ACKNOWLEDGEMENT This study will not be completed if the author was not received great contribution and support from serveral individuals and organizations Then I want to send sincere thanks to these i[.]
ACKNOWLEDGEMENT This study will not be completed if the author was not received great contribution and support from serveral individuals and organizations Then I want to send sincere thanks to these individuals and organizations I am greatly indebted to my advisor Assoc Prof., PhD Le Thanh Tam for her unreserved help, advice, directing, insight guidance, critical review of my thesis dissertation, invaluable support from the first days of the author's implementation of this project I am also deeply grateful National Economic University for offering me a chance to conduct this study to finished my course Finally, I would like to thank my family, friends and staffs of Agribank’s branch located in Bo Ha town who have wholeheartedly supported to help me finish this research Once again, I sincerely thank individuals and organizations and wish to dedicate the success of this dissertation to these individuals and organizations ABSTRACT This study identifies factors that influence the decisions to participate credits market from formal and informal sources in areas of the East of Yen The district – a moutainous area of Bac Giang province Employing information from Agribank Bo Ha – Bac Giang II bank’s branch and collected data through question people live this area, the econometric results reveal a set of factors that have a positive effect on the choices of formal credit, but negative in the choice of informal sources From regression result, we find out that income, education level, marital status, gender, and take a positive relationship in option from formal credit but nagetive within the choice of informal source Another factors that statistically explains only the choice of formal sources and a variable that only influences the use of informal sources (location) The study helps to improve our understanding of why participation in the formal sector in local area remains low relative to its informal counterpart From the results, some key recommendations are proposed to improve quality of local institutional financial market as well as ceiling unexpectation corollary of local shadow credit market LIST OF CONTENT ACKNOWLEDGEMENT .1 ABSTRACT LIST OF CONTENT .3 LIST OF TABLES LIST OF ABBREVIATION CHAPTER 1: INTRODUCION 1.1 Rationale: 1.2 Research Objectives: .9 1.3 Research Question: 1.4 Research Scope: .9 1.5 Structure: 11 CHAPTER 2: LITERATURE REVIEW 11 2.1 Theoritical Framework: 11 2.1.1 Overview about credit: 11 2.1.2 Overview about informal credit market : 17 2.1.3 Characteristics of the rural credit market in Vietnam: 27 2.1.4 The households and individuals participate in the rural credit market: 29 2.2 Literature review: 31 2.2.1 A brief literature view about determinants effect on credit accessibility: 31 2.2.2 Summery literature review: 37 CHAPTER 3: DATA AND METHODOLOGY 40 3.1 Data: 40 3.1.1 Methods of collecting data: .40 3.1.2 Method of depth – interview: 40 3.1.3 Survey method through questionnaires: 40 3.2 Methodology: 41 3.2.1 Model research: 41 3.2.2 Explanatory variables of the study .42 3.3 Hypotheses: .45 CHAPTER EMPIRICAL RESULTS AND DISCUSSION .48 4.1 Descriptive statistic result: 48 4.2 Regression result: 54 4.3 Result discussion: 57 4.3.1 Age: 57 4.3.2 Formal education level: 58 4.3.3 Gender: .59 4.3.4 Marital status: 59 4.3.5 Income: 60 4.3.6 Saving: 61 4.3.8 Occupation of respondent: 62 CHAPTER RECOMMENDATIONS AND CONCLUSION 64 5.1 Conclusion: .64 5.2 Recommendation: .64 5.2.1 Recommendation for Goverment and relevant deparments and agencies : 64 5.2.2 Recommendation for local authority: 66 5.2.3 From Vietnam Bank for Agriculture and Rural Development perspective:.67 LIST OF TABLES Table 2.1 Summary literature reviews .38 Table 3.1 The results of data collection are based on online surveys and distribution of offline interviews 42 Table 3.2.The hypotheses of each independent variable to formal credit accessibility .46 Table 3.3.The hypotheses of each independent variable to informal credit accessibility .47 Table 4.1 Statistical sample characteristics by factors .49 Table 4.2 Statistical sample characteristics by credit sources 50 Table 4.3: Distribution of participation in credit markets 52 Table 4.4:Destination of personal loans and others financial services 52 Table 4.5:Reasons for stopping participation in the formal credit market 52 Table 4.6: Reasons for not participating in the formal credit market 53 Table 4.7: Destination of informal credit 54 Table 4.8: Summary of data and correlation coefficient between variables .56 Table 4.8: Summary of data and correlation coefficient between variables .57 Table 4.10: Binary Logistic regression results of factors affecting credit accessibility of people in the East of Yen The district .58 LIST OF ABBREVIATION Agribank et al VBSP SBV VDB Vietnam Bank for Agriculture and Rural Development et alii, 'and others' Vietnam Bank for Social and Policy State Bank of Vietnam Vietnam for Development Bank LUC Land Use Certificate JLGs Joint liability groups JBGs Joint borrowing groups PCFs People’s Credit Funds VDB Vietnam for Development Bank VND Vietnamese Dong ROSCAs Rotating Savings and Credits Associations SBV GOV MOF The State Bank of Viet Nam Government of the Socialist Republic of Viet Nam Ministry of Finance CHAPTER 1: INTRODUCION 1.1 Rationale: Nowadays, institutional financial market have been taken great deal of attention from all our society.The appearance of informal credit is uncontrollable, from urban to rural areas across Vietnam Besides the contribution of informal finance to Vietnam's financial market, its negative aspects and consequences are most noticeable In fact, in recent years, the shadow credit market has caused many consequences for the economy and society, negatively affecting the lives of thousands of people and households Implicit forms of credit tend to diversify and are difficult to control by government agencies It not only stop at the traditional forms such as usury, hir, they, wards, associations informal credit in the 4.0 period has developed on the online platform in the form of money loan applications from prime banks, financial support services This situation makes unofficial credit market more easily accessible to people in need of loans At the same time, it also causes more difficulties in thoroughly solving informal credit, underground credit under the guidelines of the Ministry of Finance, the State Bank of Vietnam and the Government The fact is that bankruptcy, default and problems caused by informal credit tend to occur more in rural areas across the country Not only that, the subjects affected by these problems are often manual labor and small businesses Due to limitations in financial infrastructure and financial literacy in rural areas across the country, they are generally lower than in urban areas As a result, people in these areas seem to be more likely to opt for informal credit and are less likely to consider other credit options when there is a need for a loan The restriction towards the thorough disposal of unofficial credit is a challenge posed not only to the competent authorities, but also to the problem of our country's financial system Banks are not outside "this fierce battle" In recent years, Agribank has made significant contributions in the fight for informal credit restriction With the characteristics of a 100% state-owned bank, a network of branches and transaction offices throughout the country, Agribank has been actively implementing the guidelines and directions of the State Bank, the Ministry of Finance as well as authorities to reverse the problem of underground credit As one of the branches in the system of Vietnam Bank for Agriculture and Rural Development, Agribank Bo Ha Bac Giang II branch always tries to limit the negative situation related to non – institutional financial market locally However, branches also face many difficulties in coming from individuals and business organizations in the form of informal creditIn particular, in recent years, due to the prosperity of the economy and positive signals from our country's capital market, the demand for loans of people in the province has tended to increase rapidly During this period, the restrictions on credit extension of bank branches revealed the restrictions This has led many customers not satisfied with the quality of local banking products and services At the same time, local underground credit flourished, attracting a large number of customers In fact, local forms of underground credit have become one of the serious rivals of bank branches In fact, local financial activities are influenced by the cultural factors, customs and lifestyle of the local area Compared to banks, tacit credit seems to take full advantage of the understanding of the above factors, making customers happy with their products and services Despite having to pay a much higher cost for loans, many individuals and organizations still decide to opt into the informal credit market Although a much higher level of risk is accepted than entering the formal credit market, borrowers and lenders in many cases still choose to opt for tacit credit Especially, this situation happened in the eastern area of Yen The district long time ago Eventually in recent years, along with the development of this area and country economy, the informal credit market has grown strongly When looking back just a few years ago, there were broken cases in many localities, many families were in distress because of the problem of usury But the existence of informal credit is still well recognized and involved by many individuals and organizations So, what are the factors affecting the people's decision to participate in the informal credit market in communes and town in the East of Yen The district? Finding the cause of this situation will help local governments, authorities and credit institutions officially limit the development and implications of underground credit The credit market in rural areas in developing countries has received the attention of many economic researchers all over the world It can be said that resolving the issues that are being posed to this market is one of the keys to improving poverty K Hoff, JE Stiglitz (World Bank; 1993) consider rural credit markets to be the center of intervention policies for economic development in developing countries over the past decades In developing countries, many stimulus policies, interventions and support packages have been issued by the government or implemented by non-governmental organizations However, most of these policies failed to achieve initial goals, such as improving financial markets in rural areas or developing sustainable credit institutions (Adams, Graham, and von Pischke 1984; Braverman and Guasch 1986; Adams and Vogel 1986) An adversity in the development of the rural credit market is the expansion of the underground credit market Many studies on rural credit market consider the objective independent existence of formal and informal credits (Gan et al (2007), Pham Thi Thu Tra and Lensink (2007) and Li et al (2011)) find out the factors that influence households' decision to participate in the credit market According to Kochar (1997), unofficial credit plays an important role in making decision to participate in credit market in rural India Along with that, research on the factors affecting the decision to participate in the non – institutional financial market also received much attention However, the conclusions on the factors affecting participation in the underground credit market are very different The cost of a loan is one of the most important factors influencing borrowers' decisions (Adams and Vogel (1986); Chung (1995)) On the other hand, according to Pham Thi Thu Tra and Lensink (2007), the risk is the factor that borrowers consider most when making decisions to participate in the credit market In a study conducted in 1981 by Stiglitz and Weiss, they argued that asymetric information was a direct influence on decisions made by credit market participants Pitt and Khandker (1998) argue that geographic and economic factors influence people's informal credit market participation The informal credit in Vietnam has also received special attention from domestic and foreign researchers The research is mainly done sporadically but the importance of this market is mentioned in the studies of Pham Bao Duong and Izumida (2002), Putzeys (2002), Quach Manh Hao (2005) , Pham Thi Thu Tra and Lensink (2007), and Pham Dinh Khoi (2013) The studies are of particular interest to rural credit markets, rural informal credit markets, and the relationship between access to formal and informal credit sources, poverty reduction as well as regional economic development Informal finance studies are conducted mainly in rural areas of developed countries Most of these experimental studies are largescale with many countries in different regions, and studying in many respects It seems that in recent years few studies have focused on analyzing the determinants which impact on selecting decisions in participation credit market in rural areas especially informal credit market In addition, the role of the formal credit institutions such as banks or microfinance organization have not discerned in a coincidence of fierce development of informal lending in small community For that reason, the aim of the author is figure out factors that make people tend to be choose informal credit market rather than formal with the help from branch of Agribank in areas of community at the East of Yen The district From that, some recommendations for authority and banks are offered This is exactly the reason why this research is done 1.2 Research Objectives: General Objectives: This dissertation aims at find out factors which have impacts on decision making process of people in participating credit market with all the collected data and information from Agribank Bo Ha ‘s branch and people settle down in the East of Yen The district Specific Objectives: First, we want to discern whether some chosen elements have influence on people when they access to local credit market The results of this study will provide additional scientific evidence to support or disprove this relationship Second, figuring out factors effecting informal credit market choice of local people is key idea With knowing about these factors, formal credit institution could find a way to prevent issues of shadow credit market Third, we want to find the expectation of people had experiences in participating informal credit market From that, some recommendations are proposed to local bank branchs and other financial institution in Yen The district in order to drive the efficiency of local formal credit market In this study, Agribank Bo Ha’branch plays a role as outstanding formal credit organization in privincial areas 1.3 Research Question: The following question will be charge of fulfiling these objectives above and explaining clearly the purpose of this study: What are the factors effecting decision making of people live in the east of Yen The district when they have demand for credit? How are the relationship between these factors and demanding participant in credit market? Positive or Negative? What are the elements influence on informal credit market choice of settler? How to optimize the positive impact and vice versa? What banks should to prevent the fierce development of informal lending at local areas? 1.4 Research Scope: