TRANSFORMING TOWARD GREEN UNIVERSITIESFINANCIAL CONSTRAINTS AND POLICY IMPLICATIONS45408

Vietnam National University - University of Economics and Business TRANSFORMING TOWARD GREEN UNIVERSITIES-FINANCIAL CONSTRAINTS AND POLICY IMPLICATIONS Pham Vu Thang* VNU University of Economics and Business, Vietnam National University ABSTRACT Universities have played important roles in sustainable development Universities have been consuming energies, releasing CO2 emissions and producing wastes In addition, universities take social responsibilities to be sustainable themselves, and train the young generation to be future leaders with a sustainability mindset In developed countries such as UK, in response to UK Climate Change Act universities have developed their carbon management plans to cut down carbon emission by 34% by 2020 and 80% reduction by 2050 from the 1990 baseline In Vietnam, universities have still played little roles in contributing the National Green Growth Strategy There have not been any specific policies on universities as an agent for implementing and promoting this goal This paper discusses opportunities and challenges when universities can apply renewable energy to use energy more efficiency and to cut down CO2 emissions Key factor to hinder the application of Vietnamese universities is financial constraint Policy recommendations are discussed Keywords: Green university model, sustainable development, CO2 emissions, GHG emissions, energy saving company THE GLOBAL CONTEXT OF ENERGY CONSUMPTION AND PRODUCTION AND CO2 EMISSIONS According to BP Statistical Review of World Energy (2019), global energy consumption has increased rapidly for decades In 2018, the global energy consumption reached 145,953 TWh, over 1,5 times of the 1990 global energy consumption (87,397 TWh) * Corresponding author Email address: thangpv@vnu.edu.vn 53 Green financial system in Vietnam - Challenges and impacts on the economy In which, Asia Pacific countries have contributed for nearly half of the global energy consumption in 2018 The region’s consumption was one third of the global energy consumption in 2000 In 1990, it was one fourth of the global energy consumption North America and Europe have shown the stable energy consumption over the last three decades The rest of the world such as Africa, South and Central America shows the decreasing shares in the global energy consumption In terms of global energy sources, the chart below shows the proportion of energy sources in the global energy consumption In 2018, oil accounted for 37%, whereas coal was 30%, gas was 26% Renewable energies such as wind, solar and other type of renewable energies accounted only 1.6 % of the global energy production 54 Vietnam National University - University of Economics and Business In terms of sources of CO2 emissions, according to International Energy Agency in 2014 electricity and heat production contributed 49% of the global CO2 emissions, transportation 20%, manufacturing industries and construction 20%, residential buildings, commercial and public services 9% and other sectors 2% Over the period of 1960 to 2014, the CO2 emissions of proportion of electricity and heat production have increased steadily suggesting that replacing polluted electricity production by renewable energies such as solar, win, biomass power play important roles in cutting down CO2 emissions Universities including plenty of flat roofs have suitable conditions for producing solar energies to reduce CO2 emissions THE ROLE OF UNIVERSITIES IN SUSTAINABLE DEVELOPMENT A number of studies analyse the important role of universities in climate change and sustainable development Betts (2001) and Dahle and Neumayer (2001) point out waste and greenhouse gas emissions from operating activities of universities can affect directly with adverse impacts on the environment The rapid scaling of universities can increase the risk of deterioration of the natural ecosystems Waste, water, electricity and fuel for lighting, heating, cooling, the use of laboratories, operation of buildings, and transportation, all exert negative impacts on the environment (Alshuwaikhat and Abubakar, 2008) Dahle Neumayer (2001) point out universities also have indirect impacts on the environment through their consumption of energy, construction materials, paper and food These impacts can be compared with those of cities, however usually at smaller scale Therefore, the university’s operations are required to be efficient in order to bring a positive impact to the surrounding environment In practice, in the UK, Mazhar et al (2019) recorded that in 2012-2013, British universities consumed 7.9 billion kWh of energy and emitted 2.3 million tonnes of 55 Green financial system in Vietnam - Challenges and impacts on the economy carbon emissions The higher education sector emitted only 0.5% of the national carbon emissions Under UK Climate Change Act, British universities have set a target to reduce 80% reduction by 2050 and 34% by 2020 from the 1990 baseline In US, Sinha et al (2010) estimated in 2005 US universities and institutions emitted 2% of total American GHG emissions Despite of the relatively low proportion of emission in these countries, universities have played important roles in society to be greener Viebahn (2002) studies the contribution of universities to the development of the society emphasizing that universities have an important social responsibility, especially related to training young generations and raising community awareness about sustainable development Universities also have the mission of research and teaching, thereby positively affecting the behaviors of lecturers and students as well as the communities through lessons on how to live and work effectively and environment- friendly A MODEL TO TRANSFORM INTO A GREEN UNIVERSITY There are various ways to transform universities to be greener Nguyen Thuy Anh and Pham Vu Thang (2017) have suggested the model of green universities includes four core elements namely governance and policies, operations, education research and extra-curricular activities and community involvement Other activities and stakeholders involved in these activities are displayed in Figure Figure 1: Green University Model (Source: Nguyen Thuy Anh and Pham Vu Thang (2017) The first column includes the core elements of a green university including governance and policies, operations, education, research and extra-curricular activities, and community involvement and social responsibility of a university The second column in the middle is the break-out of these four components The third column shows the involvement of various stakeholders or actors in the process of building and implementing a green university 56 Vietnam National University - University of Economics and Business Figure The component of Governance and Policies Source Nguyen Thuy Anh and Pham Vu Thang (2017 Figure shows the first component “Governance and polices” Firstly, a green university should have sustainable vision, mission and strategies, and they can be displayed in the university website It will lead to greater mission, objectives and strategies and be implemented in action plans of that university These strategies and plans are also needed for the monitoring and evaluating process A sustainability committee including leaders, managers, lecturers, staff members, students, even companies and other local organizations play a key role in developing a university’s vision, mission, targets, action plans as well as in the monitoring and evaluation of how these vision, mission, strategies and plans have been implemented in practice Figure The component of Operations Source: Nguyen Thuy Anh and Pham Vu Thang (2017 The second component of the model is operations which is also considered as the hard component or hardware of a green university (Figure 3) The component is related to facilities, buildings, campus, electricity and water usage, waste, even transportation and food or dining services and purchasing of a green university In this component, a sustainability team includes lectures, students, officers and staff from various departments and faculties The third category in the model is the academic component of a green university, which is also named as the soft component or software of a green university The education part includes compulsory courses, selective courses and extra-curricular activities The research part requires university to conduct research projects, release 57 Green financial system in Vietnam - Challenges and impacts on the economy publications, figure out solutions and organize seminars/conferences on sustainable topics Extracurricular activities are not only for students but also for university staffs or even leaders and managers Via these activities, the awareness towards sustainable development of in-campus actors as well as local community will be increased Figure The component of Education, Research and Extracurricular Activity Source Nguyen Thuy Anh and Pham Vu Thang (2017 The final component is community involvement (Figure 4) University should be considered as a living lab, in which lecturers and students can make experiments and implement their ideas to solve environmental issues These ideas are brought into reality in the local community Stakeholders include government, NGOs, companies and other universities and research institutions The implementation process of the green university model needs awareness, action and the support from the government Besides, universities need networking with other organizations when conducting activities related to environment and sustainable development Figure The component of Community Involvement Source Nguyen Thuy Anh and Pham Vu Thang (2017) FINANCIAL CONSTRAINTS AND POLICY IMPLICATIONS In order to investigate financial challenges and policies Vietnamese universities have faced to develop solar panels in their campuses, we selected and conducted interviews of Vietnamese university leaders to discuss challenges when universities invest solar panel energy in their campuses Universities have advantages of using renewable energies in their campuses First of all, universities have flat roofs of the classroom buildings, library, students accommodations, and sport halls providing plenty of un-shaded areas for solar panel installations Therefore, the cost of installation and operation is also relatively cheaper Universities can save electricity bills or can sell to the national grid easily because universities often locate at cities or close to large cities so it is not expensive to invest the transmission line from the project to the national grid 58 Vietnam National University - University of Economics and Business Second, price of producing solar panels has reduced sharply The project cost is cheaper accordingly Recently one MW solar project will cost roughly one million USD1 Third, FIT (Feed in Tariff) is an important policy that helps universities/investors to enable to estimate the project size, investment cost and financial rate of return on investment for 10 years Vietnam has issued Decision 11/2017 to promote FIT with the price of buying Kwh is 9.35 US cent, which have attracted a number of large solar energy projects in Vietnam However, universities face challenges to invest in solar panel The main challenge is the electricity contracts are not accepted to international banks and investors According to Dapice (2018), in practice Vietnamese banks have higher interest rates and shorter terms than international banks Local banks often provide 10% of loan for 10 years compared to 6-8% for 15-20 years from commercial international financial institutions Table 1: Feed In Tariffs in Germany in the period of 2005-2012 2005 2010 July 2010 October 2010 2011 January 2012 up to 30 kWp 54.53 39.14 34.05 33.03 28.74 24.43 above 30 kWp 51.87 37.23 32.39 31.42 27.33 23.23 above 100 kWp 51.30 35.23 30.65 29.73 25.86 21.98 above 1000 kWp 51.30 29.37 25.55 24.79 21.56 18.33 conversion areas 43.40 28.43 26.16 25.37 22.07 18.76 agricultural fields 43.40 28.43 — — — — other 43.40 28.43 25.02 24.26 21.11 17.94 Type Rooftop-mounted Ground-mounted Source BMU (2010)" Renewable energy sources in figures-national and international development” https://news.energysage.com/solar-farms-start-one/ 59 Green financial system in Vietnam - Challenges and impacts on the economy Second, the government should have soft loan programmes to finance renewable energy projects in universities, schools, and hospitals These programmes should offer low or zero interest rates and longer payback periods, and loan guarantees Third, FIT policy should have different tariffs depending on the project sizes, and rooftop or ground project For instance, Germany used to FIT policies in different project sizes to attract projects such as universities that can not reach the economy of scale Last but not least, energy services company (ESCO) and third party financing schemes should be encouraged to develop in Vietnam An ESCO is a business providing a broad range of energy solutions including designs and implementation of energy savings projects, energy infrastructure outsourcing, power generation and energy supply, and risk management Third party financing scheme will invest and take the financial risk Universities can save the cost by buying cheaper electricity cost from the third party and when the contract expires they will own the system REFERENCES [1] Betts, K (2001) Greening the campus Environmental Science & Technology, 198-202 [2] Dahle, M., Neumayer, E (2001) Overcoming barriers to campus greening: a survey among higher educational institutions in London, UK International Journal of Sustainability in Higher Education, 2(2), 139-160 [3] Dapice, D (2018), Vietnam’s Crisis of Success in Electricity-Options for a Successful Clean Energy Mix, ASH Center, Harvard University or the Fulbright School of Public Policy and Management [4] Eagan, D.J., Keniry, J., Schott, J (2008) Higher education in a warming world: the business case for climate leadership on campus Available at: www.nwf.org [5] Habib M Alshuwaikhat, Ismaila Abubakar (2008) An integrated approach to achieving campus sustainability: assessment of the current campus environmental management practices Journal of Cleaner Production, 16, 1777-1785 [6] Jessica Finlay, J M (2012) Eco-campus: applying the ecocity model to develop green university and college campuses International Journal of Sustainability in Higher Education, 13(2), 150-165 [7] Mazhar M.U., Bull R., Lemon M and Ahmad S.B.S (2019) Carbon Management Planning in UK Universities: A Journey to Low Carbon Built Environment In: Leal Filho W., Leal-Arcas R (eds) University Initiatives in Climate Change Mitigation and Adaptation Springer, Cham [8] Sinha, P., Schew, W A., Sawant, A., Kolwaite, K J., & Strode, S A (2010). Greenhouse Gas Emissions from U.S Institutions of Higher Education Journal of the Air & Waste Management Association, 60(5), 568-573. doi:10.3155/1047-3289.60.5.568  [9] Velazquez L., Munguia N., Platt A., Taddei J (2006) Sustainable university: what can be the matter? Journal of Cleaner Production, 14, 810-819 [10] Viebahn, P (2002) An environmental management model for universities: from environmental guidelines to staff involvement Journal of Cleaner Production, 10, 3e12 60 Vietnam National University - University of Economics and Business THE INTERACTIVE RELATIONSHIP BETWEEN THE CREDIT SIZE AND FINANCIAL SUSTAINABILITY OF THE FORMAL MICROFINANCE INSTITUTIONS IN VIETNAM Ha Van Duong* Hong Bang International University, Ho Chi Minh city, Vietnam ABSTRACT The operations of the microfinance institutions (MFIs) with the goal of improving access to financial services for microfinance customers and along with financial sustainability In particular, the credit size and financial sustainability are the factors affecting the operations and the goals of microfinance institutions This paper analyzes the interaction between the credit size and financial sustainability of formal MFIs, that were licensed by the State Bank of Vietnam Through regression analysis of the panel data carried out from the first six months of 2010 to the last six months of 2018, this study shows that the credit size and financial sustainability have a relationship to interact with each other in a positive trend Based on the findings the study proposes policy measures that could be implemented by the managers to increase the credit and ensure their profitability This study helps managers understand the key determinants for better management of formal MFIs Keywords: Credit size, Finacial stainability, Formal MFIs, Microfinance, MFIs INTRODUCTION We should be taking a wider view of the credit size and financial sustainability Because, the credit size and financial sustainability are factors affecting the operations, and goals of MFIs In Vietnam, the State Bank of Vietnam has started to establish formal MFIs since 2010 Up to now, there are four licensed formal MFIs nationwide, they have been transformed from financial funds in some localities in the country Formal MFIs now exist in 28 provinces and cities with 113 branches and transaction offices The transformation of microfinance institutions into regulated financial Corresponding author * Email address: dhv05@yahoo.com 61 Green financial system in Vietnam - Challenges and impacts on the economy institutions comes with many benefits such as influx of new capital, deposit mobilization, increase outreach and improved management and governance among others Formal MFIs in Vietnam has made an important contribution to expand the scale of the financial service provision, especially in providing financial services to the poor and those earning low incomes and contributing to ensuring social security Formal MFIs expand the scale of the service provision and need to ensure a balance of social, income, and operational sustainability goals However, the credit size and financial sustainability of many formal MFIs in Vietnam has fluctuated over the years, affecting the ability to expand financial service provision There has been some research on formal MFIs’ operations in Vietnam but, there has been no research on the interactive relationship between credit size and financial sustainability This study’s purpose was to discover the interaction and causal relationship between credit size and financial sustainability and to examine the factors that affect formal MFIs’ credit size and financial sustainability By studying this aspect of Vietnam, the research results will contribute to the theoretical and experimental research on the interaction and causal relationship between formal MFIs’ credit size and financial sustainability The study contributes to the knowledge gap in the literature on formal MFIs’ credit size and financial sustainability At the same time, the study is expected to change the decision-makers’ perception of formal MFIs, so, they can develop an effective suitable MFI management strategy Therefore, the study of formal MFIs’ credit size and financial sustainability is urgently required to increase their credit size and financial sustainability In particular, this study is helpful to decision-makers and other stakeholders of formal MFIs in Vietnam LITERATURE REVIEW In Vietnam, the Law on Credit Institutions stipulates that Microfinance institution means a type of credit institution which mainly conducts some banking operations to meet the needs of low-income individuals and households, and super smallsized enterprises. MFIs may be established as limited liability companies with the operations: (i) Taking deposits in Vietnam dong in the forms: Compulsory savings under their regulations; deposits of organizations and individuals, including voluntary deposits of microfinance clients, except those for payment purposes; (ii) Borrowing loans from domestic and overseas credit institutions, MFIs and other domestic and overseas individuals and organizations; (iii) MFIs may only extend credit in Vietnam dong by lending. MFIs' credit extension may be guaranteed with compulsory deposits or guarantee of group of savings depositors or loan borrowers; (iv) Other operations of MFIs: Entrusting lending and receiving entrustment of lending, providing financial consultancy services in the microfinance sector, providing collection and payment and money transfer services for microfinance clients, acting as insurance service agents Therefore, the formal MFIs may be established as limited liability companies which 62 Vietnam National University - University of Economics and Business mainly conducts some banking operations to meet the needs of low-income individuals and households, and super smallsized enterprises The formal MFIs play the important role in the economy, and social development, contributes to the strengthening and expanding formal financial systems At the same time, the formal MFIs attract capital from savings mobilization to serve the needs of investment, production, and exchange of goods, thereby contributing to poverty reduction and income improvement for customers To play this important role, one of the requirements for the formal MFIs are to ensure financial sustainability and to advance the credit size 2.1 Factors Affecting the Credit Size of the Formal MFIs The credit growth has always been the top concern of the formal MFIs Because of increasing the credit size is reasonable and quality that will create the stable and safe income for the formal MFIs The increasing of the credit size is an operation associated with the development process of the formal MFIs and is influenced by many factors, including: Firstly, average loan amount per borrower: According to Kausar (2013), many factors which might affect the demand of microcredit These included the credit worthiness of borrower There was positive relationship between credit worthiness and demand of microcredit More the credit worthiness of MFIs more the demand of microcredit So MFIs had to take under consideration about the factors which might affect in the demand of microcredit This showed that average loan amount per borrower had a positive relationship with the credit size.  H1.1: There is positive relationship between the average loan amount per borrower and the credit size of the formal MFIs Secondly, the debt-to-equity ratio: MicroRate (2014) showed that the debt-toequity ratio was the simplest and best-known measure of capital adequacy because it measures the overall leverage of the institution The debt-to-equity ratio was of particular interest to lenders because it indicated how much of a safety cushion there was in the institution to absorb losses If the debt-to-equity ratio increases rapidly, the MFIs might be approaching its borrowing limits, which in turn would force it to curtail loan growth Thereby, the debt-to-equity ratio had a negative relationship with the credit size H1.2: There is negative relationship between the debt-to-equity ratio and the credit size of the formal MFIs Thirdly, the equity growth: In recent times, there has been renewed interest in the effects of equity capital on bank credit, the studies provide estimates for the effect of a marginal change in the equity growth rate on the credit size (Alnahedh, Bhagat, 2017) The results indicate that the increase in the equity growth rate was associated with the increase in new loan lending On the one hand, the financial institutions with low capital cannot generate new loans instantly, and have to first compete for deposit, or raise the equity before being able to generate new loans On the other hand, well capitalized credit institutions, who had equity capital in excess of the capital requirements, possess a greater capacity to generate loans given their excess equity capital buffer (Alnahedh, Bhagat & 2017) 63 Green financial system in Vietnam - Challenges and impacts on the economy H1.3: There is positive relationship between the equity growth and the credit size of the formal MFIs Fourth, financial sustainability: The MFIs’ financial sustainability was positively related with the average loan size. When the percentage of the poorest was relatively low and MFIs are actually serving many marginally poor or non-poor clients, this positive correlation could be considered as a complementary relationship since wealthier clients demand bigger loans (Mobin, Alhabshi, & Masih, 2015) H1.4: There is positive relationship between financial sustainability and the credit size of the formal MFIs Fifth, portfolio at risk: The loan quality impacts on the credit supply and The loan quality related to the credit size (Barajas, Chami, Espinoza & Heiko, 2010). The portfolio at risk is a measure of the loan portfolio quality, indicating that a portion of the loan portfolio was at the risk of not being repaid (MicroRate, 2014), that affects the microcredit supply of MFIs Therefore, tthe portfolio at risk was a factor related to the credit size of MFIs H1.5: There is negative relationship between portfolio at risk and the credit size of the formal MFIs 2.2 Factors Affecting Financial Sustainability of the Formal MFIs Sustainability is the goal towards many sectors and fields in countries around the world, each country will rely on economic and social characteristics to plan the most suitable strategy for sustainable development Sustainability generally means the ability of an ongoing program to perform activities and services in pursuit of the statutory institutional objectives For an ideal microfinance institution this means the ability to continue Achieving sustainability was a guarantee for MFIs to be safe in their activities to consolidate their future (Delija & Qirici, 2015) The MFIs would have financial sustainability if the revenue it generates from operations cover It's operating expenses, financing costs, loan loss provisions and cost of capital (Ledgerwood, 1999) Sustainability could be defined as the ability of the organization to meet the cost of operations and build enough reserves for recapitalization (UNESCAP, 2006) Therefore, the financial sustainability in MFIs refered to the ability of institutions to cover their operating expenses, financing costs, loan loss provisions and cost of capital from their operating revenue The financial sustainability was a tangible parameter that is measured and monitored continuously on the level of income to cover all costs and ensure that MFIs developed long-term activities The financial sustainability was associated with all MFIs activities and was influenced by many factors, including: Firstly, the number of branches: The success of MFIs derives from the organization of the branch system, the scope of operation with a wide coverage of the branches could help MFIs achieved the number of customers larger and generate high profits (Robinson, 2001), thereby contributing to improve the financial sustainability of MFIs Increasing the scale of the microfinance services by leveraging the branch networks 64 Vietnam National University - University of Economics and Business to provide microcredit to many customers (World Bank, 2004) At the same time, a large branch network ensures customers could access more and more convenient the microfinance services, allowing MFIs to provide the diverse microfinance services, contributing to increasing sustainability (Hubbard, 2004) H2.1: There is positive relationship between the number of branchs and financial sustainability of the formal MFIs Secondly, the credit size: There was a significant relationship between loan-size growth and sustainability (MkNelly & Stack, 1998) and the loan size growth was important to financial sustainability and was also a proxy for a positive impact (Painter & MkNelly, 1999) and MFIs must achieve a sufficiently large loan size if they were oriented towards sustainability (Ledgerwood, 1999) The sustainability of microfinance that goes alongwith commercial viability and institutional growth (Weber, 2013) The microfinance institution's financial sustainability was positively and significantly driven by loans intensity and size (Tehulu, 2013) H2.2: There is positive relationship between the credit size and financial sustainability of the formal MFIs Thirdly, the debt-to-equity ratio: The debt-to-equity ratio was a measure of the capital adequacy, because it measured the overall leverage of MFIs The debt-toequity ratio was particularly concerned, because this ratio indicated the level of safety in the operations of MFIs If the debt-to-equity ratio increases rapidly, it will affect the level of safety in the operations and the rapid increase in debt financing will put pressure on the income growth The debt-to-equity ratio affected the level of safety in the operations and income, which will affect the financial sustainability of MFIs (MicroRate, 2014) H2.3: There is negative relationship between the debt-to-equity ratio and the financial sustainability of the formal MFIs Fourthly, the deposit-to-loan ratio: This ratio showed the ability of the mobilization deposits to meet the lending needs of MFIs Many customers could be served more by lending from the mobilization deposits The mobilization deposits had become a strong driving force for improving efficiency and income, contributing to the viability and financial sustainability of MFIs (Fiebig et al., 1999) Therefore, the deposit-toloan ratio would effect the financial sustainability of MFIs H2.4: There is positive relationship between the deposit-to-loan ratio and financial sustainability of the formal MFIs Fifth, the repayment ratio: Loan repayment could be another indicator for financial sustainability (Khandker, Khalily & Khan, 1995), measuring financial sustainability requires that financial institutions maintained good financial status and the financial un-sustainability in financial institutions arises due to low repayment ratio (Meyer, 2002) Therefore, the repayment ratio affected financial sustainability of MFIs H2.5: There is positive relationship between the repayment ratio and financial sustainability of the formal MFIs 65 Green financial system in Vietnam - Challenges and impacts on the economy RESEARCH METHODOLOGY The study used both primary and secondary data Secondary sources of data were gathered from international journals, books, etc The Analysis data was collected at intervals of each period of six months, with eighteen periods from the first six months of 2010 to the last six months of 2018 Primary data were collected from the MIX Market website, and the operation reports and financial reports of all the formal MFIs that were licensed by the State Bank of Vietnam The analysis model of the relationship between the credit size and financial sustainability of all the formal MFIs in Vietnam was established as follows: )𝛽𝛽𝛽𝛽"+"+XX"+"+++ 𝜇𝜇𝜇𝜇"" YY""==𝛼𝛼𝛼𝛼"%"% ++ 𝛼𝛼𝛼𝛼""""YY(( ++ ) (1) Y((==𝛼𝛼𝛼𝛼(%(% ++ 𝛼𝛼𝛼𝛼("("YY"" ++ ) )𝛽𝛽𝛽𝛽(1 + 𝜇𝜇𝜇𝜇(( Y (1 XX(1 (1+ (2) /0" /0" 22 Where: 1 0" 1 0" Y1 is a variable that measures of the credit size, determined by gross loan; Y2 is a variable that measures financial sustainability, determined by the ratio of operating income to total operating expenses, financing costs, provision for loan losses and cost of capital; X1k and X2γ are the independent variables that can affect the credit size and financial sustainablity in Equations and 2, respectively The α coefficient and β coefficient are the correlation coefficients of the independent variables with the dependent variables, which are the error terms of the model For simplicity, i represents the number of observations and indicator t represents the number observed year This study used Stata 15.0 software with the variables described briefly and the definitions of the variables and their expected signs are presented in Table Table Summary of the research model variables Variables and symblol Definition Expected sign and hypotheses Factors affecting the credit growth Dependent variable Credit size (CS) Gross loan Independent variable Average loan amount per borrower (ALB) Debt-to-equity ratio - DER) 66 Gross loan / The total number of borrowers H1.1: + (high ALB, high CS) Total Liabilities / Total Equity H1.2: - (high DER, low CS) Vietnam National University - University of Economics and Business Equity growth rate (EGR) Growth rates of equity H1.3: + (high EGR, high CS) Financial (FSS) Operating income / Operating expenses + financing costs + provision for loan losses + Cost of capital H1.4: + (high FSS, high CS) Outstanding Balance on Arrears over 30 days + Total Gross Outstanding Refinanced (restructured) Portfolio) / Total Outstanding Gross Portfolio H1.5: - (high LDR, low CGR) self-sustainability Porfolio at risk (PAR) Factors affecting financial sustainability Dependent variable Financial (FSS) self-sustainability Operating income / Operating expenses + financing costs + provision for loan losses + Cost of capital Independent variable H2.1: + (high BRA, high FSS) The number of branch (BRA) Number of branches Credit size (CS) Gross loan H2.2: + (high CS, high FSS) Debt-to-equity ratio - DER) Total Liabilities / Total Equity H2.3: - (high DER, low FSS) Deposit-to-loan ratio (DLR) Total deposit / Gross loan H2.4: + (high DLR, high FSS) Repayment ratio (RR) The value of the refunded credits / The value of the due credits H2.5: + (high RR, high FSS) The study used the descriptive statistical method to evaluate the fluctuations of variables in the research model, performed the correlation analysis to assess the degree of multicollinearity and performed the regression according to the fixed effects model (FEM), random effects model (REM) and compared them with the pooled ordinary least square model (OLS) to determine the influencing factors for each model Through the results of the regression steps, this study found the factors affecting the credit size, financial sustainability and the relationships between formal MFIs’ credit size and financial sustainability RESEARCH RESULTS 4.1 Descriptive Statistics Descriptive statistics of both dependent and independent variables are presented in Table The results found that the ALB, BRA, DLR, EGR, FSS, RR variables had smaller standard deviations than the average The CS, DER, PAR variables have fluctuations, due to the large difference in the the credit size, debt-to-asset equity ratio and porfolio at risk between the formal MFIs of Vietnam from the first six months of 2010 to the last six months of 2018 67 Green financial system in Vietnam - Challenges and impacts on the economy Table Descriptive statistics Variable Obs Mean Std Dev Min Max CS 72 753.4431 930.2981 20 3699 ALB 72 0080472 003358 0021 0153 BRA 72 25.52778 21.20654 71 DER 72 5.125278 5.778835 1.16 24.26 DLR 72 58.04069 22.96943 23.76 111.72 EGR 72 16.70264 15.45166 -7.14 68.67 FSS 72 103.0831 14.9107 71.72 129 PAR 72 1035417 1625774 52 RR 72 88.64292 12.91389 60.32 99.99 Source: Compiled from data processing results of Stata software 4.2 Correlation Analysis The analysis results of the correlation between variables in the model indicated a very low degree of correlation among the variables so the presence of any multicollinearity was neglected Table Table Correlation matrix Correlation matrix for factors affecting the credit size Factors ALB DER EGR FSS ALB 1.0000 DER 0.5275 1.0000 EGR -0.3826 -0.2659 1.0000 FSS 0.3166 -0.0471 -0.0444 1.0000 PAR -0.2167 -0.2699 0.1057 0.4617 PAR 1.0000 Correlation matrix for factors affecting the credit size Factors BRA CS DER DLR BRA 1.0000 CS 0.4576 1.0000 DER -0.3627 -0.2696 1.0000 DLR -0.2813 -0.2401 0.2673 1.0000 RR 0.7365 0.5933 -0.3370 -0.1951 RR 1.0000 Source: Compiled from data processing results of Stata software 4.3 Regression Results Regression was carried out using FEM and REM and compared with OLS between the CS dependent variable and ALB, DER, EGR, FSS, PAR independent variables According to the results of REM and FEM, both P-values were less than the significance level of 5% (P-value = 0.000), so the regression models were statistically significant at the significance level of % In REM, the variables ALB, FSS and PAR had positive impacts on the variable CS at the significance level of 5%, 1% and 1%, respectively; 68 Vietnam National University - University of Economics and Business the variable DER had a negative impact on the variable CS at the significance level of 1%; the variable EGR had a positive impact on the variable CS, but this variable was not statistically significant In FEM, the variables FSS and PAR had positive impacts on the variable CS at the significance level of 1% and 1%, respectively; the variable DER had a negative impact on the variable CS at the significance level of 1%; the variables ALB and EGR had positive impacts on the variable CS, but both these last two variables were not statistically significant as can be seen in Table The Hausman test was performed to select the appropriate model and the Hausman test result obtained a Pvalue of 0.0021, smaller than the significance level of %, so the FEM was more suitable than REM In comparison with the OLS Pooled model, FEM was more suitable than the OLS Pooled model Therefore, the study used the FEM regression results in order to analyze and test the next steps The multicollinearity test of the model had a result of Mean VIF = 4.25, VIF of variables from 1.19 to 4.29 This result showed no serious multicollinearity in this model In the test for variance change of the model, the P-value = 0.0000 and was smaller than 0.05, therefore, this model had the variance change phenomenon When checking the autocorrelation of the model, P-value = 0.0156 was smaller than 0.05 so this model had serial correlation This study performed to overcome the variance change phenomenon and serial correlation The results in FEM (xtgls) showed that the variables FSS and PAR had positive impacts on the variable CS at the significance level of 1% and 1%, respectively; the variable DER had a negative impact on the variable CS at the significance level of 10%; the variables ALB and EGR had positive impacts on the variable CS, but both these last two variables were not statistically significant as can be seen in Table Table Regression results for factors affecting the credit size Independent variables Dependent variable (CS) REM FEM FEM (xtgls) ALB 70806.1** (3.01) -75293.1 (-1.67) 104209.8 (1.87) DER -44.16*** (-3.77) -43.27*** (-3.55) -45.75* (-2.43) EGR 2.491 (0.64) -1.231 (-0.28) 6.653 (1.03) FSS 33.72*** (6.92) 28.26*** (5.11) 22.27*** (3.50) PAR 1985.0*** (4.67) 1997.9*** (4.62) 2581.3*** (5.31) _cons -3312.6*** -1518.1* -2511.9*** 0.0000 0.0000 0.0000 P-value Notes: ***, **, * denote significance at the level of 1%, 5% and 10% Source: Compiled from data processing results of Stata software Regression was carried out using FEM and REM and compared with OLS between the FSS dependent variable and BRA, CS, DER, DLR, RR independent variables 69 Green financial system in Vietnam - Challenges and impacts on the economy According to the results of REM and FEM, both P-values were less than the significance level of 5% (P-value = 0.000), so the regression models were statistically significant at the significance level of % In REM, the variables BRA, CS and DER had positive impacts on the variable FSS at the significance level of 1%, 1% and 1%, respectively; the variable DLR and RR had positive impacts on the variable FSS, but these last two variables were not statistically significant In FEM, the variables BRA and CS had positive impacts on the variable FSS at the significance level of 5% and 1%, respectively; the variable DLR had a negative impacts on the variable FSS at the significance level of 19%; the variable DER and RR had positive impacts on the variable FSS, but these last two variables were not statistically significant as can be seen in Table The Hausman test was performed to select the appropriate model and the Hausman test result obtained a Pvalue of 0.2048, greater than the significance level of %, so the REM was more suitable than FEM In comparison with the OLS Pooled model, REM was more suitable than the OLS Pooled model Therefore, the study used the REM regression results in order to analyze and test the next steps The multicollinearity test of the model had a result of Mean VIF = 2.67, VIF of variables from 1.15 to 4.30 This result showed no serious multicollinearity in this model In the test for variance change of the model, the P-value = 1.0000 and was greater than 0.05, therefore, this model did not have the variance change phenomenon When checking the autocorrelation of the model, P-value = 0.0531 was greater than 0.05 so this model did not have serial correlation Table Regression results for factors affecting financial sustainability Independent variables BRA CS DER DLR RR _cons P-value Dependent variable (FSS) REM FEM 0.232*** 0.183** (3.64) (2.76) 0.0107*** 0.00708*** (8.88) (3.80) 0.723*** 0.301 (4.29) (1.21) 0.00585 -0.161* (0.14) (-2.30) 0.107 0.129 (0.95) (1.12) 75.64*** 89.41* 0.0000 0.0000 Notes: ***, **, * denote significance at the level of 1%, 5% and 10% Source: Compiled from data processing results of Stata software 70 Vietnam National University - University of Economics and Business DISCUSSION 5.1 Discussions of Factors Affecting the Credit Growth The results of FEM (xtgls) in Table show that the variable DER had a negative impact on CS with coefficient -45.75 with the significance level of 10%, indicating that DER has an impact on the credit size This result agreed with the analysis results of Microrate (2014) The formal MFIs have used relatively high levels of the funding to lend, so they will be forced to curb the growth of the credit size over the years The FSS variable had a positive impact on CS with coefficient 22.27 with the significance level of 1%, indicating that FSS variable has a very strong impact on the credit size This result agreed with expected sign and hypotheses and agreed with the analysis results of Mobin, Alhabshi & Masih (2015) The formal MFIs had gradually raised the financial sustainability index, contributing to improve the credit size in the past years The PAR variable had a positive impact on CS with coefficient 2581.3 with the significance level of 1%, indicating that PAR variable has a very strong impact on the credit size This result contrasted with the expected sign and hypotheses and disagreed with the analysis results of Barajas, Chami, Espinoza & Heiko (2010) and MicroRate (2014) The formal MFIs had the high credit size that had a higher portfolio at risk in the period of 2010-2018 This research result is accurate according to the characteristics, and the development process of the formal MFIs in Vietnam in recent years The formal MFIs use quite a large amount of the funding to increase the credit size in the past years, etc On the other hand, this study does not find a statistically significant impact between the varianles ALB and EGRon the variable CS This is consistent with the fact that the formal MFIs mainly use the external mobilized funds, funding source to provide financial services and loans under the conditions of low equity in these formal MFIs 5.2 Discussions of Factors Affecting Financial Sustainability The results of REM in Table 5 showed that the variable BRA had a posttive impact on FSS with the coefficient 0.232 with the significance level of 1%, indicating that BRA has a very strong impact on financial sustainability This result agreed with the expected sign and hypotheses and with the analysis results of Robinson (2001), World Bank (2004) vàHubbard (2004) Some formal MFIs have increased the number of branches, expanding the scope of the operations that have contributed to increasing income and improving the financial sustainability indexes over the years The variable CS had a posttive impact on FSS with the coefficient 0.0107 with the significance level of 1%, indicating that CS has a very strong impact on financial sustainability This result agreed with the expected sign and hypotheses and with the analysis results of MkNelly & Stack (1998), Painter & MkNelly (1999), Ledgerwood (1999) và Tehulu (2013) The Credit operation was the main activity that generates income for the formal MFIs This was a favorable condition to promote the operations of the formal MFIs to be stable, developed and contribute to improving financial sustainability in the past period 71 Green financial system in Vietnam - Challenges and impacts on the economy The variable DER had a positive impact on FSS with the coefficient 0.723 with the significance level of 1%, indicating that DER has a very strong impact on financial sustainability This result agreed with the expected sign and hypotheses and with the analysis results of MicroRate (2014) The formal MFIs have used a relatively high level of funding to lending and increase the credit size, contribute to income growth and improve the financial sustainability indexes over the years The impact of variables in accordance with the characteristics, and the development process of the formal MFIs. The formal MFIs expand their branches, use quite a large amount of the funding to increase the credit size, contribute to increase income and improve the financial sustainability index in the past years On the other hand, this study did not find a statistically significant effect of DLR and RR variables to CS variable This is in line with the practice of the formal MFIs that mainly use the external mobilized funds, funding source to provide financial services and loans under the conditions of low equity; beside the formal MFIs has a high the repayment ratio in recent years CONCLUSIONS AND RECOMMENDATIONS This paper studied the interactivr relationships between formal MFIs’credit size and financial sustainability in Vietnam Multiple regression analysis was used in this study to find out the potential factors that affect formal MFIs’ MFIs’credit size and financial sustainability Based on prior research, two prominent models were identified and these research results were accurate according to the characteristics of formal MFIs and the development history of formal MFIs in Vietnam over the years The results of the study showed that the two factors that had positive relationships with the credit size were the financial sustainability and the portfolio at risk A factor that had negative relationships with productivity was the debt-to-equity ratio The equity growth and average loan amount per borrower had insignificant relationship with the credit size of formal MFIs The three factors that had positive relationships with the financial sustainability were the number of branches, the credit size and the debt-to-equity ratio The depositto-loan ratio and and repayment ratio had insignificant relationship with the financial sustainability of formal MFIs The study found a positive bidirectional interactions and causal relationships between credit size and financial sustainability Nowadays, MFIs are becoming a significant investment prospect in many regions of the country This study will help researchers and managers develop their expertise on key factors of credit size and financial sustainability and the relationship between the two Based on the research results, the article recommends the following to increase credit size and financial sustainability: Firstly, the formal MFIs are credit institutions that are allowed to deposit mobilization to lend the borrowes Therefore, to ensure financial sustainability, the formal MFIs must also follow the general principle of ensuring safety for banking operations 72 Vietnam National University - University of Economics and Business Secondly, the loan amount is too small it could be increase to fulfill the requirements of the borrowes and contribute to increase the credit size Thirdly, the formal MFIs should expand their branches to increase the credit size and contribute to improve the financial sustainability index Fourth, the formal MFIs ought to balance the sufficient resources to ensure their operational objectives At the same time, strengthen measures to link the credit size growth and financial sustainability This study assesses the interaction between the credit size and financial sustainability of the formal MFIs in Vietnam Subsequent research can be extended to the institutions that provide the microfinance service in Vietnam, further investigate other factors including macro and micro factors to achieve more comprehensive results on the interaction between the credit size and financial sustainability REFERENCES [1] Alnahedh, S., & Bhagat, S (2017) Impact of Bank Equity Capital on Bank Cost of Capital, (pp.3-4) University of Colorado Boulder, Leeds School of Business Retrieved July 3, 2019, from http://leeds-faculty.colorado.edu/bhagat/Bank-Capital-Lending.pdf [2] Barajas, A., Chami, R., Espinoza, R and Heiko, H (2010) Recent credit stagnation in MENA region: What to expect? 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Journal of Innovation Economics & Management, (11), 149-171 [18] World Bank (2004) Microfinance and the Poor in Central Asia Challenges and Opportunities Agriculture and Rural Development Discussion, Paper Europe and Central Asia Region Washington, D.C 74 ... the important role of universities in climate change and sustainable development Betts (2001) and Dahle and Neumayer (2001) point out waste and greenhouse gas emissions from operating activities... how to live and work effectively and environment- friendly A MODEL TO TRANSFORM INTO A GREEN UNIVERSITY There are various ways to transform universities to be greener Nguyen Thuy Anh and Pham Vu... of green universities includes four core elements namely governance and policies, operations, education research and extra-curricular activities and community involvement Other activities and