MICRO-FINANCE SERVICE QUALITY: THE HOI AN CITY, VIETNAM EXPERIENCE A dissertation presented to The Faculty of the Graduate School Bulacan State University Bulacan In Partial Fulfillment of the Requirement for the Degree Doctor of Philosophy in Business Administration Major in Finance and Banking PHU HA NGUYEN 2013 a © 2013 Phu Ha Nguyen ALL RIGHTS RESERVED b ABSTRACT The dissertation attempted to evaluate perceived service quality of micro-finance institutions operating in Hoi An and its impact on income improvement and social equality of clients in Hoi An in 2010-2012 Specifically, it sought answers to the following: How is perceived service quality of MFIs in Hoi An in terms of: financial outreach, tangibles, responsiveness, empathy, assurance, and reliability ? How may the service quality of MFIs in Hoi An be described in terms of: gender, age, education, types of business, years of relationship? How may the perceived service quality of MFIs influence income improvement and social equality of clients in Hoi An? Are there significant differences in perceived service quality among formal and semi-formal sector MFIs in Hoi An when they come to providing microcredit ? If there are, what underpins these differences? What is a plan of actions to improve the effectiveness of the microcredit program with aims to improve the financial and social positions of the clients in Hoi An? Following a review on related theories, studies and literatures, conceptual framework on service quality, and self-developed questionnaire i with a pilot study were done Statistical frequency, reliability test, KMO and Bartlett‟s test, factor analysis were utilized, and hypothesizes were tested using t-test and Pearson correlations Some findings and conclusions about Hoi An arrived at the following : The clients shared common characteristics with those drawn in other related studies in terms of female-focus lending, education, business type; Evidence on clients‟ profile in terms of years of relationship shows that MFIs in Hoi An are in the process to built up their client network The total sum of six dimensions including: “financial outreach”; “tangibility”; “responsiveness”; “empathy”; “assurance”; and “reliability” can contribute remarkably to the total variance of the overall perceived service quality Of which, “financial outreach” and “reliability” were most vital dimensions The overall service quality score of formal sector MFIs was higher than that of semiformal sector MFI‟s The overall perceived service quality has significant impact on income improvement and social equality of the clients Recommendations were made to management of MFIs include: MFIs‟ awareness in meeting with service quality standards, responsibilities of clients to micro-credit conditions, and efforts to use loans efficiently Suggestions on an action plan include: sets of criteria and required steps Furthermore, there are also recommendations to future academic researches based on limitations of the study ii ACKNOWLEDGEMENTS This study could not have been possible without the generous help of a number of people who motivated, inspired, assisted, and supported the author in her endeavor Their names are gratefully acknowledged and their precious memories will always be treasured To Dr Andy NG YOKE BENG, the author‟s supervisor for his precious time, experiences, knowledge, advice for modification from the beginning to the completion of the study; To the author‟s husband, children, mother in law for their encouragement and taking care; To the author‟s parents for being so supportive in time of needs; To the micro-finance experts in Hoi An, whose advice for modification of the survey questionnaire; To Mr Ne VO, People Committee of Cam An Ward, Hoi An City for his great support; To members of Hoi An Women Union for their time and efforts to deliver and collect survey questionnaires; To the respondents of the study; To my beloved friend and colleague, Dr Van DINH Thi Thanh for her precious support Finally, all the study requires many hours of the author to writing and typing iii LIKE THE MASTER THESIS, THIS DISSERTATION IS DEDICATED TO MY HUSBAND AND MY CHILDREN BECAUSE OF THEM IS A CONSTANT SOURCE OF INTELLECTUAL INSPIRATION AND TREASURE OF LOVE iv TABLE OF CONTENTS Page APPROVAL SHEET COPYRIGHT PAGE ABSTRACT ACKNOWLEDGEMENTS DEDICATION TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES ACRONYMS i iii iv v vii viii ix Chapter 1.1 1.2 1.3 1.4 2.1 2.2 2.3 2.4 2.5 2.6 2.7 3.1 3.2 3.3 3.4 THE PROBLEM AND ITS BACKGROUND Introduction Statement of the Problem Significant of the Study Scope and Delimitation of the Study 10 THEORITICAL FRAMEWORK 15 Relevant Theories on Service Quality Relevant Theories on Microfinance Relevant Literatures and Studies on Service Quality Proposed Dimensions for Microfinance Service Quality Measurement Conceptual Framework of the Study Hypotheses of the Study Definitions of Terms Used in the Study 15 30 54 67 METHODOLOGY 79 Methods and Techniques of the Study Population and Sample of the Study Instrument of the Study Method of Gathering Data 79 82 84 90 v 71 73 74 4.1 4.2 4.3 4.4 5.1 5.2 5.3 5.4 PRESENTATION, ANALYSIS, AND INTERPRETATION OF DATA 92 General Information on Client‟s Profile Service Quality, Income Improvement, and Social Equality Interpretation on Determinants of Service Quality Hypothesis Testing 93 100 108 115 SUMMARY, FINDINGS, CONCLUSION, AND RECCOMENDATIONS 123 Summary Findings Conclusion Recommendations 123 124 128 130 REFERENCES APPENDICES CIRICULUM VITAE END NOTES 136 158 167 171 vi LIST OF TABLES Table Page 2.1 Outstanding loans of key formal sector MFIs 42 2.2 Outstanding loans of semiformal sector MFIs 43 2.3 Liabilities structure of core MFIs of Vietnam 45 2.4 Characteristics of Formal Sector MFIs and Semiformal Sector MFIs 46 2.5 Comparison of prior vs post poverty reduction (%) of microfinance clients in Vietnam 51 2.6 Critical Contac Points to Dissatisfaction with Customer Service 63 4.1 Frequency Distribution of Gender 94 4.2 Frequency Distribution of Age 95 4.3 Frequency Distribution of Education 97 4.4 Frequency Distribution of Business Type 98 4.5 Frequency Distribution of Years of Relationship 100 4.6 KMO and Bartlett‟s Test for Service Quality 101 4.7 Factor Analysis with Principle Dimensions and Items after Rotation 103 4.8 Factor Analysis with Dimensions and Items after Rotation 107 4.9 Mean Comparison for Accessibility, Funding conditions, Costs/price; Tangibles; Responsiveness; Empathy; Assurance 116 4.10 Independent Sample T-Test 117 4.11 Pearson Correlations 120 4.12 Results of all the hypothesizes tested 122 vii LIST OF FIGURES Figure Page 2.1 Gronross and ROM Models 24 2.2 SERVQUAL and SERVPERP Models 27 2.3 The Country Context 31 2.4 Microfinance Network in Vietnam 41 2.5 Clients Characteristics 47 2.6 Vietnam microfinance: Gender structure of clients 49 2.7 Geographical segment in Vietnam microfinance market 52 2.8 Service Quality Measurement 57 2.9 Clients Satisfaction on Funding Conditions and Trusts in Vietnam‟s MFIs 58 2.10 Customer Satisfaction 60 2.11 Matching Two Sets of Dimensions used in Measuring Service Quality in Microfinance 69 2.12 Matching the Common Dimensions developed by S.A Buddhika (2006) and E.K Balemba (2009) with Parasuraman et al., Framework (1998) 70 2.13 Conceptual Framework of the Study 71 viii Tan Hiep 21 74 Bai Huong Thon Cam Bai Lang Bai Ong 6 1 22 16 21 15 2 Cua Dai 32 10 125 13 Phuoc Thinh Phuoc Hai Phuoc Hoa Phuoc Trach Phuoc Tan 6 2 2 27 24 31 26 17 3 Son Phong 4 97 An Tho Phong Nien Phong An Phong Thien An Hoa 1 1 1 1 19 23 31 15 2 1 Cam Thanh 83 19 189 20 Thon Thon Thon Thon Thon Thon Thon Thon 11 11 10 10 11 10 10 10 3 2 2 30 11 40 23 11 16 49 1 Minh An 111 11 Dong Hiep An Thang An Hoi An Dinh An Thai 2 1 1 1 26 23 12 18 32 2 36 12 230 27 6 2 46 44 26 5 Cam Chau Thanh Tay Thanh Nam Son Pho 159 95 12 157 23 101 13 272 39 119 16 266 39 Son Pho Truong Le An My 6 2 38 36 40 5 Cam Pho 40 200 19 Lam Sa Ngoc Thanh Tu Le Hoai Pho Xuan Lam Xuan An Xuan Hoa Xuan Thuan 5 5 5 5 1 1 1 1 25 25 23 37 32 20 21 17 2 2 Cam An 62 14 132 13 An Bang An Tan Tan Thanh Tan Thinh Tan My 13 12 15 12 10 3 3 36 20 27 25 24 2 Tan An 16 174 18 Tan Hoa Xuan Quang Tan Lap Tan Thanh Xuan My An Phong 2 3 1 1 1 37 21 28 32 33 23 3 Cam Nam 54 14 136 14 11 27 11 11 11 3 24 33 32 10 20 613 160 2010 209 Thanh Nam Tay Ha Trung Xuyen Trung Chau Trung Thanh Nam Dong TOTAL 160 240 27 194 27 190 24 190 28 2623 369 APPENDIX Questionnaire on the service quality of microfinance in Hoi An This study is to deliver to clients who have been using services provided by micro-finance institutions (“MFI”) in Hoi An city, Quang Nam province Collected information will serve for analysis of perceived service quality of microfinance sector in Hoi An, so that the result can provide to the managerial levels for arranging appropriate relevant strategies The researcher commits that it has only for statistical purpose and deals with strict confidence Clients’ profile (Please tick to the appropriate box) 1.1 Sex: Male: Female 1.2 Age: 25 or under 25: 41-56: 26-40: 56 or above: Single Married Disvorced Widowed Primary school High school 1.3 Status: Civil 1.4 Highest level of education attained: None Secondary school University 1.5 Type of business activity: Small trade Services Manufacturing Fishery/Farming Roadside openground Retail Shop 1-3 years More than years 1.8 Site location of business: At home Market stall 1.9 Time of relationship between the client and MFI: Less than year: 3-5 years 161 Information on clients’ evaluation on service quality (Please circle to the appropriate scale according to your own evaluation) Strongl y Disagr ee Disagr ee Avera ge Agre e Stron gly Agree 5 Q13 The MFI offers me full lists of their products and services Q14 The MFI qualifies my profile carefully before providing services Q15 The contribution amount will be adjusted according to my financial position and my business plan Q16 Loan amount will increase if I can pay the principle, interest and fees on time 5 No Items Accessibility, funding conditions, costs/price Q11 Requested documents included in application forms always require confirmation by the responsible local authority Q12 The MFI‟s staffs always come to my business base/location to evaluate my financial sustainability before making decision on lending Q17 Loan term will be longer if I can pay the principle, interest and fees on time 162 Q18 The MFI will provide me grace period if I am in force majeure Q19 The non interest fees charged by the MFI are lower compared to other providers 5 Q21 The MFI invests sufficient equipment and facilities (car, motorbikes, fax, and phone … Q22 The exterior of the MFI is visually appealing (slogan, image, advertisements…) Q23 The interior of the MFI is visually appealing (decoration, architect, seats, table …) Q24 The MFI‟s staffs have neat appearances (pullover with slogan and MFI icons, badges…) Q25 The MFI‟s staffs always help me with procedures relating to microcredit Q26 The MFI‟s staffs are willing to solve my problem The MFI will release some Q20 transaction cost, original fees if I engage in activities for environmental protection or for the community Tangibles (Appearance of physical facilities equipment personnel and other materials) Responsiveness (Willingness to help customers and to provide prompt service.) 163 Q27 The MFI‟s staffs meet my request quickly 5 Q29 I can contact with the responsible staff by email or by phone easily Q30 The MFI is ready to serve me with sufficient facilities and required equipment Q31 The MFI appoints the staff to support me in the right time and right position Q32 The MFI‟s staffs are understanding me Q33 The MFI‟s staffs know my needs Q34 The MFI‟s staffs response to my needs with their sensitivity 5 5 Q28 I can come to the MFI‟s office easily without an appointment with the responsible staff in advance Empathy (the level of individualized attention that the service provider gives its clients) Q35 The MFI‟s staffs are polite to me and serve me in good manner Q36 There is a warm relationship between the staffs and me Assurance (employees’ knowledge and ability to inspire confidence and trust) Q37 The MFI‟s staffs have well know ledges to response to 164 my problems Q38 The MFI‟s staffs always ensure about their skills expertise and professionalism Q39 I believe that the MFI deserves trust Q40 The MFI‟s staffs instill confidence in me 5 5 Reliability (Perform service dependably and accurately with consistency and punctuality) Q41 The MFI is financially dependable Q42 The MFI‟s staffs carry out my transactions confidentially Q43 The MFI‟s staffs provide services with precise information Q44 The MFI informs me about its financial operation accurately Information on clients’ evaluation on income improvement and social equality ((Please circle to the appropriate scale according to your own evaluation) No Items Strongl y Disagr ee Income improvement (short time/temporary) 165 Disagr ee Avera ge Agre e Stron gly Agree Q1 Q2 Q3 Q4 Q5 Using the MFI‟s financial services I can make profit from my own business (income generating activities) 5 I can pay interest and fees on time Apart from principle interest and fee paid I can buy some assets for my family/pay school fees for children 5 Using the MFI‟s financial services the total revenues of my business have been increasing compared to previous stages Using the MFI‟s services I can manage operating expenses better than previous stages Social equality Q6 Q7 I am planning to expand my business in size I am accessing to the commercial banks credit whenever I have an opportunity Q8 I strongly believe that my social power is balance to others Q9 I feel I have more decision making power within my family 5 My know ledges relating to Q10 credit and business planning are improved 166 CURRICULUM VITAE Name: Phu Ha NGUYEN Sex: Female Nationality: Vietnamese Profession: Lecturer EDUCATION AND DEGREE Year Degree 2008 Master in Economic Engineering of Finance and Banking Graduate School of Economics B.Com in International Trade Economics Faculty of International Economics 1999 Educational Body Kyushu University, Fukuoka, Japan Hanoi Foreign Trade University, Hanoi, Vietnam 1994 High school Diploma Hanoi - Amsterdam High School for Gifted Students Hanoi, Vietnam OTHER PROFESSIONAL TRAINING Year Degree Educational Body 2010 Certificate of Teaching Skills Vietnam National University Hanoi, Vietnam 2006 Certificate of Economic Research Faculty of Economic Nagasaki University, Nagasaki, Japan 167 TEACHING AND RESEARCH EXPERIENCES Period 2009up to now Position Body Lecturer Researcher Contents Vietnam National University To research and give lectures in subjects of finance and banking: Management of Commercial Banks I Management of Commercial Banks II Management of Micro-finance International Banking Credit Banking 20062008 Master Student Kyushu University Japan To attend lectures and research on the Japanese main bank system 20042006 Research Student Nagasaki University To attend lecture and research on Microeconomics Macro-economics Economics of Finance and Banking 20012004 Lecturer Vietnam Commercial University Vietnam To give lectures on two subjects: Vietnam Commercial University To research and give lecture modules of two related subjects: 2000 Teaching Assistant Money and Banking International Payment and Credit Money and Banking International Payment and Credit THESIS/PUBLISHED PAPERS/ AND WORKS Items Period Place of defense/ Journal Content 2008 Kyushu University, Fukuoka, Japan “Corporate governance in the Japanese mainbank system: Experience and implication for Vietnam‟s financial system” 1999 Hanoi Foreign Trade University, Vietnam “The 1997/98 financial crisis in East Asia: Lessons for Vietnam.” Journal of Science Vietnam National “Mergers and acquisitions in Vietnamese banking sector: Applying Atabay Thesis 2010 168 Paper 2010 2009 Work principle to solve emerging problems” Journal of Science Vietnam National University Hanoi /Vol 26 No 5E 2010/ ISSN 0866-8612 “The financial system of ASIAN-5 and Vietnam: Comparative Analysis” Auditing review/2009 ISSN 0868-3227 “Information disclosure on securities market in Vietnam: problems situations and solutions” Ministry of Education and Training, Hanoi, Vietnam “Techniques used in analyzing the financial statements of listed companies in the Vietnamese stock market.” Ministerial level of education & training of Vietnam Code B2007-07-07 Ministry of Education and Training, Hanoi, Vietnam “Financial solutions to foster the demand in the real estate market in Vietnam.” Ministerial level of education & training of Vietnam Code B2004-39-53 2007 2004 Other University Hanoi /ISSN 0866-8612 2010 Translation project under the cooperation among VCU and Embassy of the United States and World Bank on the textbook “Economics of Development” Six Edition Dwight H Perkins (Harvard University) Steven Radelet (Center for Global Development) David L Lindauer (Wellesley College) and other professional materials Vietnam Commercial University Hanoi Vietnam INTERNATIONAL CONFERENCE Period 2010 2009 Conference Topic/ Place Presented paper The Evaluation of Stimulus Policies of Asian Countries 2009 Vietnam National University Hanoi Vietnam The 5th international conference on Asian Financial Market Nagasaki University Nagasaki Japan Research paper: Analysis of Vietnamese banks‟ efficiency during the global financial crisis (2006-2009): From DEA and Tobit regression approaches Research paper and presentation: The financial system of ASIAN-5 and Vietnam: Comparative Analysis” 169 PROJECT CONSULTING EXPERIENCES Period Post Name of Organization Services and related studies Micro-finance services 2010 up to now 20082009 Project Leader/ Partner Vice director FINCO jsc Tri Viet Hoi An jsc To supervise and manage the AuCo fund for the low-income households in Hoi An city To enhance marketing and sales micro-finance products and services Vocational training services inhabitants in Hoi An city 170 for To research the pilot sites in An Bang Dien Duong for building up the vocational inter-training in the new urban Hoi An.” END NOTES According to the Ministry of Labor, Invalids, and Social Affairs of Vietnam (“MOLISA”), the latest standard (2010-2015) for the poor households in rural areas are considered those with an average monthly income below VND 400,000 ($US20) and VND 500,000 ($US25) for urban areas Near-poor households in rural areas earn an average income of VND 401,000 -520,000 ($US20-$US26) per month and VND 501,000 - 600,000 ($US25-$US30) per month for those in urban areas Poor and near-poor households are understood as low income households in the thesis‟s context Each households consist of four persons Report on the socio-economic development plan in the period 2010-2015, published by Hoi An Department of Labor, Invalids and Social Affair, 2011 In 2006, Vietnam became an official member of The World Trade Organization (“WTO”) Along with commitments to open the financial market, Vietnam microfinance has been step by step liberalized Newly established MFIs are licensed by the State Bank of Vietnam to operate under joint-stock enterprises, or limited companies They can mobilized capital and borrow funds from the market In contrast, MFIs before 2006 often focus on pro-poor targets to help reduce poverty and hunger within Vietnam rural communities 171 National poverty rate is the percentage of the population living below the national poverty line National estimates are based on population-weighted subgroup estimates from household surveys Lan Le is a microfinance expert of Vietnam He works as a consultant and advisor for TYM – one of the biggest semi-formal MFIs in Vietnam Joerg Teumer – a microfinance expert and a management consultant for project “source of funding development” for TYM Kiva‟s report, 2010 was downloaded from the website www.kiva.org Reliability is the ability of a measure to produce consistent results when the same entities are measured under different conditions (A Field, 2006) Cronbach (1951) came up with a measure that is loosely equivalent to splitting data in two in every possible way and computing the correlation coefficient for each split Cronbach‟s Alpha is a measure of the reliability of a scale defined by: In which the top half of the equation is simply the number of items (N) squared multiplied by the average covariance between items (the average of the off-diagonal elements in the variance-covarian matrix) The bottom half is the sum of all the elements in the variance- covariance matrix (A Field, 2006) 172 10 Likert scales were developed by psychologist Rensis Likert in 1932 When responding to a Likert questionnaire item, respondents specify their level of agreement or disagreement on a symmetric agree-disagree scale for a series of statements Thus, the range captures the intensity of their feelings for a given item While the results of analysis of multiple items (if the items are developed appropriately) reveals a pattern that has scaled properties of the kind Likert identified Likert scales typically range from to 10 – with or being the most common In this, the typical structure of the Likert scale is such that each progressive Likert item is treated as having a „better‟ response than the preceding value The format for a typical 5-point level could be: Strongly disagree Disagree Neither agree nor disagree Agree Strongly agree The Likert scale is a very useful question type when the researchers or practitioners want to get an overall measurement of a particular topic, opinion or experiences and also collect specific data on contributing factor This will also allow for comparisons withing and between your data sets (P E Spector, 1992) 11 According to statistical data provided by HWU, the number of clients using services of regulated MFIs amounting to 2623 clients as of March, 2012 173 ... (“QSO”), Vietnam Bank for Social Policies (“VBSP”) Hoi An Branch, The Agriculture Development Bank of Vietnam (“Agribank”) Hoi An Branch, and Hoi An People Credit Funds (“PCFs”) According to the “2011... Funds QSO Quang Nam Statistics Office SBV State Bank of Vietnam VBSP Vietnam Bank for Social Policies VMWG Vietnam Micro-Finance Working Group VSO Vietnam Statistics Office WAGES Women and Association... with the 15 detailed analysis of four aspects of service quality, then it moves on to analyze the evolution of service quality measurement Aspects of service quality For many researchers, service