SME credit constraints and access to informal credit markets in Vietnam

Abstract

<jats:sec><jats:title content-type="abstract-subheading">Purpose</jats:title><jats:p>A review of literature has documented that accessing formal credit and other banking services has always been a crucial challenge for small and medium-sized enterprises (SMEs). The alternative, therefore, tends to be informal channels. However, the credit constraint vis-à-vis informal channel link does not appear to be well documented in the literature. This study aims to investigate whether credit constraints significantly affect the probability of accessing informal credit, as well as the credit values of Vietnamese SMEs.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title><jats:p>This study uses a trinary approach and correlated random-effects Probit and Tobit techniques to avoid the incidental coefficients problem.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Findings</jats:title><jats:p>The results suggest that relative to unconstrained and partially constrained firms, fully constrained firms tend to be more active in the informal credit markets, shown by their higher probability of informal credit access and larger credit values.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Originality/value</jats:title><jats:p>To the best of authors’ knowledge, this is the first study on Vietnam that takes a different approach to credit constraints and examines their impact on informal credit access. Policy implications arise and are discussed.</jats:p></jats:sec><jats:sec><jats:title content-type="abstract-subheading">Peer review</jats:title><jats:p>The peer review history for this article is available at: <jats:ext-link xmlns:xlink="http://www.w3.org/1999/xlink" ext-link-type="url" xlink:href="https://publons.com/publon/10.1108/IJSE-11-2017-0543">https://publons.com/publon/10.1108/IJSE-11-2017-0543</jats:ext-link></jats:p></jats:sec>

Technology Acquisition and SMEs Performance, the Role of Innovation, Export and the Perception of Owner-Managers

“…The development of a financing policy framework is vital to minimize inefficiencies associated with informal sources. Severely financially constrained firms are more active in the informal credit markets than unconstrained and partially constrained (Archer et al 2020). Authorities have a vital role in ensuring that SMEs have access to formal credit.…”

“…In specific cases, the lack of credit has an attitudinal effect on business owners-managers towards traditional sources of capital (Tolba et al 2014). The negative perception of entrepreneurs towards formal finance has seen some opt for inefficient informal credit sources, especially in severe credit constraints (Archer et al 2020). Still, the perception of firm owner-managers is crucial based on their critical decision making role.…”

Credit constraints and the severity of COVID-19 impact: Empirical evidence from enterprise surveys

“…In other words, firms constrained by poor access to credit prior to the pandemic are probably more vulnerable. In addition to formal financing sources, informal credit markets may alleviate financial stress, especially for SMEs in developing countries ( Archer et al, 2020 ). Researchers further confirm that financial leverage is one of the factors affecting the likelihood of either credit constraints or demand for credit ( Nguyen et al, 2019 ).…”

Environmental sustainability engagement of firms: The roles of social capital, resources, and managerial entrepreneurial orientation of small and medium enterprises in Vietnam

“…Although there are numerous SME-related studies in Vietnam dealing with diverse topics such as firm competitiveness, performance, innovation and business constraints (e.g., Archer, Sharma, & Su, 2020;Long, 2020)…”