Factors affecting the credit access for individual business household in Vietnam

ndividual 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 Informal credit (and even loan sharking) is not always completely bad because 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 using mainly its own capital for production and business. From 2007 to 2014, the average equity to total capital ratio ranged from nearly 89% to about 93%. Access to 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 Gender of household owner Male 550 76.18% Female 172 23.82% Average income of the household (monthly average, unit: million VND) Under 10 232 32.13% From 10 - under 20 267 36.98% From 20 - under 30 182 25.21% From 30 or more 41 5.68% Operational area City 354 49.03% Countryside 368 50.97% Average number of years of business Less than 1 year 28 3.88% From 1 to less than 5 years 267 36.98% Over 5 years 427 59.14% Average number of employees per household Under 3 162 22.44% From 3 to less than 10 498 68.98% From 10 or more 62 8.59% Source: Author's calculations Among the individual business households surveyed, the number of household owners with level of education from primary school and below is very low, at only 46 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 said that it is not the interest rate that is the hindrance, but the appraisal time. 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 ( 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 second time, the variables DK1, DK2, DK3 were excluded because of the load factor is lower than 0.5. Table 3.9. KMO and Bartlett test KMO 0.894 Bartlett test 5675.71 Sig. 0.000 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 Figure 2. SEM results of access to informal credit 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 (Y_DINH)
Gender_ Social influence (GT_XH) 0,183 0.018 -10.015 *** Intention to use (Y_DINH)
Number of years_ Expected effort (SVN_NOLUC) 0.058 0.017 3.347 *** Intention to use (Y_DINH)
Gender_Financial literacy (GT_HB) 0.142 0.017 8.485 *** Intention to use (Y_DINH)
Number of years_ Financial literacy (SVN_HB) -0.055 0.016 -3.340 *** 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 an influence on the relationship between the factors “Expected effort” and “Financial 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. - Develop a clear and coherent legal framework and sanctions for possible risks 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 for