VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY --------------------------- PHAM THANH DUNG DETERMINANTS OF LOAN REPAYMENT PERFORMANCE OF MICROBUSINESS BORROWERS IN VIETNAM MAJOR: MASTER OF BUSINESS ADMINISTRATION CODE: 8340101.01 RESEARCH SUPERVISORS: Prof. HIROSHI MORITA Assoc. VU ANH DUNG Hanoi, 2020 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com THESIS ACKNOWLEDGMENT Foremost, I would like to express my sincere gratitude to my advisors Dr. Vu Anh Dung and Dr.
Hiroshi Morita for the support of my Thesis study and research, for their motivation, and immense knowledge, as well their experience in the field. Their guidance has helped me much in the time of research and writing of this thesis. Besides my advisors, I would like to sincerely thank the rest of my thesis committee: Prof. Tran Thi Lien, Dr.
Tran Thi Bich Hanh, and especially Dr. Yoshifumi Hino, for their encouragement, insightful comments, and hard questions. My thanks also go to Ms. Nguyen Thi Huong, MBA program assistant who has enthusiastically supported me in the process of completing the procedure, as well as connecting for smooth communication between students and advisors in the time of my doing research.
i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF THE CONTENTS ABSTRACT. iv LIST OF TABLES. vi LIST OF FIGURES. vii LIST OF DEFINITIONS AND ABBREVIATIONS.
viii CHAPTER ONE: INTRODUCTION. Background of the Problem. Statement of the Problems. Objectives of the Study.
Scope of the Study. Structure of the research.6 CHAPTER TWO: LITERATURE REVIEW. Concept and Definition. Related Literature Reviews to the Variables Used in the Study.
Cox Regression Model .1 Comparison of models on the random sample .26 CHAPTER THREE: DATA AND METHODOLOGY. Description of the Study Area. Sampling procedure and technique. Variables in the Research 3.
Method for Data Analysis .6 Summary of Cox Model factors in this research.38 ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 4: RESULTS AND DISCUSSIONS. Results of the Cox Proportional Hazard Model .51 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS. Recommendations for Further Research. Limitations of the Study .73 iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT Introduction: Vietnam is a developing economy where the service industry and light industry account for a big percentage of businesses in the economy.
Businesses in these sectors are almost small and micro enterprises and household/family businesses (MSEs). They are always in need of capital for their activities. However, it’s very difficult for them to get access to loans from banks and credit organizations. Because they almost don’t have collateral to secure for their loan and are not able to provide an eligible financial statement which is usually required by banks.
Consequently, banks or creditors are not interested in offering loan to such clients because they usually don’t have collaterals and have difficulties in providing documents as required by banks, which is very risky to a bank if they accept such types of customers, whereas, there are not enough tools to define and mitigate relevant risk. It’s very difficult for them to determine which are key factors affecting on loan repayment performance of micro-businesses in Vietnam, especially when using cash in payment is still popular, which makes banks find it more difficult and not interested in loans for micro business. So, detailed research on the determinants of loan repayment performance of micro-businesses in Vietnam is essential Objectives: The objectives of this research is to analyze the determinants of credit risk of loan repayment performance of micro-businesses in Vietnam Methodology: A study was conducted on 200 enterprises and household businesses who have taken loans from Banks and P2P lending companies in Vietnam in 24 months starting from Jan 2018 to the end of 2019 (Regarding the average term of a loan is 12 months). The data used in this study was the secondary data from a joint-stock commercial bank and a P2P Lending company in Vietnam.
The Cox regression model is used with twelve explanatory variables. Loan repayment status/Default rate is the dependent variable, while twelve characteristics of borrower and the enterprise owned by the borrower’s characteristics are considered as explanatory variables. In this case, the value of the dependent variable (loan repayment status) is 0 and 1, if borrowers defaulted it takes 1 and otherwise 0. Results: Ten out of eleven significant factors identified through the relevant model are: Gender, Age, Housing, Educational level, Business sector, Years in business, Percentage of share, Digital sales channel, Number of Clients, and Turnover stability in 6 latest months, are the key factors that affect the loan repayment performance.
Among them, 5 new factors which are analyzed regarding Vietnam iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com economy’s characteristics and as a result of this Research are: Percentage of share owning, Digital sales channel, Number of clients, Turnover stability in 6 latest months and Years in Business. Conclusion: Hence, regarding the Research’s result, Banks and financial companies can use it to build their credit scoring models or system. Accordingly, increase their ability in risk management as well as enhance their desire in helping MSEs get the loan that suitable and necessary for them, which is very important to improve economic growth. Policymakers should pay attention to issue more proper policy to further support for MSEs who have been given with not enough financial as well as non-financial aids.
Furthermore, enterprise’s stakeholders can use this research’s result to increase performance rating for themselves and improve its rating to banks and creditors. Keywords: Credit risk; Loan repayment performance; Microcredit; Micro business; Cox Regression model. v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 2.1 Comparison of models on the random sample .2: Description of independent variables .1: Status of repayment.3: Summary statistics for continuous variables .4: Univariate analysis result for each covariate .5: Multivariate Cox Proportional Hazards Regression results.6: Final model of Cox PH .7: Cox Model with Time-Dependent Covariates. Analysis of The variable of “Business sector” as categorical variable.48 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 1.1 Enterprise size categorizes by capital scale and labor scale.
2 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF DEFINITIONS AND ABBREVIATIONS Asymmetric information Information failure occurs when one party to an economic transaction possesses greater material knowledge than the other party Adverse selection Adverse selection is when sellers have information that buyers do not have, or vice versa, about some aspect of product quality Banks A financial institution that accepts deposits from the public and creates Demand Deposit. Lending activities can be performed either directly or indirectly through capital markets Creditors A creditor is a party (e., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed Credit Scoring Creditworthiness test system or also known as Credit Risk Rating system Credit risk The risk of default on a debt that may arise from a borrower failing to make required payments, including both principal and interest Debtor A debtor (also, debitor) is an entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person F&B Food and Beverage industry Financial company One that makes loans.
It may offer loans to both individuals and businesses. Usually, when we think of a financial company, we think of one that offers short- term loans to individuals. However, it may extend credit to businesses, both small and large, as well. HHs Household business or family business MSEs Micro and small enterprises MSMEs Micro, small and medium enterprises.
Microcredit Microcredit is the extension of very small loans (microloans) to impoverished borrowers who typically lack collateral, steady employment, or verifiable credit history. Microfinance A category of financial services targeting individuals viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com and small businesses who lack access to conventional banking and related services. Microfinance includes microcredit, the provision of small loans to poor clients; savings and checking accounts; micro-insurance; and payment systems NPL Non-Performing-Loan is a loan that is in default or close to being in default. Many loans become non- performing after being in default for 90 days, but this can depend on the contract terms.
Loan repayment Repayment of part of a loan, usually includes principal and interest, monthly P2P Lending company Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. Peer-to-peer lending companies often offer their services online, and attempt to operate with lower overhead and provide their services more cheaply than traditional financial institutions Working capital is defined as current assets minus current liabilities Secured loan A secured loan is a loan in which the borrower pledges some asset (e. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. SMEs Small and medium enterprises Unsecured loan An unsecured loan is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral.
Unsecured loans—sometimes referred to as signature loans or personal loans—are approved without the use of a property or other assets as collateral. ix LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER ONE: INTRODUCTION 1. Background of the Problem Micro enterprises and trading households (MSEs) play a vital role in the economic growth of Vietnam. MSEs not only contribute to GDP of Vietnam, but also help create millions of jobs which make direct contribution to reduce unemployment and enhance public welfare.
Vietnam is home to 700,000 enterprises registered under the Law on Enterprises and more than 5.2 million trading households, in addition to foreign-invested enterprises. In this case, the private sector accounts for over 60% of the GDP, which undoubtedly makes it a driving force of the economy (The Vietnam Investment Review, 2019). In terms of labor scale, nearly 98% of total enterprises in Vietnam are classified as Micro, Small and Medium Enterprises (MSMEs) while large-sized enterprises account for only the remaining 2% (Decree No. Moreover, by the General Statistics Office of Vietnam, in 2017, Vietnam also has more than 5.2 million trading households (HHs) which have similar characteristics as micro enterprises (GSO, 2016).
This research, research subjects are included of both micro-enterprises and trading households, which is abbreviated as MSEs in this document. 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.1 Enterprise size categorizes by capital scale and labor scale Since 2000, when the Enterprise Law was promulgated, Vietnam is emerging as an attractive and potential address for investors from all over the world. According to the Annual Business Report 2016 by Vietnam Chamber of Commerce and Industry, Vietnam witnessed a considerable increase in the number of new enterprises registered, number of employees, as well as total capital during the 2007-2015 period. In line with the remarkable economic development of Vietnam overall, small and medium-sized enterprises (SMEs) in Vietnam also have experienced amazing growth, especially However, 70-80% MSEs in Vietnam have been facing with many challenges and difficulties.
One of key challenges to them is not having access to finance through formal channels (Banks, other financial companies). According to the Insight Asia survey of SMEs in 4 areas of F&B, supporting industry, fashion apparel and cosmetics which have fewer than 200 employees and now have stable production with workshops but intend to expand, or relocate its production / service area, 62% of the respondents said that they faced difficulties in capital (mainly to invest in factories, machinery. 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com In recent years, it is easier for MSEs to get a loan due to an increase in credit channels to them. Some banks and financial companies such as VPBank, FEcredit, MSB, etc… have started offering loans to MSEs, but the number is still limited.