Impact of Alternative Funding Instruments to Improve Access to Finance in SMEs: Evidence from Vietnam

Jayasooriya, Sujith (2020): Impact of Alternative Funding Instruments to Improve Access to Finance in SMEs: Evidence from Vietnam.

Abstract

Access to finance in the digital era is innovative with the different alternative funding approaches. In emerging markets, digital innovation of the financial sources is not limited to the own capital or borrowing from bank or credit institutions but numerous paths of financing. The purpose of the research is to recognize the alternative and innovative funding tools including borrowed from bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, peer-to-peer (P2P) lending -borrowed from friends and relatives without interest-, and stocks issued. The data was obtained from the survey of 2647 enterprises conducted by the UNU WIDER 2015 in Vietnam. The probit model approach for access to finance is used to analyze the impact of alternative funding tools for enterprises. The results predict the use of alternative funding tools for startup capital and investment financing of the firms separately. The results revealed that sources of start-up capital from founders’ own money, loans from friends and acquaintances, finance/investments from other enterprises, domestic bank loan, and Informal credit association (money lenders, informal bank, pawnshop) are positively and significantly affect the access to finance, while loans from family members, business associations, and international bank loans are not significant. 
Meanwhile, own funding, bank/credit institution, borrowed against interest from other sources, and borrowed from other sources without interest, borrowed from friends and relatives without interest have significantly affected the access to finance. In a summary, the alternative funding tools are an important source for financing SMEs in Vietnam.

• Item Type: MPRA Paper
• Language: English
• Keywords: Alternative funding, P2P lending, SMEs, Access to Finance
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M13 - New Firms ; Startups

References

Aghion, P., Fally, T., & Scarpetta, S. (2007). Credit constraints as a barrier to the entry and post-entry growth of firms. Economic Policy, 22, 731-779. http://dx.doi.org/10.1111/j.1468-0327.2007.00190.x

Atanasova, C., & Wilson, N. (2004). Disequilibrium in the UK corporate loan market. Journal of Banking and Finance, 28, 595-614. http://dx.doi.org/10.1016/S0378-4266(03)00037-2

Balling, M., Bernet, B., & Gnan, E. (2009). Financing SMEs in Europe. Four papers by: Rym Ayadi; Beat Bernet and Simone Westerfeld; Tom Franck and Nancy Huyghebaert; Vítor Gaspar, Simona Bovha-Padilla and Reinhilde Veugelers. SUERF-The European Money and Finance Forum; Vienna. Retrieved from http://www.suerf.org/download/studies/study20093.pdf

Bebczuk, R. N. (2004). What determines the Access to Credit by SMEs in Argentina? Documento de Trabajo Nro 48. Retrieved from http://www.depeco.econo.unlp.edu.ar/doctrab/doc48.pdf

Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: does firm size matter? Journal of Finance, 60(1), 137-177. http://dx.doi.org/10.1111/j.1540-6261.2005.00727.x

Beck, T., Demirgüç-Kunt, A., Laeven, L., & Maksimovic, V. (2006). The determinants of financing obstacles. Journal of International Money and Finance, 25, 932-952. http://dx.doi.org/10.1016/j.jimonfin.2006.07.005

Berger, A., & Udell, G. (2006). A more conceptual framework for SME financing. Journal of Banking and Finance, 30(11), 2945-2966. http://dx.doi.org/10.1016/j.jbankfin.2006.05.008

Bougheas, S., Mizen, P., & Yalcin, Y. (2006). Access to external financing: theory and evidence on the impact of monetary policy and firm-specific characteristics. Journal of Banking and Finance, 30, 199-227. http://dx.doi.org/10.1016/j.jbankfin.2005.01.002

Canton, E., Grilo, I., Monteagudo, J., & Van Der Zwan, P. (2010). Investigating the perceptions of credit constraints in the European Union. ERIM Report Series, No ERS-2010-001-ORG. Retrieved from http://hdl.handle.net/1765/17699

Coluzzi, C., Ferrando, A., & Martinez-Carrascal, C. (2009). Financing obstacles and growth: an analysis for euro area non-financial corporations. ECB Working Paper No. 997. Retrieved from www.ecb.int/pub/pdf/scpwps/ecbwp997.pdf

Devereux, M., & Schiantarelli, F. (1989). Investment, Financial Factors and Cash Flow: Evidence from UK Panel Data. NBER Working Papers No.3116. Retrieved from http://www.nber.org/papers/w3116.pdf

Fatoki, O., & Asah, F. (2011). The impact of firm and entrepreneurial characteristics on access to debt finance by SMEs in King Williams’ Town, South Africa. International Journal of Business and Management, 6(8). http://dx.doi.org/10.5539/ijbm.v6n8p170

Fazzari, S. G., Hubbard, G., & Petersen, B. (1988). Financing constraints and corporate investment. Brookings Papers on Economic Activity, 2, 141-195. http://dx.doi.org/10.2307/2534426


Ferrando, A., & Griesshaber, N. (2011). Financing obstacles among euro area firms: who suffers most? ECB Working Paper No. 1293. Retrieved from http://www.ecb.int/pub/pdf/scpwps/ecbwp997.pdf

Gilchrist, S., & Himmelberg, C. (1995). Evidence on the role of cash flow for investment. Journal of Monetary Economics, 36, 541-572. http://dx.doi.org/10.1016/0304-3932(95)01223-0

Hall, G., Hutchinson, P., & Michealas, N. (2000). Industry effect on the determinants of Unquoted SMEs Capital Structure. International Journal of the Economics of Business, 7(3), 297-312. http://dx.doi.org/10.1080/13571510050197203

Harrison, A., & McMillan, M. (2003). Does direct foreign investment affect domestic credit constraints? Journal of International Economics, 61(1), 73-100. http://dx.doi.org/10.1016/S0022-1996(02)00078-8

Hallward-Driemeier, M., & Aterido, R. (2007). Impact of access to finance, corruption, and infrastructure on employment growth: Putting Africa in a global context. In Committee of Donor Agencies for Small Enterprise Development Conference on Business Environment Reform in Africa, Accra.

Irwin, D., & Scott, J. M. (2010). Barriers faced by SMEs in raising bank finance. International Journal of Entrepreneurial Behaviour & Research, 16(3), 245-259. http://dx.doi.org/10.1108/13552551011042816

Kira, A. R., & He, Z. (2012). The impact of firm characteristics in access to financing by small and medium-sized enterprises in Tanzania. International Journal of Business and Management, 7(24), 108-119. http://dx.doi.org/10.5539/ijbm.v7n24p108

La Rocca, M., La Rocca, T., & Cariola, A. (2011). Capital structure decisions during a firm’s life cycle. Small Business Economics, 37(1), 107–130.

Le, T. B. N., Venkatesh, S., & Nguyen, V. T. (2006). Getting bank financing: study of Vietnamese private firms. Asia Pacific Journal of Management, 23(2), 209-227. http://dx.doi.org/10.1007/s10490-006-7167-8

Levy, B. (1993). Obstacles to Developing Indigenous Small and Medium Enterprises: An Empirical Assessment. The World Bank Economic Review, 7(1), 65-83. http://dx.doi.org/10.1093/wber/7.1.65

Peel, M. J., & Wilson, N. (1996). Working capital and financial management practices in the small firm’s sector. International Small Business Journal, 14(2), 52-68. http://dx.doi.org/10.1177/0266242696142004

Romano, C. A., Tanewski, G. A., & Smyrnios, K. X. (2001). Capital structure decision making: A model for family business. Journal of Business Venturing, 16(3), 285–310.

Saito, K., & Villaneuva, D. (1981). Transactions cost of credit to small scale sector in the Philippines. Economic Development and Cultural Change, 29, 631-40. http://dx.doi.org/10.1086/451275

Slotty, C. F. (2009). Financial constraints and the decision to lease – Evidence from German SMEs. Goethe University Frankfurt, House of Finance, Germany. Retrieved from http://www.econstor.eu/dspace/bitstream/10419/39049/1/609306316.pdf

Yongqiang, L. Armstrong, A., & Clarke, A. (2012). An instrument variable model of the impact of financing decisions on the performance of small businesses in Australia’s Pre-global Financial Crisis. Journal of Modern Accounting and Auditing, 8(7), 1052-1065. Victoria University, Melbourne, Australia.