Luận văn thạc sĩ UEH determinants of access to formal credit by small and medium enterprises in

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

DETERMINANTS

OF ACCESS TO FORMAL CREDIT

BY SMALL AND MEDIUM ENTERPRISES

IN VIETNAM

By

TRAN NGUYEN THUY BAO ANH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

Ho Chi Minh City, April, 2014

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM – NETHERLANDS

PROGRAMME FOR M.A. IN DEVELOPMENT ECONOMICS

DETERMINANTS

OF ACCESS TO FORMAL CREDIT

BY SMALL AND MEDIUM ENTERPRISES

IN VIETNAM

A thesis

submitted in partial fulfillment of the requirements for the degree of

Master of Arts in Development Economics

By

TRAN NGUYEN THUY BAO ANH

Academic supervisor

Dr. PHAM KHANH NAM

Ho Chi Minh City, April, 2014

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i

DECLARATION

I declare that: "Determinants of access to formal credit by small and medium enterprises

in Vietnam" is my own work; it has not been submitted to any degree at other universities.

I confirm that I have made all possible effort and applied all knowledge for finishing this

thesis to the best of my ability.

Ho Chi Minh City, April 2014

TRAN NGUYEN THUY BAO ANH

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ACKNOWLEDGEMENT

This thesis would not have been accomplished without the kind assistance and

enthusiastic guidance of several individuals who have in one way or another contributed

toward to the formation and fulfillment of this paper.

First of all, I would like to express our deepest gratitude to my supervisor Dr. Pham

Khanh Nam for invaluable comments, guidance and engagement through the learning

process of the thesis.

I would like to express my special thanks Dr. Truong Dang Thuy for his comment

and advice about thesis research design.

Another special thank goes to Nguyen Quang, from whom I have a lot of things to

learn. I am thankful for Phan Thach Truc for all your kind help during my time in class 17.

I sincerely would like to thank all my loved classmates in class MDE17 and staff in

the VNP office, who always give me their restless assistance when I was in trouble.

Last but not least, I must express my most gratitude to my family members for all the

kind understanding and spiritual support.

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iii

ABSTRACT

The shortage of capital and difficulties in accessing bank loans were the most challenging

issues for SMEs. According to a survey of SMEs Development Department - Ministry of

Planning and Investment, only one-third of SMEs can access to bank funds; one-third has

obstacles to reach the loans; and one-third cannot access. Among businesses in VN which

could not access to bank loans, the 80% does not meet loan conditions

The descriptive statistic result shows that State Owned Commercial Bank (SOCB) is the

most important formal source for SMEs. The banks appreciate the Certificate of Land Use

Right or housing which can be used as collateral for the most important formal loans. The

enterprises which applied for formal loans may be have problems getting loans. The main

reasons are difficulties in obtaining clearance from bank authorities and lack of collateral.

Enterprises in credit constrained group have the option of accessing to the informal credit

market. The proportion of credit constrained group applied for informal credit is always

higher than non- credit constrained. These proportions have tended to increase for both

groups.

Asymmetric information is the main theory of the research to classify the factors

determining access to credit of SMEs into three main groups: (i) a grouped factor

representing for Owner’s characteristics comprises education, ethnicity, (ii) a grouped factor

representing for firm’s characteristics consists of firm age, firm size, type of firm, (iii) a

grouped factor representing for relationship between banks and borrowers includes

previously borrowed, overdue debt.

Based on the data set of 1427 enterprise from “Characteristics of the Vietnamese business

environment: evidence from a SME survey in 2009”, the research has applied probit model to

identify determinants of access to formal credit by small and medium-sized enterprises

(SMEs) in Vietnam.

The result shows that Education (negative), Employee, Equipment, Liabilities and

Borrow (positive) which are significant on probabilities of access to credit. The research

finds that 50% of enterprises have probability of access to credit higher than 75.4%. The

paper finds that Ethnicity, Year, From, Revenue, Ap, Ar, Overdue debt do not contribute to

credit access of SMEs and are not significant at 10% level.

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In conclusion, the formal credit market plays a very important role for capital of SMEs.

However, access to this source is still a challenge for SMEs. The barriers, difficulties in

accessing credit from formal sources have forced the SMEs to involve in the informal credit

market.

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