An empirical analysis of credit accessibilty of small and medium sized enterprises in Vietnam

Abstract

In Vietnam, SMEs account for up to 98% of the total number of enterprises. They contribute about 48% to the country's GDP, 20% to export value and provide jobs for 77% of the country's labor force. However, majority of the SMEs are micro enterprises with very limited access to resources such as advanced technology and formal credit, etc. Despite their significant contributions to social and economic development, SMEs are often regarded as "the missing middle" - they are usually not the subject of interest for commercial banks while their loans might be too large to borrow from microfinance institutions. This study surveys SMEs credit accessibility, identify the factors that affect their credit access, and the interest rate charged on their loan in Vietnam. Primary data are obtained from a survey of 487 SMEs in Hanoi in June 2013. Logistic regression is used to determine SMEs' ability to access to credit and ordinary least square to estimate the interest rate charged on the SMEs largest loan. The results show owner characteristics, educational level and gender are the most important factors in determining the access to credit, followed by SMEs relationship with banks and customers. With regards to the loan interest rate, the owner characteristics variables are non-significant. The most expensive source of financing is from private money lender, followed by commercial bank loan and microfinance.