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Advances in Social Sciences Research Journal – Vol. 8, No. 5
Publication Date: May 25, 2021
DOI:10.14738/assrj.85.10223.
Xuan, L. T., Trong, T. D., & Phong, L. T. (2021). Developing Financial Sources: The Case Of Small And Medium Enterprises In Vietnam.
Advances in Social Sciences Research Journal, 8(5). 322-340.
Services for Science and Education – United Kingdom
Developing Financial Sources: The Case Of Small And Medium
Enterprises In Vietnam
Le Thanh Xuan
FTU student, class FB10-2011848
Trịnh Đức Trọng
Deputy Director General, Span Construction Technology Development
and Design Joint Stock Company
Le Thai Phong
Lecturer at FTU, E
ABSTRACT
Although Vietnam's business environment has undergone fundamental changes to
create favourable conditions for small and medium-sized enterprises (SMEs) to
develop, SMEs are having difficulties in their existing operation and are facing
constraints in accessing financial sources. This research aims to analyze the
situation of financial sources and produce the relevant recommendations for small
and medium enterprises in Vietnam. The authors use secondary data from
government official websites of the Socialist Republic of Vietnam about Vietnam's
SME survey of Ha Noi Capital in the period 2014 – 2020. By observing and analyzing
the collected data, the study provides a detailed description of the findings and
relevant recommendations. After examining and investigating data and current
studies about Vietnamese SMEs, the authors find that, in general, main constraints
in accessing financial sources of SMEs are chiefly caused by (i) macroeconomic
conditions, (ii) capacity management, (iii) lack of network and (iv) collateral
requirements. The findings suggest implications for Vietnamese SMEs to improve
financial sources should focus on: (i) training SMEs’ leaders to tackle potential risks
and crises; (ii) creating new financial products and services in environmental and
social development in Ha Noi Capital; (iii) developing new credit accessibility
products without collaterals for SMEs. Different from prior studies that either
provide current situation and list constraints of SMEs or make suggestions without
sticking to the actual situation, the authors deliver a more comprehensive analysis
about SMEs in the context of a developing country like Vietnam.
Keywords – SMEs, financial sources, credit accessibility.
INTRODUCTION
Micro, small and medium enterprises (SMEs) have been at the heart of Vietnam's transition
economy following the 5-year socio-economic development plan of 2016-2020, preparing
momentum for the 5-year plan of 2021-2025 and 10-year strategy of 2021-2030 with the
National Financial Inclusion Strategy (SBV, 2020). The Government has introduced numerous
policies so as to support and encourage this vital business sector. According to recent statistics,
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Xuan, L. T., Trong, T. D., & Phong, L. T. (2021). Developing Financial Sources: The Case Of Small And Medium Enterprises In Vietnam. Advances in
Social Sciences Research Journal, 8(5). 322-340.
URL: http://dx.doi.org/10.14738/assrj.85.10223
98 percent of registered firms classifies as small and medium firms, which generates 40 percent
of GDP, and 50 percent of employment or 1.2 million jobs (GSO, 2020). Nonetheless, SMEs still
face the difficult issue of access to financial sources for future development (Doanh and Pentley,
1999). It raises a question about how to get financial advancement for Vietnamese SMEs with
limited capital, labor, or revenue - a crucial concern in providing recommendations for the
nation, SMEs leader, and capital provider to support the small business sector.
Figure 1. Vietnamese Enterprise Structure in 2020
Source: General Statistics Office, 2020
There are only a limited number of studies on developing financial sources for Vietnamese
SMEs. Some of these studies only focused on the factors affecting the capital structure (Tran
Dinh Khoi Nguyen et al., 2006), the determinants of access to financial resources (Nhung
Nguyen, 2014), the determinants of innovation (Vu Hoang Nam, 2014; Phuong Anh Nguyen et
al., 2020) or main factors impacting on business performance (Uyen Phan et al., 2015; Mai Hong
Phan & Lan Archer, 2020). Besides obstacles in capital financing, technology, SMEs both in
general and in Vietnam, are facing barriers and issues in management level and quality of
human resources due to lack of employee benefits (To Hoai Nam, 2014). Nevertheless, the
documents on raising capital for Vietnamese SMEs are conducted before 2005 or from 2005 to
2015. It requires studies to the up-to-date situation for SMEs nowadays. The financial sector in
Vietnam belongs to state-owned commercial banks (SOCBs) play a significant position, but they
are limited in long-term financial sources (ADB, 2002). In a research of the banking sector in
Vietnam, Soo (1999) demonstrated that 78 percent of loans provided by SOCBs, and half of
SOCBs' credit converted to state equity. Hence, SMEs have difficulty dealing with a fragile
banking sector, especially private enterprises, to access bank loans.
As for similar studies in other countries, the most empirical evidence on corporate financial
sources tends to concentrate on large firms in developed countries (Krstic & Fedajev, 2020;
Petra et al., 2019; Belhocine et al., 2018; Scott, 2017). Only in recent years have a few studies
examined these issues either in developing countries (Veiga & McCahery, 2019; Alberto et al.,
2020; Lewicki & Wierzejski, 2020). A review of empirical studies on the capital accessibility of
SMEs helped the authors identify some key issues. In the US, local governments have promotion
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66.84
Vietnamese Enterprise Structure
Large Enterprise Medium Enterprise Small Enterprise Micro Enterprise
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 8, Issue 5, May-2021
Services for Science and Education – United Kingdom
programs to support SMEs through guaranteeing loans from private organizations to those who
do not have enough collateral for commercial loans (ECB, 2018). Besides, Japan has direct
funding channels and offers economic subsidies to encourage new technologies (Alberto et al.,
2020). In African countries, SMEs lack management skills and access to technology, which
reduces the capacity of credit accessibility from JSCBs (Colacelli and Hong, 2019). It requires
further qualitative studies to investigate what suggestions or recommendations for intensifying
corporate financial sources in the small business sector in developing countries.
Based on such gaps and analytical results in the existing literature, this paper attempts to
analyze the situation of financial sources, over the period 2014 - 2020, and produce the relevant
recommendations for SMEs in Ha Noi, Vietnam. Referring to financial sources in the research,
the authors mention equity, debt, and other types such as working capital that can support
medium and long-term capital for a company. It collects secondary data which is publicly
transparent and accurate from the government websites approved by the Prime Minister. The
financial sources in the study should center on the formal capital sources such as bank loans or
capital issues. The study does not research the financial sources donated from friends, relatives,
and parents.
The rest of this paper is organized as follows: Part 2 presents a literature review of the SMEs.
Part 3 shows research methodology and data collection. Part 4 reports and discusses the
findings. Part 5 suggests and recommends some implications or ideas to build capital for
enterprises. Part 6 concludes the paper and summarizes the key findings.
LITERATURE REVIEW
The concept of SMEs
Even though there are numerous concepts of SMEs, most concepts observe the term in a mutual
view. As defined by the European Commission, SMEs have fewer than 250 employees, an annual
turnover of less than € 50 million, or a balance sheet total of no more than € 43 million (Rand
and Tarp, 2020). In the US, according to the North American Industry Classification System
(NAICS), the definition of SMEs is not only dependent on the number of employees, annual sales,
assets, or any combination of these, but it also varies from industry to industry. Also, SMEs are
heterogeneously diverse from country to country in Asia, which is different from SMEs in EU
countries. For instance, SMEs are known as having up to 1000 employees in some sectors in the
People's Republic of China, but the cutoff is up to 200 employees in some sectors in Thailand
(Matt et al, 2018). In Japan, SMEs' concept is relatively similar to that of the United States,
depending on criteria such as capital value, number of employees, and the field of activity
(Madani, 2018).