Hiệu quả hoạt Động của các tổ chức tài chính vi mô tại việt nam tt tieng anh

However, research on the ability of microfinance institutions to ensure equality of both financial efficiency and community support goals in Vietnam is still very limited.. In the case o

TRAN VAN BIEN

OPERATIONAL EFFICIENCY OF MICROFINANCE INSTITUTIONS IN

VIETNAM

THESIS

HO CHI MINH CITY, YEAR 2024

HO CHI MINH UNIVERSITY OF BANKING

TRAN VAN BIEN

OPERATIONAL EFFICIENCY OF MICROFINANCE INSTITUTIONS IN

VIETNAM

THESIS

Major: Finance – Banking

Code: 9.34.02.01 Scientific advisor:

Advisor: Associate Prof.Dr HA QUANG DAO

Ho Chi Minh City, July, 2024

CHAPTER 1 INTRODUCTION

development in developing countries (ADB, 2016; Legerwood, 2013; Chowdhury, 2009) Although there are still many MFIs that have depended on subsidies and external funding in Vietnam and in the world since 1990 The Grameen Bank, Accion International (ACCION), and Card Bank world models have proven that microfinance activities can develop and serve the poor without subsidies

After three decades of formation and development, microfinance in Vietnam has achieved success in contributing to socio-economic development and improving the lives of people in general, especially the poor However, despite their successes in reaching the poor, Vietnamese MFIs are still not sustainable (Quach Manh Hao, 2005) Also, the majority of microfinance institutions in Vietnam have achieved the target of operational self-sustainability, but the results are not high and uneven (Nguyen Kim Anh and Le Thanh Tam, 2013) Therefore, the issue of sustainable development of microfinance institutions has been considered one of the significant topics of people to microfinance practitioners, managers, and donors (Duflos, 2013) Thus, the sustainable microfinance development has been considered an important goal of Vietnam's microfinance industry in the process of integration and development

Microfinance institutions were built to enrich intermediary financial institutions along with traditional financial institutions to provide borrowers with small amounts of money by overcoming transaction costs in the credit market of credit institutions, residential communities, and households MFIs' innovative lending terms and lending methods help them ensure high repayment rates for loans to the poor According to Labie (2001), most MFIs claim to have a dual mission of reaching customers and being financially efficient The management effectiveness of an organization is evaluated well when it simultaneously achieves all set goals (Helms,

2006) However, Abate, Borzaga et al (2014) argue that it is still a huge challenge for profits to be offset by high debt repayment rates and to maintain financial services for the poor on a low-cost basis for most microfinance service providers Therefore, microfinance organizations must simultaneously implement financial and social goals which is a great pressure for these organizations

In Vietnam, there have been many studies analyzing the financial efficiency and community outreach of MFIs However, research on the ability of microfinance institutions to ensure equality of both financial efficiency and community support goals in Vietnam is still very limited

MFIs in Vietnam often have small customer sizes ranging from a few thousand

to about 20,000 people except for the Compassion Fund (TYM) with more than 73,000 customers and the CEP fund with about 193,000 people (Tam, 2013) Each credit officer manages an average of 205 customers of which the highest number of recognized customers is more than 900 customers However, if it is compared with MFIs with equivalent capital scale in the world, the customer scale or ability to serve the community of MFIs is much smaller The study also shows that MFIs lack legal status and face pressure to maintain low lending interest rates, due to competition with the Bank for Social Policies making these organizations unable to capable of covering their own operating costs and depending on preferential capital from non-governmental organizations as well as international donors By the end of 2019, the average number of customers of Vietnamese microfinance institutions was 157,313 people However, the number of customers participating in specific transactions at each microfinance institution often has large differences, depending on the subjective and objective practical factors of each microfinance institution

The question is whether Vietnam's MFIs are making trade-offs between social goals and financial goals to maintain a certain level of financial efficiency in the face

of competitive pressures painting or not?

And whether Vietnam's MFIs making trade-offs between social goals and financial goals to maintain a certain level of financial efficiency in the face of

competitive pressure or not Also, this demand must be answered in terms of considering the scale and market share of microfinance institutions The research contributes to providing a basis to support administrators in operating microfinance institutions providing references for adjusting administrative policies and declaring the organization's goals

In the case of the operational efficiency of microfinance institutions in Vietnam is still limited and not sustainable, the ability of microfinance institutions in Vietnam to ensure harmony between the two goals of financial efficiency and

community support is still limited The study of "Operational efficiency of microfinance institutions in Vietnam" is a necessary issue to make policy and

management recommendations to improve operational efficiency and balance the goals of Target financial efficiency with community support of MFIs in Vietnam

1.2 Objectives of the study

1.2.1 General objectives

The general objective of the study is to research the operational efficiency of MFIs in Vietnam in the period 1999-2019; Also, the study detects inadequacies to make policy and management recommendations to improve the operational efficiency

of MFIs in Vietnam

1.2.2 Specific objectives

To achieve the above general goal (then), the study needs to achieve specific research goals including:

First, research the impact factors and measure the level of impact of the factors

on the self-sustainability of microfinance institutions in Vietnam

Next, research the trade-off between community outreach goals and the operational efficiency of MFIs in Vietnam

Finally, policy recommendations aim to improve operational efficiency and balance financial efficiency goals, with the level of community support of MFIs in Vietnam

1.3 Research questions

To achieve specific research objectives, the study needs to address the following research questions:

1 What factors affect the self-sustainability of microfinance institutions in Vietnam?

2 What is the level of impact of factors on the self-sustainability of microfinance institutions in Vietnam?

3 Is there a community outreach goal and performance goal of MFIs in Vietnam?

4 What is the level of impact of community outreach goals on the performance goals of MFIs in Vietnam?

5 What policies and measures need to be implemented to improve operational efficiency and balance operational efficiency goals with community support of MFIs in Vietnam?

1.4 Scope and limitations of the study

1.4.1 Scope of the study

The objective of the study is the operational efficiency of Vietnamese microfinance institutions

1.4.2 Limitations of the study

In terms of space: The study researches the operational efficiency of MFIs in

Vietnam that is considered from two aspects:

- The first aspect: identify factors affecting the self-sustainability of these organizations' operations

- The second aspect: research on the trade-off between community outreach goals and operational efficiency of these MFIs The group of microfinance institutions studied includes official microfinance organizations and semi-formal microfinance organizations

In terms of time: The study was conducted with data collected from 1999 to 2019,

based on data published by MIX Market

1.5 Methodology of the study

To achieve the research objectives, the author uses a combination of qualitative and quantitative research methods Depending on each specific research objective, each research method is applied appropriately

Qualitative research methods are used to systematize theoretical foundations and make hypotheses for research including theoretical analysis and synthesis methods based on theoretical foundations to build a research model, document review, and observation This method uses a multi-dimensional analysis of the operational efficiency of microfinance institutions: operational efficiency, financial self-sustainability, institutional self-sustainability, and other operational aspects

Quantitative methods are applied to measure factors affecting performance The study is based on previous theoretical and experimental research as a basis Then, the author builds a model to estimate the relationship between factors to determine which factors have an impact; There is an element of community outreach to the operational efficiency of Vietnamese MFIs to create a basis for evaluating research hypotheses The thesis uses fixed effects and random effects models and the selected least squares (GLS) estimation method to overcome the phenomenon of heteroscedasticity and autocorrelation that exists in the estimated model quantity

1.6 Contribution of the study

1.6.1 Academic contribution of the study

The study researches the operational efficiency of microfinance institutions from two perspectives and measures specific factors affecting operational self-sustainability On the other hand, the study researches the trade-off of outreach goals with performance

The study builds a model to measure factors affecting self-sustainability and test those factors

The study contributes to improving the content of theoretical foundations, on the relationship between community outreach goals that impact on the operational efficiency goals of MFIs

The study provides practical evidence of the relationship between community outreach goals and performance goals Specifically, the study provides evidence on the relationship between measuring the breadth of community outreach goals, influenced by market share and capital size of MFIs, and operational efficiency

1.6.2 Practical contribution

Firstly, the study desires to make useful suggestions for microfinance institution managers based on the research results to practically contribute to improving the operational efficiency of these organizations during the period upcoming paragraph

Second, the study also aims to provide several recommendations, with scientific and practical basis, for macro management agencies, related to the process

of building, adjusting, supplementing as well as improving institutions has a direct impact on the operational efficiency of microfinance institutions

Chapter 3: Model and Methodology

Chapter 4: Research results

Chapter 5: Conclusion and Recommendations

CHAPTER 2: OVERVIEW OF PERFORMANCE OF MICROFINANCE INSTITUTIONS

2.1 Microfinance organization’s activities

2.1.1 The concept of microfinance

Microfinance has been understood as the provision of credit services, savings services, micro-insurance services, payment intermediary services, and other non-financial services for poor households, low-income individuals, and micro-enterprises to stabilize their lives, improve their income, help them escape poverty and rise in society

micro-2.1.2 The concept of microfinance organization

According to the Law on Credit Institutions No 47/2010/QH12 of Vietnam,

“Microfinance institutions are a type of credit institution that mainly carries out several banking activities to meet the needs of individuals and households with low income and micro enterprises” (Clause 5, Article 4, Chapter 1)

2.1.3 The classification of microfinance institutions

• Non-financial services of microfinance institutions

2.1.5 The role of microfinance organizations

Regarding the financial aspect, through the process of providing financial services, microfinance institutions perform important functions of (i) mobilizing savings; (ii) reallocating savings for investment, and (iii) creating favorable conditions for trade in

goods and services, becoming an effective tool to reduce poverty and increase income

In terms of social aspects, MFIs create opportunities for rural people, especially the poor, to access financial services, increase their participation in community life in general, and strengthen their capacity their society

2.2 The operational efficiency of microfinance organizations

2.2.1 The concept of operational efficiency

Efficiency is a widely used category in all economic, technical, and social fields In a market economy, one of the criteria to evaluate the success of MFIs is operational efficiency According to Aubyn et al (2009), efficiency is essentially a comparison between the inputs used in some activity and the results produced Efficiency in economics is the correlation between inputs of scarce factors and outputs of goods and services, this is a concept used to consider how well resources are distributed by the market (Nguyen Khac Minh, 2004)

According to Coelli et al (2005), an economic unit operates more efficiently than another economic unit if it can provide more products without using more resources than the other unit Thus, efficiency represents the correlation between the results obtained and the entire cost spent to get that result, reflecting the quality of that economic activity, the difference between these two quantities is greater The larger it

is, the more effective it is Economic efficiency is considered the level of success that units achieve in allocating input resources to optimize output, reflecting the level of use of resources to achieve output determined by the target

2.2.2 Methods of measuring the performance of microfinance organizations

Return On Assets (ROA)= (Operating income after tax)/(Average total assets)

Average total assets = (Beginning assets + Ending assets)/2

Return On Equity (ROE) = (Operating income after tax)/(Average total equity)

Operational Self-Sufficiency (OSS) = (Financial revenue)/(Financial expenses+risk provision expenses+Operating expenses)

2.3 The community outreach goals of microfinance organizations

2.3.1 The concept of community outreach goals

The general term reach encompasses two dimensions: the depth and breadth of limitations According to research by Conning (1999), outreach is often used to refer

to MFIs' efforts to extend loans and financial services to an increasingly broader audience (reach) especially for the poorest of the poor (the depth of limitations) Therefore, Brau and Woller (2004) argue that reaching the poorest people is a deep limitation, but reaching large numbers of people even if they are relatively less poor is

a broad limitation Research by Hermes, Lensink et al (2011) argues that outreach is providing credit to poor people who do not have access to commercial banks, to reduce poverty and help them establish their income-generating businesses Bassem (2008) added the factor of female borrowers as an indicator of MFIs' ability to reach the community This is because the main customers of MFIs are mostly women Schreiner (2002) provides a more comprehensive definition of the approach and the proposed approach has six dimensions: the value, cost, scope, limitation, length, and width of access

2.3.2 Measure outreach goals

Research of Bibi, Balli, and colleagues (2018) proposes a breadth-based community outreach target calculated as borrower market share divided by asset market share

〖TA〗_j= Total assets of MFIs in country

2.4 The self-sustainability theory of microfinance institutions

"Sustainability" means "long-term existence" (according to the Vietnamese dictionary) Organizational sustainability is the development and balance of four groups of factors: customers, internal processes, training and employees, and organizational finances (Pau Niven, 2009) According to GGAP, sustainability in the microfinance industry means "the capacity of a microfinance institution to cover all costs and make a profit while providing financial services to poor communities" Indicators to measure the sustainability of microfinance organizations

(i) Operational self-sustainability ratio (OSS):

Operating income Self-sustainability and performance ratio (OSS) = -

Total operating costs

In there:

Total operating costs = Operating costs + Financial costs + Risk provisions

If OSS > 100%, a microfinance institution is considered to ensure operational sustainability However, according to international practice, to achieve long-term sustainability, OSS should be greater than 120% (Ledgerwood.J, 2013)

(ii) Financial self-sustainability ratio (FSS):

Operating income FSS ratio = -

Adjusted total operating expenses Total adjusted operating expenses = operating expenses + Financial expenses + Capital loss provisions + Capital expenses

Cost of Capital = ((Inflation Rate * (Average Equity – Average Total Fixed Assets)) + ((Average Debt + Commercial Interest Rate of Debt Funds) – Real Cost of Finance international)

If the FSS target is > 100%, MFIs are considered financially self-sustainable (Ledgerwood.J, 2013)

(iii) The level of equity growth and leverage ratio

(iv) Profit ratio on total assets

ROA = Net income/total assets

(v) Institutional sustainability level (ISS):

2.4.4 Standards for assessing the sustainability of microfinance institutions

status of the organization (having a legal entity and separation between owners, management board and executive board)

2.5 Theories related to the performance of microfinance institutions

• Agency cost theory

• Priority theory

• Trade-off theory

• Life cycle theory

• Profit incentive theory

2.6 Empirical research on factors affecting the self-sustainability of microfinance organizations' operations

people In contrast, low-profit MFIs are most focused on reaching the poor and most dependent on subsidies

- Research suggests that raising interest rates to very high levels does not ensure higher profits and also does not reduce costs

- Factors: total labor costs over total assets, scale, operating time, total loan balance over total assets have a positive impact on OSS

On the other hand, the ratio of equity to total assets has a negative impact on OSS

- Research also shows that MFIs that collect savings are often able

to reach more borrowers – Factors: equity ratio on total assets, scale, inflation coefficient have a positive impact on OSS On the other hand, uptime has a nonlinear impact on OSS

impact on the stability of MFIs

Mazlan (2014)

- The study evaluates factors such as: size, yield on total loan portfolio, cost per borrower, average loan balance per borrower, age of MFI, number of borrowers active loans and operating expense ratio of microfinance institutions

- The study found evidence that the size and number of borrowers positively impact OSS However, the age of organizations has a negative impact

operational efficiency of microfinance institutions

- The study suggests that accessibility measured by the value of

customer deposits has a significant positive impact on OSS – Factors: operating expense ratio, non-interest income ratio to total income, bad debt ratio and operating expense ratio to total expenses have a negative impact on OSS

Mahapatra and

Dutta (2016)

- The size of the microfinance institution, the average loan balance per borrower, and the cost per borrower are all important determining factors for the sustainability of the operations of microfinance institutions in India

- GDP growth has a negative impact on OSS

borrower all have a negative and statistically significant impact on the financial sustainability of MFIs

- Yield on total loan portfolio, size of number of borrowers and average loan size per borrower have a significant positive impact

on sustainability

- Variables related to return on equity, loans per loan officer and the ratio of women borrowers of microfinance institutions are not statistically significant

autonomy of microfinance institutions is positively and significantly affected by a number of factors: loan balance, scale and scope of projects and service, the ratio of borrowers per loan officer, return on equity, and the MFI's loan balance, all have a positive impact

- However, the study also shows that there are factors that have a negative impact on operational and financial autonomy, which are: MFI investment portfolios with risk levels between 30 and 90

days, debt-equity ratio, cost per borrower and inflation also have a negative impact on the financial self-sufficiency of MFIs

2.6.2 Domestic studies

The study by Truong, Phan and Liem (2022) analyzes the impact of capital structure on the OSS of MFIs in Vietnam during the period from 2006 to 2019 The data used for this study has been offered by MIX Market The study uses FEM and System GMM regression methods The research results find evidence that capital structure has a positive and nonlinear impact on the sustainability of MFI activities in Vietnam Specifically, equity capital has a positive and stable impact at both high and low levels, while capital from other sources has an unstable impact In addition, the study also suggests that the ratio of deposits to total assets, the ratio of loans to total assets, the ratio of debt to total assets, the number of years of operation of the organization and inflation have a positive impact on OSS On the other hand, the ratio

of 30-day overdue debts to total outstanding debt negatively impacts OSS

2.7 Empirical studies on performance and outreach goals

- The study shows warnings in favor of not lending to low-income

Morduch

(2005)

households lacking collateral

- Microfinance re-examines assumptions about how poor households save, build assets, and how MFIs overcome market failures

- Microfinance helps create a unified voice for peace, build social structures, and work towards a common future

Ritchie (2012)

- The results show that there needs to be a connection between loan officers and managers to ensure financial security for MFIs, because the above officers have priority for group interests at localities It is sometimes difficult to control the risk level of the loan while financial institutions are truly financial intermediaries that need to consider operational efficiency

Sophyrum

Heng (2015)

- Three factors that determine sustainability for MFIs are: 1) Total loan portfolio growth; 2) Operating expenses/assets; 3) Average loan size per capita

- Conclusion that when the loan portfolio increases too quickly, the sustainability of MFIs is low

- Operating cost factor according to asset ratio impacts sustainability MFIs that meet the capital needs of the poor have to

spend more money than other financial institutions while generating lower revenue

- The average loan size affects sustainability, the loan size for low-income people will be small because this group has been chosen to serve

- Financial education to help poor people understand their financial needs, how to spend and save to avoid burdens on themselves and their families is very necessary

- Secondly, microfinance institutions and non-governmental organizations are encouraged to promote social efficiency in their operations, but in addition, they must pay attention to operational efficiency

Lebovics and et

al (2017)

- For Vietnamese microfinance organizations, there is no relationship between operational and social efficiency, so it can be seen that there is a trade-off between the two above efficiencies,

so the approach to society has no valid basis

- Microfinance organizations develop based on the financial market through independent non-governmental organizations or licensed private microfinance organizations rather than subsidies from the State

Awaworyi

Churchill

- Provides evidence of the trade-off between financial sustainability and depth of outreach but with additional attributes

(2020) between financial sustainability and breadth of outreach

- An increase in financial sustainability leads to a much stronger negative impact on access depth than the impact of access depth

a negative impact on performance

- MFIs will strive to achieve operational efficiency and maintain a low level of community outreach goals

reduces its ability to reach the community

- MFIs aim to eradicate poverty and provide financial services to the poorest people, so commercialization may not be an effective solution because it cannot maintain the organization's performance goals position

Adhikary and

Papachristou

- Breadth and depth of community outreach are positively related

to profitability and performance

performance goals and access goals

- Confirming that there are trade-offs stemming from MFIs' desire

to reduce their portfolio risk However, the model results do not show that higher risk portfolios are associated with poorer customers

- MFIs with non-profit goals serve poor customers more than richer customers In other words, in non-profit MFIs, the difference in repayment ability and lending risk between customers with different income levels is insignificant

2.7.2 Domestic studies

Dao Van Hung

- Results: Social Policy Bank leads in terms of depth and breadth of approach, however, Agribank has the highest growth in number of

customers and credit balance scale

- Results: NGOs rural financial organizations have created a more equal and healthier operating environment for rural finance Service quality and customer satisfaction with the services of NGOs rural financial institutions are always rated higher than official MFIs

- The author also found that a number of large NGOs have achieved self-sustainability in their operations

- Point out limitations and recommendations for the development of rural financial institutions in general and NGOs in particular

Anh (2010)

The study "Development of microfinance in agricultural and rural areas in Vietnam" has evaluated: (i) The reach of microfinance institutions is becoming deeper and wider; (ii) The ability of microfinance institutions to exist and develop sustainably is increasing; (iii) Microfinance institutions' operations are becoming more and more effective

Hai (2012)

- Summarized the criteria for evaluating the development of microfinance from the CAMELS and PEARLS index sets and these authors divided them into 06 groups of criteria: (1) Group of indicators on outstanding loan quality, (2) Group of indicators on outstanding loan quality, (2) Group of indicators on outstanding loan quality operational performance index, (3) Performance and sustainability index group, (4) Profitability index group, (5) Access level index group, (6 ) Social index group

- Recommendations to improve the operational efficiency of the semi-formal microfinance sector, ensuring the goal of sustainable and dynamic development of the microfinance sector in Vietnam

- Limited implementation with a small number of MFIs and a research period that is not really long enough

Cuong (2013)

"Microfinance supports hunger eradication and poverty reduction in Dong Nai Province until 2020" has completed the theoretical basis and scientific arguments on microfinance to support poverty reduction and researched the current status of microfinance activities

in Dong Nai province

- Propose solutions for MFIs to operate effectively and for organizations to provide financial and non-financial services at lower costs

- Limitations: researching activities on a provincial scale with data collected from statistical reports being quite thin; Survey data used

on Excel software does not give the best results

- Limitation: only uses a few criteria to evaluate the development of

an organization's activities based on the level of access of the organization (capital mobilization, credit) and sustainability index of the operating organization

Lien (2016)

- Analyze the development of microfinance activities of credit institutions based on the level of access and sustainability of the organizations

- The author also discovered factors affecting the development of microfinance activities at credit institutions with decreasing levels as follows: (i) Width of access, (ii) Operating time, (iii) ) Credit risk, (iv) Labor productivity and (v) Sustainability

- Research data from Lien Viet Bank, so the representative sample is not truly complete and typical

Nguyen Quynh

Phuong (2017)

- Theoretical research on the development of formal and official microfinance activities Analyze factors affecting the operations of microfinance institutions, find out lessons learned in developing microfinance institutions activities in the world such as Cambodia, Philippines, Pakistan, India, etc to draw lessons for Vietnam

semi Assess the current state of operational development of the 25 MFIs with the largest operating scale in Vietnam (4 official MFIs and 21

semi-official MFIs) during the research period from 2011 - 2015 and then provide directions and recommend policies to develop microfinance activities in Vietnam

- The author uses research methods of expert interviews, case studies, and quantitative analysis methods

- Limitations: No mention of credit institutions providing microfinance services

Anh (2017)

- "Microfinance products and services: Current status and development solutions" presented general theoretical issues and international experiences on microfinance service development

- Based on primary and secondary data for customers through product groups of micro-credit, micro-savings, micro-insurance, etc

- Recommendation: develop microfinance products and services to meet the needs of the poor and low-income people, increase sustainability and competitiveness for microfinance institutions in Vietnam

- The author has evaluated micro credit activities; financial management situation of microfinance institutions; Analyze productivity and efficiency indicators of MFIs according to legal form; Analyze profitability and sustainability of microfinance institutions classified by legal form