MINISTRY OF EDUCATION TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY HO CHI MINH CITY TRẦN THIÊN PHÚC ENABLING FINANCIAL INCLUSION THROUGH FINTECH GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 HO CHI MINH CITY, 2021 MINISTRY OF EDUCATION TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY HO CHI MINH CITY TRẦN THIÊN PHÚC ENABLING FINANCIAL INCLUSION THROUGH FINTECH GRADUATION THESIS MAJOR: FINANCE – BANKING 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. i 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 ii 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., 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. iii TABLE OF CONTENTS ABSTRACT.iii CHAPTER 1 INTRODUCTION.4 RESEARCH SUBJECT AND SCOPE.6 CHAPTER 2 LITERATURE REVIEW.1 DEFINITIONS AND MEASUREMENT.2 The measurement of fintech.3 Financial inclusion definition.4 The measurement of financial inclusion.2 REVIEW OF PREVIOUS STUDIES.1 Fintech and financial inclusion.2 Financial inclusion and other determinants.2 The Lagrange multiplier or score test. 30 CHAPTER 4 RESULTS AND DISCUSSION.1 FINANCIAL INCLUSION AND FINTECH.2 FINANCIAL INCLUSION AND OTHERS DETERMINANTS INVIETNAM.1 Financial inclusion and gender.2 Financial inclusion and income.3 Financial inclusion and education.38 CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS.3 LIMITATIONS AND FUTURE RESEARCH.50 vi LIST OF ABBREVIATIONS AFI Alliance of Financial Inclusion AI Artificial Intelligence ASIC Australian Securities & Investments Commission ATM Automated Teller Machines 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 vi LIST OF FIGURES AND TABLES Table 2. Measurement of Fintech.3 The Summary table of literature review on the determinants of financial inclusion21 Table 3.1 Definition and measurement of variables.1 Adult with an account (%).2 Adults with mobile money account (%).3 Aldults with utility bill payments (%).4 The size of the gender gap in account ownership (%).5 Poorer adults are less likely than wealthier ones to have an account (%).6 Less-educated adults are less than well-educated ones to have an account (%).8 The determinants of financial inclusion in Vietnam.
Mobile cellar subscriptions and individuals using Internet in Vietnam.1 Adult having the formal account 46 Figure 5.2 Individual accounts 46 vi 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 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 1 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 2 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. 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 one- twice compared to countries with the same income (56 percent) (World Bank, 2018).
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 e- 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). 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. 3 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 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.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.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.
4 The research scope includes 1000-observation survey in Vietnam by World Bank in 2017, the Latest Global Findex Database.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.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, .