The effect of capital structure on sustainability and social performance of MFIS in vietnam

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING ACADEMY OF VIETNAM - NGUYEN BICH NGOC THE EFFECT OF CAPITAL STRUCTURE ON SUSTAINABILITY AND SOCIAL PERFORMANCE OF MFIs IN VIETNAM Major: Banking - Finance Code: 34 02 01 SUMMARY OF DOCTORAL THESIS IN ECONOMICS HaNoi, 2021 THE THESIS IS COMPLETED AT BANKING ACADEMY OF VIETNAM Scientific suppervisor Assoc Prof., Dr Đao Van Hung Assoc Prof., Dr Le Thanh Tam Referee 1: Referee 2: Referee 3: The thesis will be defended against the doctoral thesis examining committee‟s judgement, held at Banking Academy of Vietnam, at ………………., ………………… The thesis can be found at: - Library of Banking Academy of Vietnam - National Library of Vietnam INTRODUCTION The neccessity of the thesis 1.1 Theoretical approach Finance plays importance role in boosting social and economic development in general (Agnello et all, 2012; Ashta, 2010) and combating poverty as well as ensuring social security in particular (Ledgerwood, 2013; Chowdhury, 2009) in countries, especially developing countries like Vietnam However, there arre still many people can not access financial services, which can make their way of improving living conditions even more harder, and percentage of poor people has increased as a result Therfore, all nations have aimed at impriving financial inclusion as a target Above all, people living in poverty have been central of attraction because there are many barriers such as education, sex, risk level preventing them from accessing financial services in formal instituitions Therefore, in 17th century, microfince had been appeared with the hope that can help poor people find easier to get financial services This model after that has developed and quickly multiplied in many countries in the world Particularly, statistics of Microfinance Barometer showed that microfinance instituions (MFIs) in the world provided services for about 136 million low-income people in 2016 and 139 million customers in 2017 Also, growth rate of MFIs‟ customers in 2016 and 2017 was 9.6% and 5.6% respectively It is clear that, althought there was an increase in the number of MFIs‟ customer, the growth rate has been gradually slow down More importantly, when comparing between the number of MFIs‟ customer and the number of people living on less than $2 per day, it is a huge gap Therefore, it is neccessary to maintain as well as develop microfinance activities in long term to help more and more poor people improve their living standard To that, Crabb (2007); Daher and Le Saout (2013) and Quayes (2015) all demonstrated that long term sustainability is the key to solve this problem because only when MFIs have become sustainable organisations, they can bring their customers out of poverty in long term (Rhyne, 1998; Meyer, 2002) More importantly, researchers in Vietnam like Nguyen Kim Anh et al (2012, 2013) also argued that sustainability will lay the foundation for customers extension in the future However, Ndanyenbah (2017) in his research about evolution, collapse and financial sustainability of MFIs showed that donors and goverment funding is not enough to support poor people through microfinance activities Therefore, capital structure is really a big challenge to MFIs because they have to raise capital from market to maintain their operation by themself However, commercialization of microfinance at the same time also pose the problem of mission drift because MFI‟s activities might be affected by investors‟ wishes (Jasmina Devinck, 2013) Therefore, the change in capital structure of MFI might exerts effect on both sustainability and social performance 1.2 Practical approach To be formed from early 1980s, microfinance activities in Vietnam has witnessed 40 years of construction and development with many achivements such as the increase in both asset size and number of customer (Le Van Luyen and Nguyen Duc Hai, 2016) and high customer appraisal (VMFWG, 2017) On the other side, MFIs‟ activities in Vietnam has also faced many difficulties Particularly, source of fund from NGOs have gone down when Vietnam officially become an middle income country, leading to capital shortages Therefore, MFIs have to quickly find another source of fund to finance operating cost in long term However, to raise fund from market, it is required that MFIs have to fulfill requirements of regulations on operations and financial regimes, which might be challenge to managers of MFIs Moreover, mannagers of MFIs in Vietnam also have to balance between sustainability and social performace – the root of microfinance (Sinha, 2006) Particularly, from 2010 to now on, staitistics of Vietnam Microfinance Working Group (VMWG) showed low level of MFIs‟ ability to cover operating cost from income Besides, social performance index (SPI) as calculated result of this research also went down As a result of that, it is neccessary to a research in capital structure, and especially the impact of capital structure on sustainability and social performance of MFIs to propose policy recommendations The author decided to choose “The effect of capital structure on sustainability and social performance of MFIs in Vietnam” as a thesis tittle Literature review and research gap 2.1 Literature review about capital structure and sustainability 2.1.1 Foreign researches Studies set out to exam the impact of capital structure on sustainability of MFIs have got much attention from international researchers Using data of MFIs in many countries in the world, Bogan (2012), Iezza (2010), Muriu (2011) and Tehulu (2013) did go to different conclusion about the impact of capital structure on MFI‟s sustainability However, most of them agreed that mobilized capital has positive impact on sustainability Doing research about sustainability of MFI but only in one country, Nyamsogoro (2010), Sekabira (2013), Kinde (2012), Kidzuga (2011), Kyereboah – Coleman (2007), Mwizarubi et all (2015) and Hosain & Asam (2016) also claimed that although there is differences in characteristics of financial market in each country, mobilised capital is still appreciated that it has beneficial effect on MFI‟s sustainability 2.1.2 Researches in Vietnam Based on previous studies on MFI‟s sustainability in the world, the reality of microfinance activities in Vietnam also is analysed in detail in many researches conducted by Dao Lan Phuong (2019), Nguyen Quynh Phuong (2017) and Phan Thi Hong Thao (2019) More importantly, earlier studies all agreed that equity has positive impact on sustainability of MFIs, but borrowings does not There are few main points need to be considered: - Firstly, most of researchers stress the importance of capital structure in improving MFI‟s sustainability However, due to differences in characteristics of financial market in each country, the sign of impact might be not the same Therefore, it is necessary to a research in microfinance in Vietnam to understand more clearly about MFIs as well as the effect of capital structure on sustainability of MFIs in Vietnam - Secondly, foreign researches often use database of MFIs from many countries with differences in operational requirements to test the relationship between capital structure and MFI‟s sustainability Therefore, there is lack of policy recommendation for the improvement of MFI‟s sustainability Besides, there is limited studies in Vietnam focus on aim at analyzing capital structure of MFI as well as the impact of capital structure on MFI‟s sustainability 2.2 Literature review about capital structure and social performance of MFI 2.2.1 Foreign researches Doing reseach on investment and the development of MFIs, Bérengère Basset and Julien Lefilleur (2009) demonstrated that there is an increase in the role of private investors in the development of MFIs However, it might negatively affect MFI‟s social mission Therefore, there are many studies analyzing determinants of social performance of MFIs in which capital structure is often highlighted (Hartarska and Nadolnyak (2007); Khachatryan etc (2017); Hoque and Chisty (2011); Bogan (2012); Adair and Berguiga (2013), Bibi etc (2018), Awaworyi and Marr (2012) However, the results are mixed and especially there is a disagreement over which index is chosen as proxy for social performance of MFI 2.2.2 Researches in Vietnam In Vietnam, there is growing concern over social impact of a business „s operations in recent years This phenomenon has become even more common when there are more and more multi-national compananies has been opened in Vietnam However, in stead of doing research in both four aspects of social performance such as outreach, service quality, customer‟s benefits and social responsibility, studies in Vietnam mostly concentrate on firm‟s social responsibility only Moreover, the number of research carrying out social performance of MFIs is still rare Particularly, social performance of MFIs in Vietnam has just been analysed by Lebovics etc (2016) and Pham Bich Lien (2016) However, previous studies only use outreach as a proxy for social performance of MFI as well as not evaluate the impact of capital structure on social performance Therefore, there are few main points need to be considered: Firstly, there are many ideas about how to define as well as evaluate social performance of MFI, in which two most common methods are based on outreach and social performance indicators However each method has both strengths and weaknesses; therefore, researchers have different choice for proxy of social performance of MFI In Vietnam, not much research on social performance of MFI is being done Moreover, previous studies have just only analyse outreach but other aspects of MFI‟s social performance -Secondly, although capital structure is considered as one of the most important factors impacting social performance of MFI in many studies, there is very little research on this topic in Vietnam 2.3 Research gap Based on previous studies, the author pinpoints the following research gaps: Firstly, there has not been any research that recaps a comprehensive theoretical framework on social performance of MFI Sưcondly, there have been no studies in Vietnam attempt to develop set of indicators for social performance of MFI Thứ ba, there have been no studies in Vietnam is designed to analyse the effect of capital structure on both sustainability and social performance of MFIs Research objectives 3.1 General objective: The thesis aims to propose policy recommendations on capital structure of MFIs to foster sustainability and social performance of MFIs in Vietnam 3.2 Specific objectives: (i) Presenting theoretical background of capital structure, sustainability and social performance of MFIs in Vietnam; (ii) Analysing and evaluating the current situation of capital structure, sustainability and social performance of MFIs in Vietnam (iii) Evaluating the effect of capital structure on sustainability and social performance of MFIs in Vietnam (iv) Proposing recommendations to foster sustainability and social performance of MFIs in Vietnam Research questions Question (Q1): How does capital structure impact on sustainability of MFIs in Vietnam? Question (Q2): How does capital structure impact on social performance of MFIs in Vietnam? Question (Q3) How should capital structure of MFIs in Vietnam change to foster their sustainability and social performance? Research object and scope 5.1 Research object - Capital structure, sustainability and social performance of MFIs in Vietnam - The impact of capital structure on sustainability and social performance of MFIs in Vietnam 5.2 Scope - Content: capital structure, sustainability and social performance of registed and licensed MFIs - Scope of the study on space: registed and licensed MFIs - Scope of the study on time: + Analysing current situation for the period of 2011 – 2019 + Doing quantitative research on the effect of capital structure on sustainability and social performance of MFIs in Vietnam: 2011 – 2017 + Proposing recommendations: 2025 Research method 6.1 Research design Research process can be broken down into following steps: Diagram 1: Research process Co Literature review The effect of capital structure on sustainability and social performance of MFI Research gap Research topic “The effect of capital structure on sustainability and social performance of MFIs in Vietnam” Strategies for Developing the Theoretical Framework Theoretical research - Review related literature - List and clarify the constructs and variables based on topic - Synthesize information and form theoretical framework Building a theoretical framework Choosing suitable research model Collecting secondary data (VMFWG, The Mix) Conducting in-depth interview with experts and managers of MFIs in Vietnam Practical research - Doing regression analysis Anaysing and comparing indicators - Selecting REM or FEM through Hausman test Complete Final 6.2 Research method 6.2.1 Data collecting The thesis used both primary and secondary data, in which the first one is collected through doing in-depth interview with experts and managers of MFIs in Vietnam Besides, statistics on MFIs in Vietnam which has been released by VMFWG is used as reliable secondary data for this thesis Firstly, based on previous studies, two main source of data which are often used by researchers in this field are Vietnam Microfinance Working Group (VMFWG) and the MIX market However, at the time this thesis is conducted, MFIs‟ data were transferred from MIX market to World Bank, and more importantly up till now this data set still is not available on official website of World Bank Therefore, this thesis only used secondary data derived from Vietnam Microfinance Working Group Secondly, author did in-depth interview with experts and managers of MFIs in Vietnam to thoroughly understand current situation of microfinance activities as well as MFIs in Vietnam Particularly, both face-to-face and telephone interview as well as questionnaire survey were conducted to collect information related to capital structure, activities of MFIs, problems and operating results of MFIs ( appendix 6) 6.2.2 Data analysis In this thesis, both qualitative and quantitative methods were used - Qualitative method: + Analytic and synthetic methods: In this thesis, author did review books, newspapers and other documents related to capital structure, sustainability and social performance of firm in general and microfinance institutions in particular, which laid foundation for theoretical basis in chaper of the thesis More importantly, both theoretical and practical research on the effect of capital structure on sustainability and social performance were synthesized to identify available research model as well as build research framework and form hypothesis + Comparative analysis of index methods: Based on secondary data collected from VMWG and primary data derived from in-depth interview with managers of MFIs, author did compare index of MFIs through years to identify tendency and degree of volatility of MFIs‟ capital structure, sustainability as well as social performance from 2011 to 2019 in chapter - Quantitative mathod: both Pooled Ordinary least squares (OLS), fixed effect model (FEM) and random effect model (REM) were used in this thesis to analyse panel data of MFIs in Vietnam from 2011 to 2017 Besides, Hausman test also was used to select appropriate model in chapter 24 Variable Coefficient C Std Error t-Statistic Prob 472.1715*** 110.7141 4.264781 0.0000 EA DP 1.126835*** 0.244797 1.127743*** 0.409753 4.603134 2.752251 0.0000 0.0066 OA LOG_SIZE FB 0.513946 1.152903 -7.324464 11.25622 -3.126682*** 0.905044 0.445784 -0.650704 -3.454729 0.6564 0.5162 0.0007 LOG_CPB OER -27.11789 -2.552263* 25.25183 1.528775 -1.073898 -1.669483 0.2845 0.0970 BPLO -0.005756 0.025502 -0.225721 0.8217 PAR_30 -7.101701 5.166675 -1.374520 0.1713 AGE PS RS LM 0.013726 1.313880 1.460687*** 0.544646 -32.59415 29.70525 -47.42429*** 18.01713 0.010447 2.681901 -1.097252 -2.632177 0.9917 0.0081 0.2742 0.0093 Note: *,**,*** indicate significance at the 10%, 5% and 1% levels Source: Author's analysis from secondary data Table 3.6: Results of reduced model Variable Coefficient Std Error t-Statistic Prob C 401.0163 79.47154 5.046036 0.0000 EA DP FB OER PS LM 1.207609*** 0.225602 1.054746*** 0.304674 -3.312479*** 0.833216 -3.087107*** 1.142183 1.181572** 0.460051 -31.30115** 15.07611 5.352828 3.461884 -3.975535 -2.702811 2.568351 -2.076208 0.0000 0.0007 0.0001 0.0076 0.0111 0.0394 Note: *,**,*** indicate significance at the 10%, 5% and 1% levels Source: Authors' analysis from secondary data The results of the regression model show that all variables have a significant impact on the sustainability of microfinance institutions in Vietnam at the significance level of 1% or 5% In addition, the impact dimension of the variables is quite similar to the research hypothesis given in Section 3.2.1 Table 3.7: Comparison between hypothesis and model research results Impact variables Equity to total assets (EA) Hypothesis Research result Conclusion + + Accept 25 Mobilized capital assets (DP) to total Accept + + + - - - Profit status (PS) + + Accept Lending method (LM) + - Deny Female borrowers (FB) Operating (OER) expense ratio Deny Accept Specifically, the variables of capital structure including equity over total assets and mobilized capital to total assets have a positive impact on the sustainability level, as well as consistent with the given hypothesis In addition, average return on total outstanding loans also shows a positive impact on the sustainability of MFIs in Vietnam On the contrary, the variable of the proportion of female customers and the lending method have a negative sign reflecting the inverse relationship with the level of sustainability Therefore, in the next section, the explanations of the impact trends of the variables will be clarified 3.3.2.2 Discussion of the results Equity to Total Assets (EA): The variable EA is positively related to OSS This result is completely consistent with results in studies on the sustainability of microfinance institutions both in Vietnam (Dao Lan Phuong, 2019; Nguyen Quynh Phuong, 2017) and in other countries (Mwizarubi et al., 2015; Nyamsogoro, 2010) Specifically, the equity capital of microfinance institutions, especially registered ones, comes mainly from contributed capital sources and sponsored capital with very low costs Therefore, the use of this capital will certainly help microfinance institutions to stabilize operations and create more profits However, equity financing becoming increasingly declining, especially since Vietnam entered the ranks of middle-income countries Therefore, the use of equity will be affected more or less in the future Deposit-to-Total Assets (DP): The value of the regression coefficient is 1.054 showing that mobilized capital has important implications for the sustainability of microfinance institutions in Vietnam This result is completely similar to conclusions from many researchers in the microfinance field such as Mwizarubi et al (2015); Iezza (2010); Muriu (2011) and Hossain and Asam (2016) Particularly, mobilized capital is considered to have a relatively low cost of capital; therefore, the increase in the ratio of mobilized capital to the total capital will help microfinance institutions in Vietnam save costs, thereby increasing profitability and sustainability Kinde (2012) also argues that the use of mobilized capital also indirectly helps microfinance institutions strengthen strong customer relationships because they can attract and provide credit to customers at a more attractive and preferential interest rate 26 The proportion of female customers (FB): The regression coefficient of this ratio is at -3.31, reflecting the inverse relationship with the OSS sustainability level This result is somewhat different from the conclusion given by many researchers such as Nyamsogoro (2010), Ali (2013), and Muriu (2011) as many researchers all argue that female customers are guests with a very high repayment commitment However, the inverse relationship between FB and OSS has also been confirmed in a previous studíe on the sustainability of microfinance institutions in Bangladesh (Hossain and Asam, 2016) In addition, in the Vietnamese context, female customers can be those with high repayment commitments; but, their power in the family is low Moreover, the limited business capacity of female clients also is the barrier that makes loans for female customers is not working Specifically, Le Thi Thu Huong (2016) in the study on difficulties and challenges of rural female workers pointed out four points to note, including (i) limited access to vocational training; (ii)an increasing in migration; (iii) limitations in improving social understanding and (iv) difficulties in integrating with the strong changes of socio-economic life Besides, the amount of housework of rural women is also relatively large as most of them have to take care of housework, raise children, and take care of the elderly; therefore, the efficiency in using capital is not high Operating cost ratio (OER): The variable OER has a regression coefficient of -3.08 reflecting the inverse relationship with the OSS sustainability level This result is completely similar to conclusions made by many researchers such as Nyamsogoro (2010) Hossain and Asam (2016), Tehulu (2013), and Iezza (2010) Specifically, the authors argue that an increase in operating costs will reduce profits and thus negatively impact the sustainability of microfinance institutions Besides, when operating costs increase too high, a part of this cost will be transferred to borrowers; therefore, it will also indirectly put pressure on borrowers and can affect the efficiency of capital use of customers in the future Average Return on Total Debt (PS): The variable PS has a regression coefficient of 1.18, indicating a positive relationship with the OSS sustainability This result is completely similar to the conclusion made by Iezza (2010) Lending method (LM): The variable LM has a regression coefficient of -31.3, reflecting the inverse relationship with the OSS sustainability This result, according to the author, is due to the differences in customer characteristics when using different lending methods Specifically, the introduction of group lending is often associated with disadvantaged customers in society - people with low incomes, relatively limited education, and no assets accumulation Therefore, group lending was born with the desire to use social constraints, and mutual assistance between-group borrowers to improve the repayment capacity of this group of customers In contrast, individual lending is often applied to customers with relatively better qualifications and incomes As a result, lending to 27 individual might help MFIs can be profitable and higher degree of sustainability 3.3.3 Research results of model for assessing the impact of capital structure on the social performance of microfinance institutions in Vietnam 3.3.3.1 Regression results Table 3.9: Results of the GMM regression model Variable Coefficient Std Error t-Statistic Prob C 21.99939 3.831784 5.741292 0.0000 EA 16.773* 9.823 1.71 0.088 DP 36.854*** 7.014 5.25 0.000 OA -47.761*** 17.685 -2.7 0.007 Log SIZE -7.060*** 1.832 -3.85 0.000 BPLO 0.048*** 0.010 4.79 0.000 PS -.1881 0.091 -2.05 0.400 RS 2.474 12.087 0.20 0.838 LM 3.501 6.930 0.51 0.613 AGE 42.638 28.796 1.48 0.139 Lag SPI 0.008*** 0.001 4.60 0.000 Lag PS -0.508*** 0.110 -4.59 0.000 Note: *,**,*** indicate significance at the 10%, 5% and 1% levels Source: Author's analysis from secondary data The results of the regression model show that all variables have a significant impact on the social performance of microfinance institutions in Vietnam In addition, the impact dimension of the variables is quite similar to the research hypothesis given in Section 3.2.1 Table 3.11: Comparison between hypothesis and model 2’s research results Impact variables Hypothesis Research result Conculusion Equity to total assets (EA) + + Acccept Mobilized capital to total assets (DP) + + Acccept Other debt to total assets (OA) - - Acccept Gross loan portfolio (Size) + - Deny Borrowers per loan officer (BPLO) + + Acccept Lag SPI + + Acccept 28 Impact variables Lag PS Hypothesis Research + result - Conculusion Deny It is clear that the research results are basically consistent with the hypothesis (except for the variables named size and lag PS) Specifically, the impact of each independent variable will be analyzed and discussed in the next section 3.3.3.2 Discussion of the results Equity to Total Assets (EA): The variable EA with positive regression coefficient reflecting the positive relationship with the SPI This result is somewhat inconsistent with the conclusions of Hartarska and Nadolnyak (2007) Besides, Hartarska and Nadolnyak (2007) show that mobilized capital has a positive effect on social performance because raising mobilized capital will help MFIs attract savings from higher-income customers who will greatly assist the organization in offsetting fixed costs as well as helping the microfinance institution affordable funding to serve poor customers (Richardson, 2003) In this study, the impact of capital mobilization on social performance also has a positive impact Moreover, the impact of equity is very clear and completely similar to the results in the study on the social performance of microfinance institutions conducted by Khachatryan et al (2017) The explanation for this result, according to the author, is due to the equity capital of microfinance institutions in Vietnam, especially registered institutions, mainly come from contributed capital sources and financial recipients assistance at a very low cost; creating conditions for microfinance institutions to minimize capital costs for customers Thereby, existing customers enjoy more financial benefits, as well as reduce the risk of debt repayment As a result, the relationship between the organization and the customer is increasingly cohesive and strong Secondly, the attractive cost of capital also helps MFIs to attract and reach more potential customers at different income levels; thus, the MFIs customer network has also become more diversified and richer Therefore, the social performance of the organization is also improved Other Liabilities to Total Assets (OA): The variable OA has a negative regression, which reflects the inverse relationship with the social performance index This result is completely similar to the judgment of experts in the microfinance field Specifically, according to a manager of a large and reputable microfinance institution in the market, compared with the cost of using capital, the cost of using other sources of debt is somewhat higher Therefore, an increase in the ratio of other debt to total assets will lead to an increase both in operating costs of MFIs and in financial burden on customers Moreover, it also 29 reduces MFI‟s ability to access and serve customers in the low-income segment In addition to the impact of capital structure on the social performance of microfinance institutions in Vietnam, the factors of the organization's characteristics such as size (size), number of customers per loan officer (BPLO), lag social performance indicator (Lag SPI) and lag profit status (Lag PS) also have impacts on SPI with a statistically significant level of 1%, 5% or 10% Size (Log Size): The variable Log Size has a negative regression coefficient, which indicates an inverse relationship with social performance of microfinance institutions This result is somewhat contrary to results given by Awaworyi and Marr (2012), Bogan (2012); Hoque and Chisty (2011); Khachatryan et al (2017), and Hartarska and Nadolnyak (2007) Specifically, the large scale creates advantages for microfinance institutions the opportunity to reach more borrowers as well as savers; therefore, the social performance of the organization is also improved Not entirely consistent with the point of view given by Khachatryan et al (2017), Bibiv et al (2018) show that large-scale microfinance institutions can reach more customers, but not customers in lower-income segments Therefore, the impact of scale on social performance is not necessarily positive In Vietnam, the result of this study indicate that the size and social performance of MFIs are inversely opposite The heterogeneity in the results of this study with previous studies, according to the author, is partly due to the different approaches to measuring indicators of social performance of microfinance institutions Specifically, the previous studies mostly used only two indicators which are depth and outreach to reflect the social performance of microfinance institutions However, in this study, the social performance index is a composite indicator of factors In addition, most of small-sized financial institutions in Vietnam are still receiving external funding with a clear orientation to focus on social goals; therefore, the social performance of assessment is somewhat higher than that of large organizations which are gradually selffinanced and have to pursue more goals In addition, with an increasingly large scale, the ability to manage and care for each customer of the employees in the organization will also be limited compared to the small scale As a result, the social performance of the organization is also affected The number of customers per credit officer (BPLO): The variable BPLO has a positive regression coefficient that reflects the positive relationship with the social performance of microfinance institutions This result is completely consistent with the conclusion made by Pham Bich Lien (2016) Specifically, in her research on the development of microfinance operations at credit institutions in Vietnam, Pham Bich Lien pointed out that employee productivity or the number of customers per credit officer has a 30 positive impact on the depth in particular, and social performance in general This stems from the fact that customers in the low-income segment with a high level of risk are often granted credit in the form of group loans instead of individual loans; therefore the number of clients per manager for this customer segment is often high As a result, the depth and outreach are also improved, contributing to an increase in the social performance indicators of microfinance institutions Lag SPI variable (Lag SPI): The variable Lag SPI has a positive regression coefficient that indicates a positive relationship with social performance of microfinance institutions This result is completely consistent with the results of in-depth interviews with experts in the microfinance field Specifically, according to experts in the microfinance sector, MFIs tend to maintain and develop the social values brought to the community based on the activities of the previous period The variable of the average return on total outstanding loans (Lag PS): The variable Lag PS has a negative regression coefficient that indicates an inverse relationship with the social performance of microfinance institutions This result is somewhat similar to the judgment of Awaworyi and Marr (2012) in research on the social performance of microfinance institutions in different countries around the world Specifically, according to Awaworyi and Marr (2012), in low-income countries, non – profit – oriented microfinance institutions are often rated for higher social performance than profit – oriented MFIs 3.4 Conclusion Based on the results of models (1 *) and (2 *), the variables in the group of variables in the capital structure of microfinance institutions have a clear impact on the sustainability and social performance of MFIs in Vietnam: Table 3.12: Impacts of capital structure on sustainability and social performance of microfinance institutions in Vietnam Capital structure Sustainability Social performance Equity to total assets Positive Positive Positive Positive Positive but not significant Negative Mobilised capital to total assets Other debt to total assets Source: The author synthesized from research study The statistical results from Table 3.12 show that equity and mobilized capital positively affect both the sustainability and social performance of microfinance institutions This result stems from the fact that the cost of equity is relatively low because microfinance 31 institutions in Vietnam, especially registered ones, are receiving a lot of preferential funding financing in the form of equity Therefore, microfinance institutions can take advantage of the outstanding advantages of this capital to achieve a higher level of sustainability and social performance However, with equity funding sources becoming increasingly declining, especially since Vietnam entered the ranks of middle-income countries, the maintenance of these benefits will be affected more or less Therefore, finding and developing an alternative capital source to maintain and develop the operation of MFIs in the long term is essential There is also a positive relationship with both the sustainability and social performance of the microfinance institution; mobilised capital is one of the key capital sources to be appreciated This stems from the fact that the number of licensed microfinance institutions in the market is still very modest In addition, according to Circular 37/2019 / TT-BTC, the total voluntary savings deposit of microfinance programs and projects is limited to 30% of the program's total funds, microfinance projects Therefore, increasing the amount of capital mobilized in the total capital sources at licensed and registered microfinance institutions is a very urgent issue, and a specific strategy in the long term is needed In particular, this will also be a central direction in solutions and recommendations in the coming time to achieve both sustainable and effective social goals 32 CHAPTER RECOMMENDATIONS ON CAPITAL STRUCTURE TO PROMOTE SUSTAINABILITY AND SOCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN VIETNAM 4.1 The operational orientation of microfinance institutions in Vietnam to 2025 Through action programs to implement the national comprehensive financial strategy together with Decision 149 / QD-TTG, it can be seen that the action contents mostly focus on two main tasks: capital development and product development Specifically, for the task of capital development, the Government facilitates support for microfinance organizations, programs, and projects to access concessional capital, and especially enhances capital mobilization in communes to serve the development of organizations, microfinance programs, and projects On the basis of the capital orientation of microfinance institutions in Vietnam to 2020, a vision to 2030 and on the impact of capital structure on the level of sustainability and social performance of financial institutions Microfinance institutions in Vietnam are identified from two models of quantitative analysis in Chapter 3, the author has built a basis for proposing some recommendations for microfinance institutions in Vietnam and other related subjects Figure 4.1: Proposed rationale Research result of model for analyzing the impact of capital structure on sustainability Equity and mobilized capital have positive impact on sustainability Capital CVM development orientation Research result of model for analyzing the impact of capital structure on social performance Equity and mobilized capital have positive impact on social performance Recommendations to MFIs in Vietnam Current status of MFIs‟ activities in Vietnam In depth – interview with experts and managers of MFIs in Vietnam Equity capital is going down MFIs find hard to access funding resources Microfinance activities in Vietnam are nor well known, leading to MFIs find hard to attract more savings from community Recommendations to others 33 Source: Recommendations of author based on research result 4.2 Recommended for microfinance institutions in Vietnam Firstly, based on the current capital structure of microfinance institutions in the 2011 period up to now, it has been shown that equity and mobilized capital are the two main sources of capital, as well as contribute an important role in the operation of microfinance institutions in Vietnam Secondly, the results from the econometric model in chapter also confirm that equity and capital mobilized capital have positive effects on both the sustainability and social performance of MFIs in Vietnam 4.2.1 Recommendations for licensed microfinance institutions 4.2.1.1 Recommendations for increasing the size of the equity Firstly, determining the organization's strengths and differences to build a development plan and select suitable investors Secondly, preparing a plan to build, foster, and develop managerial, executive, as well as supervisory board members Thirdly, ensuring that financial and non-financial data in the past must be clear, complete, and transparent in accordance with regulations 4.2.1.2 Recommendations for increasing the size of capital raised from deposits Firstly, identifying the target customers and product orientation for each customer group Secondly, focusing on investing in building and developing suitable products Thirdly, enhancing image communication, microfinance organization activities Finally, improving governance capacity 4.2.2 Recommendations for registered microfinance institutions 4.2.2.1 Recommendations for increasing the size of equity Increasing the scale of equity of microfinance projects/ programs is relatively difficult, and requires a lot of support from ministries and agencies 4.2.2.2 Recommendations for increasing the size of mobilized capital Firstly, specifying the orientation of the development goals 34 Secondly, developing plans, improving capacity to transform into a licensed microfinance institution Thirdly, developing a specific roadmap for the gradual reduction of voluntary savings deposits 4.2.3 Recommendations to State management agencies 4.2.3.1 Recommendation to the Government Based on current status of MFIs‟ operations as well as data from in-depth interviews with experts in the microfinance sector, it is known that shows that some problems still exist during the implementation process of legal regulations Therefore, the author gives the following recommendations to the Government: Firstly, increasing capital sources to support the operation of microfinance organizations, programs/ projects Secondly, strengthening communication on microfinance activities in the population Thirdlyly, enacting mechanisms/ policies, and creating favorable conditions for private investors as well as foreign investors to invest in microfinance organizations, programs/ projects in Vietnam Finally, improving the legal framework to facilitate operation of microfinance organizations, programs/ projects 4.2.3.2 Recommendation to the State Bank The basis of the proposal Data from in-depth interviews with experts in the microfinance field show that there is an urgent need for microfinance organizations, programs/ projects to get support from the State Bank Thereby, the author gives some recommendations to the State Bank as follows: Firstly, enacting legal documents aimed at creating favorable conditions for the mobilization of social resources, encouraging the participation of all economic sectors in microfinance activities Secondly, creating a network of links between organizations, programs, and microfinance projects to support each other for mutual development Thirdly, encouraging the development of the link between organizations, programs, and microfinance projects 4.2.3.3 Recommendations to local authorities 35 According to representatives of a number of microfinance organizations, programs/ projects, the current understanding of the community about microfinance activities is quite modest, making the implementation of microfinance programs not attracting many local audiences to participate In addition, with limited budget conditions and in particular, there is no separate mechanism for investment in the microfinance sector, so the local capital support for microfinance activities in the area is also limited As a result, the author made the following recommendations: Firstly, improving the understanding of local officials and people about the importance of microfinance activities for economic development in the area Secondly, updating the operational situation of microfinance organizations, programs and projects in the area 4.2.3.4 Recommendations to SME Microfinance Resource Advisory Center During the research process, the author found that information about microfinance activities in Vietnam in general, and that information of each microfinance institution, program/ project in particular is still incomplete As a result, the author gives some recommendations for the Vietnam Microfinance Working Group as follows: Firstly, increasing communication on the activities of the Vietnam Microfinance Working Group Secondly, standardizing the data management system and continuously updating the operations of microfinance organizations, programs, and projects 36 CONCLUSION Playing an important role in comprehensive financial development, microfinance in general and MFIs in Vietnam in particular have affirmed the ability to improve economic conditions for disadvantaged customers in society, help them to improve lives, enhance position in society Therefore, maintaining microfinance institutions in the long term to serve more low-income customers in the future is a problem that receives the attention of many researchers However, since the 1990s, when donors and the Government showed that there was not enough funding available to the poor through the operation of microfinance institutions, the capital structure really became challenges for microfinance institutions on the way to achieve sustainability and social performance Therefore, the target of the thesis is to analyze the impact of capital structure on the level of sustainability and social performance of microfinance institutions in Vietnam in order to provide appropriate recommendations to help Microfinance institutions to promote sustainability as well as social performance With the set objectives, the thesis did - Systematize previous studies on the impact of capital structure on the sustainability and social performance of microfinance institutions; thereby, giving research gaps and identifying the object and scope of the thesis - Systematize the theoretical basis of the microfinance institution's operations, capital structure, sustainability, and social performance of the microfinance institution Based on that, the thesis proposed a set of criteria measuring the sustainability and social performance of microfinance institutions in Vietnam In particular, both theoretical and practical research on the capital structure theory were analyzed to serve as a foundation for the construction of impact models and analysis of research results - Systematize models of analyzing the impact of capital structure on the sustainability and social performance of microfinance institutions Thereby, the thesis build an analytical framework, design research models as well as conduct the selection of research data, research variables, and suitable research methods - Analyze the current operating status of microfinance institutions in Vietnam; which clarifies the general operational characteristics, capital structure characteristics, sustainability, and social performance of the two groups of MFIs named licensed microfinance institutions and regulated MFIs 37 - Study the model for analyzing the impact of capital structure on sustainability and social performance of microfinance institutions in Vietnam More importantly, author did compare research result of this stuty to previous studies ones - Outline the operational orientation of microfinance institutions in Vietnam to 2030, as well as two main groups of recommendations, in which the first one is recommendations to microfinance institutions in Vietnam, and the second one is recommendations to state management agencies Specifically, to microfinance institutions, based on the differences in management regulations, the author gives two separate groups of recommendations to licensed microfinance institutions and to regulated MFIs with the aim at increasing the size of equity and mobilized capital To State regulators, the author gives recommendations to the Government, the State Bank, local governments, and the SME Microfinance Resource Advisory Center (Public Group microfinance cooperation in Vietnam) with comments focusing on improving the legal corridor system, facilitating investment licensing in the microfinance sector as well as strengthening communication on financial activities micro in the community In addition to the achieved results, the thesis still has some shortcomings that have not been overcome within the research limit: (i) Research data is not guaranteed to reflect the operations of all microfinance institutions tissue in Vietnam The current dissertation's data is mainly based on the reports of microfinance institutions in Vietnam published in the microfinance directory publication over the years with a limited number of publications when only released from 2012 to 2018 Besides, the completeness and quality of reports also largely depend on the activeness of organizations; therefore, the data is not guaranteed to be continuous over the years However, the author has overcome it by developing data through in-depth surveys with experts in the microfinance field as well as leaders at microfinance institutions But, the number of leaders and experts interviewed is not much, so the situation of microfinance operations in Vietnam, in general, is not fully covered (ii) new research mainly focuses on assessing the level of sustainability and social performance from the supply side without having the opportunity to analyze the demand side Analytical data in the study are mainly secondary data, as well as opinions from microfinance service providers that have not yet extended the perception from the demand side - the direct beneficiaries of the value of sustainable and effective society Therefore, the development of follow-up studies is very necessary to overcome the above limitations of the research LIST OF RESEARCH WORKS RELATED TO THE AUTHOR'S THESIS PUBLISHED Bich, N N (2016) The effect of capital structure and legal status on financial sustainability of MFIs in developing countries Review of Business and Economics Studies, (2) Ngoc, B.N., (2016) Licenced or unlicensed microfinance institution, which one will get long term sustainabilit Scientific conference proceedings: Banking integration and financial stability in Vietnam No 4073-2015/CXBIPH/03-291/LĐ, 178 – 185 Nguyen, N (2018) The effect of corporate social responsibility disclosure on financial performance: Evidence from credit institutions in Vietnam Asian Social Science 14(4), 109 – 122 Huong, Q.T.D., (2017) Developing and diversifying microfinance products, decision of Banking Academy of Vietnam No 569/QĐ-HVNH (Participant) Ngoc, B.N., (2018) The effect of capital structure on sustainability of MFIs in Vietnam, BAV University-level Research Project (Principal) Ngoc, B,N., Van, T.N., Huong, D.N., Thuy,T,D., (2018) Capital structure and sustainability of MFIs in Vietnam Journal of Economics and Development 258, 23- 35 Ngoc, B.N., (2021) Capital structure of microfinance in Vietnam – Making change to promote development Banking Review 1/2021 Ngoc, B.N., (2021) Social performance of microfinance institutions in Vietnam: From theory to practical Journal of Trade Science (editing) ... 1.2 The capital structure of microfinance institution 1.2.1 The definition of the capital structure of microfinance institution The capital structure of a microfinance institution is defined... OF CAPITAL STRUCTURE, SUSTAINABILITY, AND SOCIAL PERFORMANCE OF MFIs 1.1 Overview of microfinance institution 1.1.1 Definition and role of microfinance institution 1.1.1.1 Definition of microfinance... Analysing and evaluating the current situation of capital structure, sustainability and social performance of MFIs in Vietnam (iii) Evaluating the effect of capital structure on sustainability and