Microfinance and the development of household businesses in vietnam,masters thesis

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON MICROFINANCE AND THE DEVELOPMENT OF HOUSEHOLD BUSINESSES IN VIETNAM NAME OF STUDENT: DUONG LINH PHUONG ID No: 17047727 Intake Supervisor: Dr NGUYEN THI HOAI THU September 2018 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong Executive Summary After being recognized as an economically independent unit in 1998, the number of Vietnamese household businesses has risen rapidly The production and trading activities of Businesses in Vietnam now have many advantages such as simple incorporation procedures, payment of taxes in the form of capitation; without collecting invoices or keeping records This section has also contributed positively to the domestic economy in creating jobs opportunities, helping to solve social problems and creating a variety of products and goods diversity Due to its small size and popularity all over the country, the household businesses is an important distribution channel for trades, which helps balance trading process and develops the local economy In addition, household businesses are one of the driving forces for entrepreneurship, market development, and the potential area for founding micro, small and medium enterprises However, with the characteristics of a small business, household scaled businesses have to face many limitations in business capacity, technology application, management level; the consequence here is decreasing labor productivity and business efficiency Another option that household businesses used for capital mobilization is microfinance units Besides providing small loans, savings services, some of them also provide non-financial services such as risk management, start-up guidance, experience and knowledge sharing Obviously, this is an opportunity for household businesses to ask for a loan, improve their knowledge and skills in business management However, the main targets of these firms are the poor, the near poor, the low-income employees and other social welfare beneficiaries As a result, the credit supplies and approaches to the household firms are still under many restrictions To meet these mentioned requirements in both theoretical and practical aspects, the research project "Microfinance and the development of household businesses in Vietnam" is urgent Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong Acknowledgements For the successful accomplishment of this dissertation, I would like to express my deepest appreciation to all those who provided me the possibility to complete this thesis At the very beginning, I greatly appreciated all the teachers in International School of Business at Banking Academy in general for basic theoretic knowledge which is the precious foundation for me to conduct my dissertation Especially, I would like to express my deepest appreciation to Dr Hoai Thu, my outstanding supervisor, for instructing and encouraging me to complete this internship report I would also like to thank MA Ngoc Duong, the Deputy Director of Agribank at Bac Giang Branch, for giving me the opportunity to my thesis The experience and knowledge gained in Agribank Bac Giang helped me to understand different aspects related to my study Moreover, a special gratitude I give is to the staffs at Agribank Bac Giang, from whom I have achieved a lot of practical experience, and gave me a huge amount of knowledge, which was exceptionally valuable to me In all, I am extremely grateful to my family and my friends for sharing their experiences, time and encouragement throughout the process of completing this internship program Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong Table of Contents CHAPTER I: INTRODUCTION The Overview Review of literature The objectives 10 The delimitation 10 The disposition 11 CHAPTER II: THEORITICAL FRAMEWORK 11 Overview of credit from microfinance institutions 11 1.1 The concept of credit from microfinance institutions .11 1.2 Classification of credit from microfinance institutions 13 Characteristics and role of credit from microfinance institutions 14 1.3 1.3.1 Characteristics of credit from microfinance institutions 14 1.3.2 The role of credit from microfinance institutions 15 Overview of household business and household business development 17 2.1 Definition of household business 17 2.2 Characteristics and role of household business 17 2.2.1 Characteristics of production and business activities of household businesses 17 2.2.2 The role of household businesses in the economy 18 Factors affecting the development of household businesses 19 2.3 2.3.1 Characteristics of household head 19 2.3.2 Characteristics of household business 20 2.3.3 The geographic area in which the household business operates 20 2.3.4 The level of technology and e-commerce application in the operation of business establishments 20 Indicators assessing the development of household businesses 21 2.4 The impact of credit from microfinance institutions on the development of household businesses 21 International experience to improve the efficiency of microcredit for household business development 22 4.1 The successful practice of microcredit for household businesses development in Malaysia 23 Lessons learned for Vietnam 24 4.2 CHAPTER III: METHODOLOGY OF THE RESEARCH 25 Data collection 25 1.1 Primary data collection .25 1.2 Sampling .25 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong Research variables 26 Data Analasys 28 3.1 Basic estimates with table data 28 3.2 Accurate selection of models .30 3.3 Self-correlation testing and variance 31 3.4 GLS regression method .31 CHAPTER IV: EMPIRICAL FINDINGS AND ANALYSIS 32 Statistics describe the data 32 Pearson correlation matrix 33 Accurate selection of models 35 Model results by GLS regression 37 CHAPTER IV : RECOMMENDATIONS 40 Recommended to the Government 40 Recommendations for microfinance institutions 41 Recommended for household businesses 44 CONCLUSION 46 REFERENCE 47 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong LIST OF TABLES TABLES PAGES Table 1: AIM Micro Credit Products 23 Table 2: Characteristics of the sample 25 Table 3: Description variable and control variable in the model 27 Table 4: Descriptive Statistics Results 31 Table 5: Pearson correlation matrix results 34 Table 6: Hausman test results with model (1) 35 Table 7: Hausman test results with model (2) 35 Table 8: Results of the variance test Models (1) 36 Table 9: Self-correlation test results Models (1) (2) 36 Table 10: Results of the analysis of the effect of microcredit on the 38 profitability of household businesses Table 11: Results of the analysis of the effect of microcredit on labor 38 productivity of household business Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong CHAPTER I: INTRODUCTION The overview background Since being recognized as an economically independent unit in 1998, the number of Vietnamese household businesses has risen rapidly According to the Ministry of Planning and Investment, Vietnam had more than 1.5 million household businesses, employing more than million workers and accounting for about 9% of total social production capacity in 1999 By October 1, 2016, according to the General Statistics Office, the country had a total of 4.91 million individual firms, required for an over 8,2-million workforce, a sharp increase compared to 1999 The production and business activities of household businesses in Vietnam now have many advantages such as simple incorporation procedures, payment of taxes in the form of capitation without collecting invoices or keeping records These kind of business have also contributed positively to the economy in providing job opportunities, helping solve social problems and creating the product diversity Due to the small size and its popularity all over the country, these entrepreneurs are an important distribution channel for trade, which helps balance trading and develops the local economy In addition, household businesses are one of the driving forces for entrepreneurship, market development, and the potential area for founding micro, small and medium enterprises (CIEM, 2017) However, with the characteristics of small business, household-scaled businesses have to face many limitations in business capacity, technology application, proper knowledge in terms of business management; which lead to decreasing labor productivity and business productivity In particular, this area has had difficulties in accessing official loans (Pham Van Hong, 2016) The business capital providing source of this area is mainly based on retained profits and credits derived from friends and relatives Household businesses have difficulty in asking for capitals from credit organisations because they cannot guarantee the values of collateral assets, or the providing reasonable business plans, etc In addition, according to the provisions of the Civil Code 2015, the civil relations which the subjects are involved in are legal and personal As a result, the State Bank has amended the regulations on which defines the borrowers in the credit organizations must be legal and personal in Circular No 39/2016 / TT-NHNN to comply with this Code According to the circular, from March 15, 1977, subjects not fulfilling the legal criterium (such as household businesses, households, cooperative groups or other organizations without legal status) are not eligible for borrowing money In order to borrow capitals, household businesses must be transformed into enterprises or the head of the household must be individually responsible for repaying the Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong debt Typically, the interest rate for an individual will be calculated as the loans for consuming purposes, therefore the cost of capital can increase Another channel of funding for household businesses is microfinance institutions Besides providing small loans, savings services, some microfinance institutions also provide nonfinancial services such as risk management, start-up guidance, experience and knowledge sharing Obviously, this is an opportunity for household businesses to borrow capital, improve their knowledge and skills in business management The microfinance system in Vietnam currently includes three official microfinance organisation, about 70 semi-formal microfinance programs in 23 provinces, the system of people's credit funds, the Co-operative bank and the Bank for Social Policies However, the main targets of these organizations are the poor, the near poor, the low-income employees and other social welfare beneficiaries As a result, the supply of credits and approaches for the households-sized businesses is still limited From a theoretical point of view, there are many studies in Vietnam that analyze the impact of microfinance on different aspects of the economy Nguyen Kim Anh et al (2011) have shown that microfinance contributes significantly to reducing poverty and improving people‟s living standard The research by Mai Thi Hong Dao (2016) showed that microcredit has a positive impact on the revenues of the low- and middle-income families However, there is not any complete and comprehensive study dealing with the impact of micro finance to household business area In order to meet both the theoretical and practical requirements, the research project "Microfinance and the development of household businesses in Vietnam" is urgent Review of literature In Vietnam, the definition of household businesses is clarified in the Decree 78/2015 / NDCP in terms of enterprise registration Particularly, "A business owned by an individual or a group of individuals who are Vietnamese citizens from the age of 18, perform full civil capacity; or one owned by a household, registed for business activities in only one location, are laid down on using less than ten employees and taking responsibility for all of their assets for business activities" In some countries all over the world, household businesses exist in the form of sole proprietorship / sole trader (as in England, France, Australia, India), where the owner also actes as the managers and operators of business establishments on their own behalf; There is no separation in terms of property ownership rights between the owner, the business itself and ones who responsible for paying personal- income taxes Sole-owner businesses have no legal status, usually perform on small scale, carry lots of family-related Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong characteristics, and are able to hire more labours In Vietnam, is is distinguished by the fact that: household businesses can be owned by many individuals In terms of labor size, household businesses in Vietnam may be classified as "microbusiness" / "micro-enterprise" Thus, this topic are being worked based on an international researching process in terms of the impact of microfinance on the small-sized businesses Researches have shown that the lack of business capital and the difficulty in accessing capital lending sources are one of the major obstacles to the development of micro-, small- and mediumsized businesses (Owualah, 1999; Carpenter, 2001; Anyawwu, 2003; Lawson, 2007) The reason is that getting access to financial services enables these businesses extra resources for investing in production capacity and productivity also (Watson and Everett, 1999) In addition, during the producing process, micro facilities need to maintain their working capital However, the fact is that their working capital is mainly mobilized from unofficial sources such as family, friends, and “black” credit; most of these sources not meet the demand of the trading activities (Bhasin and Alepaku, 2001) Getting access to finance from the formal financial source is difficult with small businesses as they not satisfy the borrowing conditions from banks and credit institutions These capital mobilization difficulties can reduce sale profits of business establishments (Khandker et al., 2013) Microfinance was created to help low-income subjects access to financial services (including credit, savings, insurance, remittances, etc.) and other non-financial services This helps them to improve their incomes and living conditions The effectiveness of microfinance in preventing poverty and improving people‟s living standard has been justified in both reality and many empirical studies in many developing countries So far, low-income people are still the priority of MFIs However, to aim at a sustainable development, many organizations have expanded their range to small and micro business owners (Farhana Ferdousi, 2015) These customers may be loyal customers of microfinance organizations, have derived themselves from poverty and successfully raised the productivity, hence broadened their business scale They can also be the new clients who merely pose the need of financial support to carry out businesses with higher incomes and less risk According to Olugbenga and Mashigo (2017), microfinance can be the foundation for small-scale businesses to mobilize capitals for their businesses Microfinance can also support institutions by providing non-financial services such as business consulting, training financial management- , business skills for entrepreneur owners Empirical research on the impact of microfinance on small and micro businesses has shown a wide range of results Specifically, using the ANCOVA model to examine the relationship Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong between microfinance and performances of small- and micro-sized businesses in Indonesia for the period 1999-2005, Rahmat et al (2006) pointed out that microfinance helps these businesses increase sales and business range However, this study only works on regional factors and the business professionals when considering the factors affecting the productivity of business firms Research by Xitian Wang (2013) in China also shows that microfinance plays an important role in increasing sales and profits for household businesses Karlan and Valdivia (2006) show that the combination of microcredit and training business knowledge for homeowners have brought a lot of benefits for both lenders and borrowers In fact, rises in the total revenues are recorded by the owners after being trained by microfiance organizations and the loan repayment to them is quicker The study using the Probit regression model with dummy variable representing the business owner's participating and not participating in these training However, using the Pooled OLS regression analysis of table data obtained from the 502 microfinances business survey conducted in Nigeria, Babajide (2012) concluded that microfinance loans have zero impact on the development of small- and micro-scaled businesses This study also suggests that microfinance institutions should increase their lending and repayment terms for these businesses Similar results were reported in the study by Olugbenga and Mashigo (2017) in Gauteng, South Africa In fact, in order to promote the number of small-sized business, the Government of India has implemented a co-operated loan program between banks and microfinance institutions, in which micro credits are provided to these firms (but with higher lending limit than ones for normal micro credit) In measuring the effectiveness of this project, the World Bank (WB) suggests that this program helps institutions improve labor productivity, increase the number of production facilities, well maintain working capital, better chances in employing required labor, making higher sales and profits, as well as the fact that the owners feel more confident about themselves in the business The research purposes: - To systematize theoretical matters in credit stemming from microfinance institutions (MFIs) and the development of household businesses - To assess the impact of microcredit on the development of household businesses in Vietnam - To make recommendations to improve the effectiveness of microcredit for household businesses in Vietnam The researched subjects and fields 10 Accurate selection of models In order to select suitable models, the Hausman test was used with both models (1) with the dependent variable „profit‟ and the model (2) with dependent variable „productivity‟ to choose between FEM regression and REM Table 6: Hausman test results with model (1) scale infrastructure Table 7: Hausman test results with model (2) infrastructure 35 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong The test results show that p-value chi2 = 0.00 Wald chi2 (11) = 1139.71 Standard deviation Statistical z Dependent variable: productivity Log likelihood = -4008.0255 Variable Microcredit Training Age Sex Education Career Infrastructure Region North Central Constant Regression coefficients 1.12*** -3.09 0.59 0.316 36.27*** -63.73** -5.46 0.967 -91.63*** -63.74*** 241.55 0.14 16.66 0.637 11.07 6.38 12.5 3.335 14.18 18.32 19.1 52.4 5.24 -0.19 0.93 0.03 5.68 -5.1 -1.64 0.07 -5.00 -3.34 4.61 For variables related to household heads, in model (1), the regression coefficient of the age variable was 0.88, significantly recorded at 1%, almost consistent with the 38 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong expectation of the authors Accordingly, if the household head getting year older , the business profit of the household will increase by 0.88 million per year; however, in the model (2), the age of the household head did not have a statistically significant effect on household productivity Similarly, the gender variable of the household head has a statistically significant effect of 10% on the profitability of the household business, but there is no statistically significant effect on household labor productivity; Accordingly, the male head of household is more likely to generate 7.9 million VND per year than the female head The regression coefficients of the industry variables, respectively, were -24.5 and 63.73 in (1) and (2), both statistically significant and consistent with the author's expectation Accordingly, household businesses operating in the non-agricultural sector when borrowing microfinance loans will be more effective than agricultural households, in particular we can list the annual profit of non-agricultural households is over 24.5 million and Labor productivity is higher than 63.73 million VND per year Meanwhile, the facility variables not show statistically significant effects on both dependent variables Regional variation was statistically significant at 5% in model (1) and had a regression coefficient of -12.01 However, this variable is not statistically significant in the model (2) As a result, households in urban areas will generate more than VND 12.01 million per year compared to rural households when borrowing from microfinance However, there is no statistically significant difference between household labor productivity in the two regions Regression coefficients of regional dummy variables: In the model (1), the regression coefficient of the North was -35.58 (significance level of 5%), the central region was 41.93 (significance level of 5%) Calculating the "private block" for the domains surveyed in the regression model with the dependent variable "profit", we obtain the following results: 39 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong ∆Ci = -35.58 x north - 41.93 central Region North Central ∆Ci North -35.58 Central -41.93 South 0 From the above calculations, we see the effectiveness of microcredit on the performance of household businesses in each region can be concluded as: Household businesses to the South show the best performance, followed by Household businesses of the North and finally of the Central On average, in comparison with the South, household businesses in the North borrowed microfinance to make profit of VND 35.58 million per year Household businesses in the Central region generated profitability rate of less than VND 41.93 million per year It can be seen that this fact is relatively united with the level of economic development of selected provinces and cities Two survey sites to the South are Ho Chi Minh City Ho Chi Minh City and Binh Duong, have higher levels of development than the under-survey provinces in the North and the Middle of Vietnam CHAPTER IV : RECOMMENDATIONS Based on the results of the research model, micro-credit status of household businesses in Vietnam in Chapter II and the orientation of credit development from above MFIs, the research team did draw out some recommendations to improve the efficiency of credit from MFIs for household businesses in Vietnam, which could be mentioned as follows: Recommended to the Government To begin with, we must continue to study, supplement and improve the legal framework to support the development of microcredit for household businesses Although, at the end of June 2017, the Prime Minister did sign Decision No 20/2017 / QDTTg regulating the performances of microfinance programs and projects of political organizations, socio-political organizations and non-governmental organizations, which officialy came into practice from August 2017 This can be seen as one of the activities aimed at improving the legal framework, allowing to diversify types of organization and expand microfinance products in the second phase of the microfinance system project in Vietnam Forms of raising funds for microfinance programs and projects are more getting diversified and diversified, including compulsory savings deposits and voluntary savings 40 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong ones by microfinance clients Decision No 20 states that the total amount of voluntary savings deposits does not exceed 30% of the total allocated funds of a microfinance program or project and the maximum loan size for a microfinance client does not exceed more than 50 million Simultaneously, regulations on the autonomy and accountability of lending, regulations on the capacity of microfinance clients also contribute to ensuring the purpose and effectiveness of the use of loans However, from the results of the regression study in Chapter 2, "if the amount of microfinance increases by million VND", the profit of the household will increase by 0.58 million VND / year "The labor productivity of the household will increase by 0.74 million VND per year" This result suggests that microfinance loan has a positive impact on business performance and labor productivity of household businesses However, the impact of microfinance is not remarkable It can be explained by the fact that microcredit loans are currently of low value, mainly aimed to supplement working capital for household businesses, not to play a big role in helping household businesses to buy more fixed assets, required machinery and equipments for production Most of the surveyed households reported that from the very first beginning they used their own funds or mobilized from family, friends, relatives, or mortgaged land / houses to borrow money from banks to invest in fixed assets; During the microfinance loan, few households have invested more production and business facilities thanks to this source of capital Therefore, in order to create a motivation for household economic development, the Government should have a program or a microfinance-dealing project with the ultimate size of loan for household businesses in order to meet the demand of capital resource There should be different quotas suitable for each type of client, which include household businesses, region, sex, age of household head, etc Besides, the State should assign a detailed mechanism and policy to support specific household businesses In fact, although there are mechanisms, policies, incentives and conditions for private economic development, but they mainly focus on catering enterprises while not providing any mechanisms and policies supporting individual household businesses The state management apparatus in many localities is still limited, inadequate, especially lack professionalism of some officials and public servants, which makes the activities of individual household businesses meet many difficulties Recommendations for microfinance institutions 41 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong The first and foremost, we should build a loan model suitable with the socio-cultural characteristics of the locality MFIs in Vietnam often learn and implement lending activities based on successful past models of microfinance all over the world However, as being analyzed, there are many MFIs in Vietnam that have been successful, but there are also a few MFIs that have encountered difficulties and eventually faced failures Therefore, each MFIs themselves need to carry out a good process of surveying and researching the market, focusing on the understanding of cultural and social factors of each locality where the MFIs are located The application of the loan model will have to be based on the suitability of customers in each area In fact, there is no fixed lending model for all areas of microfinance when it comes to reality For large scale MFIs, their locations ranged in many regions and throughout the country, it is difficult to achieve the satisfaction between the lending model and the local culture Because too many loan models will pose a pressure on the management and operation procedures of the whole system Therefore, it is necessary to keep doing researchs in order to guide the lending model in the right direction of developing the core processes and basic standards The implementation and concretization of the model into the reality of each locality must be based on the socio-cultural characteristics of the locality Besides, we need to strengthen the incentive measurements to improve the repayment wilingness of the borrower The nature of microcredit loans is a lack of collateral, so it is important to create a mechanism to increase the responsibility sense of repayment of customers in microfinance lending In fact, the MFIs in Vietnam have implemented many measurements to encourage customers to pay debts such as group loans, loans increased gradually, etc However, there are pressures from the market, especially the development of credit organizations or financial companies Therefore, borrowers are supposed to overcome more conditions to access capital sources, despite the fact that the lending rate may be very high Those factors migt be causing the sense of using capital and repayment of customers having signs of a future decline Therefore, in order to ensure safety and improve lending effectiveness, MFIs should have more meaningful incentives to enhance their good will and motivation for repayment, namely: Interest rates increase, loan size increases for customers with good credit history How these dynamic incentives are designed are depending on the market but must be really attractive enough to attract the attention on the borrower In addition, we must keep enhancing the role of savings in relation to lending activities of MFIs Savings activities always play a collateral role, to raise the willingness of 42 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong repayment on borrowers Over the past few years, Vietnamese multiformal organizations have implemented various forms of savings in the form of voluntary savings and compulsory savings However, the average amount of savings per customer is very limited, are not likely to become a valuable asset for the loan of customers Therefore, improving the quality and efficiency of savings activities besides lending is extremely necessary and imseparatable It is also necessary to diversify and design types of suitable savings to each type of customer in each locality, industry, field and depending on the cashflow of customers Savings products must be attractive to the consumer to see that saving is a right, not only a prerequisite for accessing microfinance loans Moreover, we need to establish procedures, lend procedures which are suitable for household businesses.It is necessary to simplify loan procedures in order to create favorable conditions for households to easily access loans Borrowing policies should also be appropriate for the business sector and flexibility of borrowing period Thus, the new household businesses have the opportunity to access micro capital to expand production and business, apply science and technology onto production process, improve operation efficiency There should be a weekly loan monitoring mechanism and the development of a step-by-step credit packages to help microfinance institutions address customers' problems and difficulties, promote and support them, increase incomes and improve business efficiency, while stil minimizing the risk of bad debts Micro-credit should be controlled and restructured by a reasonable loan term as it will enable individual households to gradually improve their expertise and professionals in loan management Finally, with limited resources, microfinance institutions need a lot of support from the State, with appropriate public policies to achieve sustainable growth The availability of micro credit also contributes greatly to the overall GDP growth of a country Besides, the development of databases and experience in micro credit development has played a very important role in the development of household businesses through micro credits In particular, the process of storing information, measurement of effectiveness, needs to be elaborated and detailed, even with the participation and assessment of not only the bank, but also its suppliers Other service levels should be clarified to help have a comprehensive view of loan effectiveness Finally, flexible lending policies, with a variety of customer reviews, a variety of mortgage documents and assets, and the same orientation for 43 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong customers on non-registered business forms will help reduce the legal burden as well as save administrative costs Last but not least, we should focus on social communication to make household businesses understand the role of training as well as the requirements for training content, contributing to improve the effectiveness of this work Practical research from 171 household businesses in provinces in the North, Central and the South shows that microfinance institutions provide skill training courses, business management skills ; assist microfinance clients with knowledge related to the use of loans, the economic and social environment and other knowledge to improve the efficiency of production - in business, material and spiritual life It does not affect the profitability as well as labor productivity of the household business This reflects the fact that the number of households participating in training is very small and the efficiency of training is not remarkable The reason why households not participate in training is partly due to misconceptions about the role of training, partly because training content and training methods of MFIs not meet requirements and demand of household businesses Recommended for household businesses Firstly, in the context of economic integration, the production of small scale, lack of linkage as individual household businesses in Vietnam will be very difficult to compete Therefore, it is necessary to be fully aware of the association between individual household businesses, professional associations as well as between individual household businesses and the market In addition, the Government should make proper encouragement to the individual household businesses; the conditions should be transformed into a larger scale operation, financial resources are also advisably transforming into plentiful and abundant Secondly, from the perspective of individual household businesses, they also need to change their traditional perceptions, learn how to quickly approach and improve their financial management skills, cultivate and equip themselves with management tools Professional finance helps to make better investment decisions, assess potential risks, build clear business strategies, marketing strategies, market expansion, and access to models for successful application to individual household businesses We also should consider eliminating obstacles in terms of financial policies, measures to raise capital, renovate financial management methods, improving management and use of capital as well as 44 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong resources Other household businesses are under urgent requirements to improve the economic efficiency of this area Thirdly, according to AIM's model, micro credits are offered at different levels To begin with, interest-free loans, with a weekly repayment term, are used to assist individual households in developing a certain business plan (livestock or farming) Once you have repaid your loan in full, higher-value credits will be offered, of course, at higher rates Loans at the highest level can range from RM5000 - RM100 (equivalent to ~ VND30 - 60 million) This approach solves many of the inherent problems of micro-credit: a population model with similar circumstances tends to share responsibilities and benefits, and also supports credit officers in the workplace, self-monitoring and evaluation Cohesion, or otherwise, is a bond of interest that also contributes to the participation of individuals who promote themselves and motivate people in the same group than weekly monitoring mechanisms, along with the provision of credit packages at each level, help the MFIs to troubleshoot customer inquiries and difficulties, promote and assist them in developing their income and Business, on the other hand limit the maximum risk of bad debts Last but not least, enhance the absorption capacity of household businesses At present, the development of household businesses in Vietnam is still spontaneous, not flexible, lack of close coordination, efficiency of four fields (State - Scientists - Enterprises Farmers), Localities are still self-sufficient, with regional breakdowns In order to improve the absorption capacity of household businesses, and to develop an effective agriculture, there is a need for a mechanism to create a close co-ordination among the four houses, to form value chains in agriculture, benefit all parties At the same time, it is necessary to study to build specialized economic zones in order to move towards a highly specialized agriculture, forming economic zones based on the potentials and advantages of each region 45 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong CONCLUSION Profit and productivity are always a matter of concern for every household, especially in the context of rapid economic development and international integration Household businesses are not only doing business in the scope In order to survive and develop household businesses, it is necessary to increase productivity and business efficiency to invest in and participate in supplier chains within the country and internationally The results show that the development of household businesses in Vietnam is influenced by many factors, in which microcredit plays an important role Micro-credit not only plays a role in supplementing the financial needs of household businesses, but also helps to change the perceptions and perceptions of the household head in rapidly approaching and improving the level of business production, financial management skills It helps to make better investment decisions, assess the potential risks, build clear business strategies, marketing strategies, market expansion, access to financial models to apply successfully to the individual household businesses 46 Microfinance and the development of household businesses in Vietnam – Duong Linh Phuong REFERENCE [1] Anyanwu, C M (2003) The role of cbn of nigeria in enterprises financing, paper delivered at Small and Medium Industries Equity Investment Scheme (SMIEIS) Seminar CBN Training Centre, Lagos [2] Babajide, A (2012) Effects of Microfinance on Micro and Small Enterprises (MSEs) Growth in Nigeria Asian Economic and Financial Review, Vol.2, No 3, pp 463-477 [3] Barr, Michael S (2005) Microfinance and Financial 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