups and small and medium-sized businesses bring outstanding revenue and create the service fintech leader

Fifth, the organized financial system is the budget communication system, the insurance company, the securities company, and the venture consultant These organizations are the main driving force in the eco-Fintech system The business models of the media finance institutions are reevaluated, and the development of strategies to initiate the transformation of fintech

2.1.2 The measurement of fintech

Fintech can be measured in many different ways depending on research objectives and geographic location (Table 2.1)

In developed countries such as New Zealand, Shiau et al (2020) explained that fintech-using blockchain to cut transaction costs qualitatively Alternatively, in the USA, Chou (2019) studied how to apply loan fintech-AI to increase financial inclusion The same way of thinking is seen on How et al (2020), who also measured fintech with AI when studying in Australia For countries where fintech markets have thrived, for example China, the authors often focus on fintech products such as internet lending, internet marketing funds, and internet payments to narrow inclusive finance and rural development Furthermore, Tsai & Peng (2017) pointed out that fintech is measured with fintech innovations exemplified by the online supply-chain financing providers to increase financial inclusion towards underserved SMEs could rationalize in china

On the one hand, in developing countries such as Kenya, Ghana, Uganda (the country in Africa), or India Fintech is often measured by fintech services such as mobile money, digital payment, money transfer, and receipt In a study in Nairobi city

of Kenya, Kim (2020) fintech in this study is seen as mobile money, an SMS-based money transfer system as designed to make banking services inexpensive and straightforward for all customers they pay nothing to register Mbiti & Weil (2016) propose that, fintech is measured by mobile banking, including transfer in Kenya According to a research paper in Ghana by Abayaa et al (2020), fintech mentioned here is also mobile money in the form of the questions "Do you have a mobile money account" and uses the personal characteristics to explain fintech in line with Akomea-Frimpong et al (2019) fintech also measures in mobile money According to Bongomin & Ntayi (2020), fintech is measured in mobile money adoption and usage-based questionnaire in Uganda Alternatively, in a study in West and South Asia, fintech in this study is measured as intensity of access to mobile banking, including

have own mobile banking account And when studying multinationals, Asongu et al (2019) stated that, fintech is measured by mobile for payment of the bill, mobile for sending and receiving the money to reduce poverty and inequality

In addition, Information & Communication Technologies (ICT) is an indispensable component and offset the role of fintech when studying social problems (implications related to financial inclusion) According to Asongu & Odhiambo (2019),

in Africa, fintech measured by ICT is proxied by mobile phone penetration, internet penetration, and fixed broadband subscriptions to narrow the gap between employed and unemployed women to increase financial inclusion Based on the paper of Nagpal

et al (2020), fintech means that digital financial services (mobile cellular subscriptions and Internet penetration) seem to be more ICT-oriented to explain financial inclusion countries Moreover, when researching many countries, fintech also measures ICT to study inequality reduction of poverty As Tchamyou et al (2018) explained fintech is granted by ICT to reduce income inequality and financial development in 48 African countries

Mobile money and digital payment are always mentioned factors for fintech in poor and developing countries

Table 2.1 Measurement of Fintech Authors Research nation Fintech measurement

Developed countries Chou (2019) USA Artificial intelligence

Shiau et al (2020) New Zealand Blockchain

How et al (2020) Australia Artificial intelligence

Tsai & Peng (2017) China Fintech innovation-online supply-chain

financing Developing countries

Andrianaivo &

Kpodar (2012)

African countries

Mobile telephone subscribers per head Mobile phone penetration

Mbiti & Weil (2016) Kenya Mobile banking

Abor et al (2018) Ghana Ownership at least one mobile phone

Does household use mobile phone network Akomea-Frimpong

et al (2019)

Ghana Mobile money usage

Asongu et al (2019) Sub-Saharan

Mobile phone penetration, internet penetration, and fixed broadband subscriptions

Nagpal et al (2020) BRICS

countries

Digital financial services, digital payments

Abayaa et al (2020) Ghana Mobile money account

Ouma et al (2020) 4 African

countries

Mobile phone money usage

Senyo & Osabutey

(2020)

Ghana Mobile money usage

Sources: Synthesized by the author

Inheriting and developing based on previous studies, the author measure one more comprehensive way of fintech in Vietnam by building indicators (Table 2.2)

Table 2.2 Fintech indicators Fintech measurement in

this study

Fintech measurement in previous studies

Mobile phone used to pay

Mobile phone used to

receive payment

Digital payment Nagpal et al (2020)

Owning a mobile phone Mobile phone penetration Andrianaivo & Kpodar

(2012); Abor et al (2018) Sources: Synthesized by the author

Fintech measurements in the study have been carefully tested by the author and meet the following conditions:

The first is to meet the national context condition Regarding digital payment, internet and mobile communications payments currently are a central fintech focus and have been a driving force, particularly in developing countries Vietnam is not an exception

The second is the variables that appear to be equivalent in previous studies The third is the variables mentioned in the article that are consistent with Vietnam's research data

Some issues are clarified for the second condition According to decision No 84 /NQ-CP, a pilot license is under the Prime Minister's Decision approving the pilot implementation of using a telecommunications account to pay for goods and services with small value using a telecommunications account (mobile money) on 29 May

2020 In other words, mobile money has been licensed from May 2020 Mobile money means digital money issued by an intermediary payment service provider providing telecommunications services and identifies the customer through the mobile subscriber database An E-wallet is electronic money issued by an intermediary payment service provider and identifies a customer through the customer's checking account opened at a bank (SBV, 2019a) In terms of nature, mobile money is digital money as defined by

countries According to glossary World Bank (2017), mobile money account includes respondents who report personally using services included in the GSM Association's Mobile Money for the Unbanked database to pay bills or send or receive money in the past 12 months Therefore, mobile money is an electronic wallet but not linked to a bank account-using of specific services without an account at a financial institution

2.1.3 Financial inclusion definition

Financial inclusion is the provision of financial products and services to people and businesses at affordable prices Financial inclusion helps increase finance access for low-income and vulnerable people, contributes to livelihood opportunities, flows of investment capital, and savings in society, thereby promoting economic growth

According to the World Bank, financial inclusion is defined that individuals and businesses can access useful financial products and services at reasonable prices, including remittance, payment, savings, credit, and insurance, provided responsibly and sustainably Accordingly, Financial inclusion is determined by the following three criteria: (i) Access to financial services; (ii) Use of financial services; (iii) Quality of products and services delivered Simultaneously, access to account transactions is the first step towards expanding financial inclusion, as a trading account allows all citizens

to store money, send and receive payments Financial inclusion's concept is broader and more multidimensional, emphasizing the quality aspect of service To illustrate, financial inclusion provides users with available financial services at an affordable cost, makes customers use financial services regularly and offers financial services to users' needs Financial inclusion is not limited to improving access to credit, improving citizens' financial literacy, and protecting consumers

Why financial inclusion matters:

 Individuals are looking for more convenient and secure ways to accumulate, hold, and transfer value Inclusion helps families save for retirement or unforeseen emergencies and plan for recurring expenses such as education or rent

 Entrepreneurs and SME owners have innovative ideas and considerable energy but need services, markets, and capital to thrive Bringing entrepreneurs and their businesses into the formal financial sector is an important first step to building better-connected financial markets—and ultimately—global markets

 Banks are looking to grow and serve future markets, which are larger and more inclusive Scale matters for banks, and growing the business and market means developing products and services for more segments of the economy

 Governments benefit when all citizens are connected, the velocity of money and economic activity is increased, and transmission mechanisms efficiently execute monetary policy Decreasing the size of the informal economy also provides greater transparency into financial transactions by increasing security and regulatory oversight

2.1.4 The measurement of financial inclusion

Financial inclusion can measure from the demand approach side or supply approach side Typical research from the demand side belongs to Demirgüc-Kunt & Klapper (2012) that contributes to the creation of The Global Findex Database (World Bank, 2017) According to that, the level of financial inclusion of 140 countries worldwide is measured through content involving ownership of accounts and performance payment, savings, and credit transactions However, these indicators reflect on leveling access to finance rather than measuring financial inclusion because

of the approaching demand side Approaching the supply side often selects indicators related to quantity or bank branch ratio, the number of credit providers Amidžic et al (2014) is a typical study in 35 countries in the 2009-2012 period The financial inclusion index is measured through the number of automated teller machines (ATMs) and bank branches per 1000 km2, the number of saving account users, and credit product users per 1000 capitals However, the concept of financial inclusion goes

beyond single indicators despite these indicators are considered the most important criteria in financial services

To fill this gap, Cámara & Tuesta (2014) brought information together on financial inclusion by using a statistically sound weighting methodology and considering both demand and supply side information They postulate that three dimensions determine the financial inclusion index: usage, barriers, and access, and they calculate the financial inclusion index of 137 countries in 2011 and 2014 Similarly, Sarma (2012) calculated the index of financial inclusion depending on combining various banking sector indicators so that the index incorporates information

on various dimensions of the inclusive financial system such as accessibility, availability, and usages of banking services Especially, the research of Park & Mercado (2018) developed and combined highlight points in financial inclusion index calculated by Sarma (2012) and advantages in using the principal component analysis (PCA) of Carama & Tuesta (2014) to build IFI for 151 countries in 2011 and 2014

To be suited to the research context in Vietnam, this study will calculate financial inclusion through account ownership because owning an account is an important first step toward financial inclusion (Word Bank, 2017) An account is a fundamental product to access financial markets, savings and credit are essential services to expand and improve financial inclusion Nonetheless, having accounts and using accounts are two different things, and reality shows that the step countries need

to promote financial inclusion is how to increase account ownership Moreover, owning an account is an important first step toward financial inclusion (Word Bank, 2017) Furthermore, following Decision No 149/QD-TTg dated January 22, 2020, by Prime Minister, promoting financial inclusion, and enhancing individuals (age 15+) having an account at the financial institution at least 80 percentages are financial inclusion in Vietnam Therefore, in line with Demirgüc Kunt & Klapper (2012) and

Cámara & Tuesta (2014) having an account at the financial institution is financial inclusion in this study

2.2 REVIEW OF PREVIOUS STUDIES

2.2.1 Fintech and financial inclusion

The prior studies focus on clarifying these groups of factors leading to financial differences among countries Key factors include education and economic growth development, financial market development, social development, and institutional quality Rojas-Suarez & Amado (2014) indicated that four types of obstacles explaining the absolute level of financial inclusion, institutional deficiencies, and income inequality are the most important obstacles behind the financial inclusion gap Similarly, Park & Mercado (2015, 2018) identified that the level of economic development is a key factor affecting financial inclusion Nevertheless, only a few studies examine the effect of fintech on financial inclusion despite its important role Hence, there should be more theoretical studies as well as experimental evidences on the impact of fintech on financial inclusion AFI (2018) aspirated that recent innovation

in mobile technology penetration enables fintech to narrow the formal account ownership gap between groups about an individuals‘ characteristics such as income, education and overcome barriers to financial inclusion According to World Bank (2018), fintech- technological innovation has appeared to overcome the barriers preventing probability access to financial services Moreover, fintech- mobile financial services can enable financial inclusion, which creates more conditions for the unbanked to participate in the financial system (GPFI, 2018) By using a mobile phone, individuals can benefit from financial services through fintech (Demirgüç-Kunt et al., 2018) Besides, the mobile phone is expected as a potential instrument for fintech to enable financial inclusion It is challenging to deepen financial inclusion without fintech

According to Arner et al (2020), fintech is the key driver for financial inclusion These authors suggested that the best way to promote financial inclusion by the full potential of fintech is to focus on pillar II ―Mobile money is the most potential factor

to financial inclusion‖ in general and in particular to this study Most studies have found that mobile money is a key driver of financial inclusion (see Senyo & Osabutey, 2020; Jakhiya et al., 2020; Li et al., 2020) Synthetically, in this study, author focus on mobile money—a form of fintech innovation that enables financial inclusion With few exceptions Peruta (2018), most studies have found that fintech is an important driver of financial inclusion (Jack & Suri, 2011; Mbiti & Weil, 2011; Ghosh, 2016; Gosavi, 2018; Tchamyou et al., 2019) Especially in developing countries like Kenya, through M-PESA- a mobile banking system operated by Safaricom Jack & Suri (2011) found that fintech has always been used by a non‐negligible share of those with lower economic means, it has quickly expanded its reach into these groups and is now used

by households with a wide range of economic, demographic, and educational characteristics Unearthing mobile money is antecedent to financial inclusion Mbiti & Weil (2011) identified that fintech has led to significant decreases in competition prices, which helps the unbanked access to financial services and indirectly increase financial inclusion Moreover, the authors find that frequent fintech users are more likely to be urban, educated, banked, and affluent Ghosh (2016) investigated that mobile telephony was observed to exert a significant impact on financial inclusion and especially on loan behaviors

There is evidence of a strong association between the level of mobile phone penetration and financial inclusion across and within countries (e.g Andrianaivo & Kpodar, 2012; Ghosh, 2016) Andrianaivo & Kpodar (2012) examined the impact of mobile phone rollout on economic growth in a sample of African countries from 2008

to 2017 and investigated whether mobile phone development fosters economic growth through better financial inclusion, using the data consisting of a panel of 44 countries

Study findings revealed that mobile phone development contributes significantly to economic growth in African countries Part of the positive effect of mobile phone penetration on growth comes from greater financial inclusion

There is also evidence of a positive relationship between mobile money use, on the one hand, and household and firm financial inclusion, on the other Households with a mobile money account tend to be banked, receive/send remittances more frequently, and accumulate more savings (Morawczynski, 2009; Ouma et al., 2017) Recent studies of Ouma et al (2017) showed that financial innovations like mobile phones' availability and usage use to offer financial services that promote savings at the household level and improved the amounts saved Morawczynski (2009) also revealed that fintech helped women save money from interference caused by their male counterparts and vice versa According to empirical research in India, the majority of fintech users increased the ability to save after using mobile money, in contrast to earlier practices, such as keeping cash in hand A study by Gosavi (2018) found that fintech has also been found to positively impact SME financial inclusion through its effects on increased access to bank credit

By inheriting previous research and fintech measurement researched, author has drawn a more comprehensive view of enabling financial inclusion through fintech- mobile money usage and a foundational basis for fintech indicators Details:

Mobile phone used to use of specified services As these services are covered in The Global System for Mobile Association‘s program for the Unbanked and work independently from a bank account, it can be considered as formal account It offers a more feasible way for people to approach financial services The definition of mobile money account is limited to services that can be used without an account at a financial institution (see Senyo & Osabutey, 2020; Jakhiya et al., 2020; Li et al., 2020)

Mobile phone used to pay utility bill and mobile phone used to receive the payment In line with Asongu & Odhiambo (2018) and Asongu & Nwachukwu (2018),

fintech is proxied by the use of mobile phones to pay bills According to the findings of Asongu et al., (2019), which indicated that digital payment has a direct and indirect effect on financial inclusion in the study conducted in northern Uganda Moreover, Senyo & Osabutey, (2020) observed that fintech innovations- mobile money usage play a key role in deepening financial inclusion

Owning a mobile phone This indicator will be measured regarding mobile phone ownership A study (Nagpal et al, 2020) indicated that mobile phone ownership has a positive association with financial inclusion indicators in BRICS economies Like the previous point, the study (Kpodar, 2020) showed that mobile phone penetration has

a significant effect on financial inclusion

2.2.2 Financial inclusion and other determinants

According to The Global Findex database 2017 (World Bank 2017), individuals' characteristics affect account ownership- an important first step toward financial inclusion such as gender, education level, age, and income

Demirgüc-Kunt & Klapper (2013) evaluated the personal finance access of 98 developing countries using the Global Findex database 2017 (Table 2.3) The results showed that a significant gender gap exists in account ownership, savings, and formal credit Women have more formal credit barriers, such as limited financial literacy, less business experience, and difficulty providing collateral In addition, results show that income is the main factor influencing access to financial inclusion The costs associated with owning an account have become a significant barrier to low-income individuals Many people, especially those on low incomes, will not use financial services because they are expensive and not affordable

Allen et al (2016) used the Global Findex database 2012 to analyze individual characteristics and national characteristics affecting access financial inclusion The results show that income and educational attainment have a significant impact on access to financial inclusion The probability of owning an account at the financial

institution and the possibility of official savings is more significant for those with higher income, higher education level, the older, the urban, the employed, married, or separated Formal borrowing increases for the older, educated, rich, and married men Table 2.3 The Summary table of literature review on the determinants of financial

factors Franklin

Allen, et al

By its literature review, potential individuals' characteristics indicators are chosen:

 Age According to much previous research, adults are likely to be more demanding for financial products than that for the very young generation Nevertheless, since aging, adults may have to encounter various challenges in being able to access financial services such as limitation of mobility, physical impairments, cognitive decline and diminishing financial literacy (MacLeod et al., 2017) Others may find

it rather difficult to commute to conventional financial institutions due to distance

or to keep pace with technology changes in digital banking Some may not have the flexibility to deal with their finance (Bleijenberg et al., 2017) or to recollect passwords and pin cards To a certain extent, it is relevant to Vietnam‘s case in which the old have the likelihood to suffer the loss of independence and social exclusion They prefer being secured by saving their earnings in cash or keeping gold and jewelry in hand as long as they could For the above-mentioned reasons, age may become a limitation for the elderly to be financially included at a certain threshold

 Gender Attributable to Demirguc-Kunt & Klapper (2012), it has been recognized that gender gaps are supposed to appear in account penetration in developing countries, irrespective of the level of income, education, age, and region Legal discriminations against women (even at the workplace or within the household), and gender norms (such as domestic violence and marriage stress), create many difficulties for women in having a bank account, using saving and credit products (Demirgüç-Kunt et al., 2013) Some reports pointed out that women encounter an obstacle because of their mobility, physical, and financial ability For the above-mentioned reason, it is more likely for men to have an account at most banks than women Gender bias is believed to exist in financial inclusion, especially in developing countries such as Vietnam

 Income The close linkage between income and inclusiveness is proposed by Sinha

& Subramanian (2007) propose It is found that households have a low income stream relevantly hardly hold a formal account It is explainable as they have little incentives to keep money and are disentitled for a few certain financial products Demirgüç-Kunt & Klapper (2013) raised a voice that in many countries, possessing

a checking account is taken into account as an unnecessarily expensive thing due to the high transaction costs, especially towards those who have a low-income stream

 Education Several type of researches (Akudugu, 2013; Cámara & David, 2015; Fungáčová & Weill, 2014; Allen et al., 2012) noted that there is a positive linkage between education level and inclusiveness Atkinson & Messy, (2013) stressed the significance of education, especially financial literacy in enhancing financial inclusion People with lower education levels are less likely to possess a high level

of financial literacy and ineligible for financial products, which prevents them from being involved in an exceedingly kind of financial practices

Summary of chapter 2:

To understand the concepts and the theoretical basis of the research topic about factors affecting financial inclusion, chapter 2 gives an overview of the theory applied

in the topic, the concept of factors will research

Besides, chapter 2 also mentions definitions, and the author selected previous studies for appropriate research direction

3.1 REGRESSION METHOD

3.1.1 Binary model

To overcome the problems with the linear model, there exists a class of binary

choice models (or univariate dichotomous models), designed to model the ‗choice‘

between two discrete alternatives Essentially, the probability of these models is described directly by yi =1, though they are often derived by an underlying latent variable model (seebelow) The formula (1) will be shown for function G(i):

P {yi = 1| xi} = G(xi, β) (1) Based on (1), as can be seen, if yi =1, it will depend on the vector xiwhich is contained individual characteristics For instance, the probabilitythat a person owns a house can be given by other information such as his income, education level, age and marital status On the other hand, regarding a different field, the probability that an insect in terms of surviving a dose ofpoisonous insecticide depends upon the quantity

xiof the dose, and possibly some othercharacteristics Clearly, from the formula (1), the function of G(.) should take on values in the interval [0, 1] only Moreover, the functions of the form G x i,F x i usually restrict attention as F(.) is also recognized as the value from 0 to 1 and naturally, it seems to choose F to be somedistribution functions So, common choices are experienced in the standard normal distribution function:

:

2 2

yi equalsone concerning to a continuous explanatory variable Xik say Combining to three models above, the formula is presented:

 

1

i i

x i

k x ik

x

x 

 

Where φ(.) denotes the standard normal density function Exception for the last model, about depend upon the values of xi, xik will have an effective change In all cases, however, xik and βk are the same in the sign of the effect of a change and the sign

of its coefficient consecutively For a discrete explanatory variable, for example a dummy, affecting of a change can be determined by computing the implied probabilities for the two different outcomes, and it also fixed the values of all other explanatory variables

function of the unknown parameter vector β, and similarly to yi = 0 The equation thus gives the likelihood function for the entire equation:

it is reappeared While f x   i /F x i for the positive observations (yi = 1), there is an opposite trend in the formulaf x i / 1 F x i , with zero observations (yi = 0) Thus, the first order conditions say that each explanatory variable should be orthogonal

to the generalized residual (over the whole sample) Compared to the OLS first order conditions, it is experienced that the least squares residuals are orthogonal to each variable in xi So, the model can be simplified to belong to the probit model (7)

 

 

1

exp log ( )

ˆ

1 exp

i i

i

x p

is negative definite (assuming that the xs are not collinear) Consequently, the log likelihood function is globally concave and convergence of the iterative maximum likelihood algorithm is guaranteed (and usually quite fast)

3.2 TESTING

3.2.1 Wald test

The Wald test approximates the likelihood ratio test, but with the advantage that

it only requires estimating one model The Wald test works by testing the null hypothesis that a set of parameters is equal to some value In the tested model, the null hypothesis is that the coefficients of interest are simultaneously equal to zero If the test

fails to reject the null hypothesis, this suggests that removing the variables from the model will not substantially harm the fit of that model, since a predictor with a coefficient that is very small relative to its standard error is generally not doing much

to help predict the dependent variable The formula for a Wald test is a bit more daunting than the formula for the likelihood ratio test To give out an intuition about how the test works, it tests how far the estimated parameters are from zero (or any other value under the null hypothesis) in standard errors, similar to the hypothesis tests typically printed in regression output The difference is that the Wald test can test multiple parameters simultaneously, while the tests typically printed in regression output only test one parameter at a time

3.2.2 The Lagrange multiplier or score test

As with the Wald test, the Lagrange multiplier test requires estimating only a single model The difference is that with the Lagrange multiplier test, the model estimated does not include the parameter(s) of interest For example, the Lagrange multiplier is used to test whether adding science and math to the model will significantly improve model fit after running a model with just females and read as predictor variables The test statistic is calculated based on the likelihood function's slope at the observed values of the variables in the model (female and read) This estimated slope, or ―score‖ is why the Lagrange multiplier test is sometimes called the score test The scores are then used to estimate the improvement in the model fit if additional variables were included in the model The test statistic is the expected change in the chi-squared statistic for the model if a variable or set of variables is added Because it tests for improvement of model fit if variables that are currently omitted are added to the model, the Lagrange multiplier test is sometimes also referred

to as a test for omitted variables They are also sometimes referred to as modification indices, particularly in the structural equation modeling literature

3.3 RESEARCH DATA

In the research scope, the author only raises the necessary research issues, the processes, methods, and purposes of the research method will be directed to reach the goal The subject does not go into great detail on accuracy testing to analyze analytical methods' intellectual properties

The thesis uses quantitative research methods to analyze the relationship between factors on the financial inclusion nationwide Vietnam in 2017 The author analyzes the data with 1000 respondents surveyed in 2017 and using Stata 16 software

to examine The author's research method is also referenced on the basis of the topics

in advance of the research objectives, methods to synthesize and propose methods to apply to suit the topic and the goal of the topic For matters affecting fintech, most of the researches before using qualitative methods and partly quantitative determine the relationship between financial inclusion and factors To clarify the factors affecting the financial inclusion in Vietnam, the quantitative research method is conducted to comment, evaluate and draw final results

The author uses survey data from the World Bank's Global Findex 2017, published in April 2018 This data is collected through surveys of more than 150,000 adults over 15 in more than 140 countries by Gallup, Inc It includes individuals' characteristics and modernized details of the manner respondents access financial services From 2011 to 2017, once each three years, about 1000 respondents are chosen

to interview randomly 1002 respondents representing about 81 percent of the population (excluding 11 provinces: Nghe An, Thanh Hoa, Kien Giang, GiaLai, Dak Lak, Ha Giang, Ha Tinh, Kien Giang, Kon Tum, Quang Binh, An Giang, and Dien Bien with the target "population is the civilian, non-institutionalized population 15 years and above." The mobile money account is not explored in the 2011 database, so the panel data is non-necessary to examine the tendency of financial inclusion Because