What factors determine whether SMEs obtain credit from formal credit market? The case of Vietnam

Nguyet CAO Thi Khanh
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Nguyet CAO Thi Khanh: Asia Pacific Institute of Research

No 1005634, APIR Discussion Paper Series from Asia Pacific Institute of Research

Abstract: This paper aims to find the answers to the question: “Which factors are important in determining whether SMEs access the formal credit market, and what determines SMEs’ satisfaction levels after applying for formal credit?”. By using a survey of Vietnamese SMEs conducted from 2005 to 2013, this study provides a wider view and presents new evidence regarding determinants of access to formal credit before and after the global crisis in 2008. The study outlines the process, from applying for a formal loan to being satisfied with that loan. Three empirical models have been devised based on the decision processes: the application stage, the approval stage, and the satisfaction stage. The empirical results show that banking relationships and the business environment were important factors when applying for formal credit as well as in credit obtainment. However, positive measures of firms’ performance, such as high return on assets scores and sales growth, did not have a significant influence on whether firms obtained credit. Furthermore, Vietnamese formal financial institutions were found to depend too much on collateral assets in assessing whether to supply credit.

Keywords: SMEs; formal credit; credit constraint; Vietnam (search for similar items in EconPapers)
Pages: pages
Date: 2016-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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