Commercial banks financing for micro enterprises: A literature review

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DOANH NGHIỆP NHỎ VÀ VỪA CỦA VIỆT NAM TRONG BỐI CẢNH CUỘC CÁCH MẠNG CÔNG NGHIỆP 4.0 
COMMERCIAL BANKS FINANCING FOR MICRO ENTERPRISES: 
A LITERATURE REVIEW 
Le Van Chi, 
 National Economics University 
Abstract: 
Micro enterprises play an important role in the process of economic development of a 
country, especially in developing ones. Vietnam is known as an emerging market, with 74% of 
the total number of enterprises in the country are micro enterprises. However, the issue of micro 
enterprises credit access still remains a confounding problem. The paper focuses on the 
characteristics of micro enterprises, the determinants of micro enterprises access to credit, 
especially access to commercial banks credit. This question is addressed by reviewing existing 
literature and empirical evidence. The results of this analysis indicate the features of Vietnam 
micro enterprises and reveal the issue of commercial bank financing for micro enterprises in 
Vietnam. ased on the research‟s results some managerial implications are recommended 
Key words: micro enterprises, access to credit, commercial bank lending 
TÀI TRỢ VỐN CHO DOANH NGHIỆP SIÊU NHỎ TỪ CÁC 
NGÂN HÀNG THƢƠNG MẠI: TỔNG QUAN NGHIÊN CỨU 
Tóm tắt: 
Doanh nghiệp siêu nhỏ đóng vai trò quan trọng trong quá trình phát triển kinh tế của 
một quốc gia, đặc biệt là những nề kinh tế đang phát triển. Việt Nam được biết đến như một thị 
trường mới nổi, với 74% tổng số doanh nghiệp trong nước là doanh nghiệp siêu nhỏ. Tuy nhiên, 
tiếp cận tín dụng doanh nghiệp siêu nhỏ vẫn là một vấn đề lớn. Bài viết tập trung vào đặc điểm 
của doanh nghiệp siêu nhỏ, yếu tố quyết định tới khả năng doanh nghiệp siêu nhỏ tiếp cận tín 
dụng, đặc biệt là tiếp cận tín dụng ngân hàng thương mại. Câu hỏi này được giải quyết bằng 
cách xem xét tài liệu hiện có và bằng chứng thực nghiệm. Kết quả phân tích này cho thấy các 
đặc trưng của doanh nghiệp siêu nhỏ tại Việt Nam và ch ra những vấn đề liên quan tới việc 
ngân hàng thương mại tài trợ vốn cho doanh nghiệp siêu nhỏ tại Việt Nam. Dựa trên kết quả 
nghiên cứu, một số hàm ý ch nh sách được khuyến nghị 
Từ khóa: doanh nghiệp siêu nhỏ, tiếp cận tín dụng, hoạt động cho vay của ngân hàng 
thương mại 
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1. Introduction 
Micro enterprises comprise the largest proportion of business structure in an economy. 
According to data published in the Press Release of the General Statistics Office (2017), as of 
January 1, 2017, the number of micro enterprises accounts for 74% of the total number of 
enterprises in the country. Thus, the number of micro enterprises has increased to 65.5% 
compared to 2012. It has the fastest growth rate compared to other types of businesses. Micro 
enterprises have an important role in creating jobs, increasing supply of goods and services, 
promoting competitiveness in the market, contributing to poverty reduction. Along with small-
scale enterprises, micro enterprises are also considered to be "the driving force of the economy". 
Currently, micro enterprises face many difficulties in raising capital, including 
difficulties in accessing credit from commercial banks due to a number of reasons such as lack of 
collateral, no credit history, lack of necessary documents to complete the loan application. 
Although some commercial banks have had specific products that dedicated to this potential 
market, the ability to deploy products to customers is limited. Meanwhile, the micro-enterprise 
group has its own characteristics compared to the other types. Therefore, an in-depth study of the 
micro-enterprise segment, as well as the development of bank credit for this business segment, is 
necessary. 
Based on the considerations above, the aim of this paper is providing an overall review of 
important features of micro enterprises as well as the determinants of accessing to commercial 
banks‘ lending of micro enterprises. In addition, the issues of commercial bank financing for 
micro enterprises in Vietnam are also analyzed and compared with other countries, and then 
some policy implication focused on Vietnam has been also recommended. This analysis is likely 
to be helpful for decision-makers and researchers to clarify the characteristics of micro 
enterprises and the determinants of commercial bank financing for micro enterprises in a 
particular research site. 
The rest of this review is organized, as follows. Section 2 demonstrates the methodology 
that was used to carry out this review. In Section 3, the overview of commercial bank financing 
for micro enterprises are displayed, in which the definition of micro enterprises, the affecting 
factors of micro enterprises accessing to capital, as well as the commercial banks‘ lending to 
micro enterprises are summarized. Section 4 analyzes the issues of commercial bank financing 
for micro enterprises in Vietnam. The main policy implications that are focused on Vietnam and 
conclusions are presented in Section 5. 
2. Materials and Methods 
This research applied mixed methods that are a comprehensive literature review with 
secondary data collection. In order to only review quality articles, internationally renowned 
citation database Scopus, Scholar, and Web of Science were mainly selected. Moreover, some 
better papers researched on Vietnam are also reviewed. Keywords, such as ―access to capital of 
micro enterprises‖, ―commercial banks lending to micro enterprises‖, ―factors affecting access to 
commercial bank lending‖, ―determinants of credit access‖, ―credit constraints‖, ―credit 
participation‖, etc. were used for searching suitable articles. 
Secondary data of this paper has been collected from official websites of commercial banks, 
microfinance institutions, cooperative banks in Vietnam, as well as some general  ... ercial banks' lending activity for micro, small and medium 
businesses conducted by Padilla and Fenton Ontañon (2013). The two authors looked at 
commercial bank lending strategies for micro and small and medium-sized businesses in Mexico 
and factors that motivate or hinder lending in this segment. A detailed survey was made of 
commercial banks operating in Mexico. The survey results show that although credit for micro, 
small and medium enterprises still accounts for a small portion of the loan portfolio, commercial 
banks are increasingly interested in expanding this segment. Three different business models 
have been identified, with major differences in the strategy of providing financial services to this 
business segment. As follows: 
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 - Model 1 could be used for big banks: Their strategy includes serving as many 
customers as possible because these banks can attract customers through a branch office network 
or specialized salespeople. They can benefit from the economic scale and are the largest small 
business lenders. 
- Model 2 could be used for banks with close relationships with micro, small and 
medium-sized enterprises. These are specialized banks for promoting the entrepreneurial spirit 
and manufacturing sector of the economy or regional banks that specialize in certain market 
segments. They use relationships to attract customers. 
- Model 3 could be used for banks which do not have small business units or specialized 
enterprises. This category includes banks that provide loans for this segment only as an 
extension of their traditional trades to provide their existing customers additional services. 
The biggest barriers to increasing credit supply to micro, small and medium-sized enterprises 
were also pointed out by the two authors, including lack of information, failure to protect 
creditors, informality, and the changes and disruption of commercial banks' operations. 
4. The issue of commercial bank financing for micro-enterprises in Vietnam 
Characteristics of micro enterprises in Vietnam 
Nguyen Thuc Boi Huyen and Le Thi Kim Yen (2015) used SWOT analysis to analyze 
the strengths, weaknesses, opportunities and threats of micro, small and medium enterprises in 
Vietnam. 
 (1) Strengths: Micro, small and medium enterprises in Vietnam have the following 
strengths: 
- Simple production technology, low capital investment, fast capital recovery 
- Ability to penetrate the market quite well 
- Close access to the domestic market 
- Having close relationship with customers 
- Labor cost is quite cheap 
- Diverse products and services 
- Wide distribution network 
- Abundant agriculture, forestry and seafood resources 
(2) Weaknesses: 
- Inability to meet seasonal orders 
- Not proactive source of domestic raw materials 
- Not familiar with research, scientific research applications 
- No brand development strategy yet 
- Export through intermediaries, trade promotion is not good 
- Production technology is backward compared to the world 
- The management team, the skilled labor force are few 
- Lack of funds 
(3) Opportunity 
- Expanding export markets through free trade agreements 
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- Government's development orientation for micro, small and medium enterprises 
- Preferential, low tax rates 
- The development of new technology 
- Demand for domestic products are increasing 
- The educational level of Vietnam is improved 
(4) Challenges 
- Freight charge, prices of raw materials, electricity, water and gasoline continuously 
increase 
- Exchange rate risk 
- Market saturation of domestic goods 
- Preference for imported goods 
- The tastes and quality requirements of consumers are increasing 
- Environmental problems 
In addition, micro enterprises in Vietnam often have no strategy in allocating financial 
resources, causing the situation of financial resources not in keeping with the production and 
business process. These leads to the number of micro enterprises going bankruptcy is quite high. 
Experts also said that, the micro enterprises have not been assertive in making investment 
decisions. Many of them used inefficiently the mobilized capital sources. Business households 
often ignore the rules of the market, not having a good business strategy. 
It is also a fact that micro enterprises only grow in areas with modest profit margins and low 
technology due to the lack of scale advantages and often focusing on issues such as target 
selection in accordance with the businesses‘ ability, stability, consolidate the existing market, or 
develop the market step by step and have the most advantageous breakthrough. 
In addition, micro-enterprises and individual business households are still mobilizing and 
cooperating to do business without support from the authorities. Micro businesses are still having 
to "swim" on their own challenges. 
Commercial banks financing for microenterprises in Vietnam 
According to Ngo Hai (2019), the Ministry of Finance has been having tax policies and 
providing capital for micro enterprises. Through the Vietnam Social Policy Bank system, many 
policy credit programs and projects are implemented such as Household Development Loan 
Program, Lending program for traders operating in difficult economic areas in mountainous 
areas, etc. These policies have been creating favorable conditions for micro enterprises to access 
loans to maintain, develop and expand their business production activities. For preferential credit 
support policies, enterprises must have feasible production and business projects and plans in the 
priority and encouraged fields of the State through the SME Development Fund. If a micro 
enterprise satisfies the conditions, it can borrow capital from the Fund with the maximum loan of 
VND 30 billion and the interest rate of 7% per year. A maximum loan term is 7 years. However, 
according to statistics of the Vietnam Chamber of Commerce and Industry (VCCI), among 97% 
of small and medium enterprises, 85 - 90% are small and micro enterprises. More significantly, 
only about 40% of these businesses have access to bank capital 
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According to An Nhien (2017), Vietnamese commercial banks are also increasingly 
interested in micro-enterprise customers. This is reflected in the fact that most commercial banks 
have specialized products for this customer. The credit package "Accompanying with micro 
businesses" of BIDV with the interest rate from 6.8% per year is applied to short-term loans of 
less than 12 months. At ACB, after evaluating, classifying customers, financial verification, 
reasonable use of loan plan, enterprises will be able to receive unsecured loans with interest rates 
depending on the time and financial potential, risk of each loan. At PVcomBank, the preferential 
loan package "Flexible financing - Breakthroughs of growth" with a total limit of VND 1,500 
billion deployed from the beginning of 2017, is also an option to help micro enterprises access 
capital to invest in production. business. Participating businesses enjoy interest rates from 7.5% 
per year. The characteristics of these products in some commercial banks are summarized by the 
author in the table below: 
Table 2: Micro-lending products of some Vietnamese commercial banks 
(as of August 1, 2019) 
No. Commercial banks 
Loans conditions 
Interest rate 
(per year) 
Maximum loan amount Loan term 
1 BIDV 6% Flexible 5 years 
2 Agribank 6% 90% customers‘ demand 1 year 
3 Vietinbank 7.5% 3 billion VND 7 years 
4 Vietcombank 7.5% 100% customers‘ demand Flexible 
5 SCB 6.5% Flexible 5 years 
6 Sacombank 8.5% Unlimit Flexible 
7 MB bank 8.2% 90% customers‘ demand 15 years 
8 ACB 9.8% 10 billion VND 7 years 
9 VP bank 8.6% 500 million VND 5 years 
10 SHB 8% 85% customers‘ demand 25 years 
11 Techcombank 5.99% 5 billion VND 7 years 
12 Hdbank 7% 100% customers‘ demand 20 years 
13 Liên Việt Post bank 6.5% 3 billion VND 5 years 
14 Eximbank 8% Flexible 1 year 
Source: author compiled from commercial banks‟ websites 
From the data summarized in the table above, it can be seen that the policy for micro-
enterprise lending in Vietnamese commercial banks is quite diverse. Regarding lending rates, the 
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interest rates fluctuate between 5.99% and 9.8% / year. Regarding the maximum amount that 
those can borrow, each commercial bank has different rules. Some banks stipulate the maximum 
amount that micro enterprises are allowed to borrow (for example, Vietinbank allows micro 
enterprise to borrow up to VND 3 billion, this figure in Techcombank is VND 5 billion). Some 
bank banks do not set the maximum loan amount but offer loans based on customer needs (for 
example, Vietcombank is willing to give 100% of its demand to customers, but SHB can only 
meet up to 85% customers' borrowing needs). In terms of loan terms, most banks are generally 
for micro-enterprise customers with short and medium-term loan terms (1 - 7 years). 
Figure 1: Lending interest rate for micro enterprises of some Vietnamese commercial 
banks and average lending interest rate (as of August 1, 2019) 
Source: author compiled from commercial banks‟ websites 
However, specific figures on commercial bank loans to micro-enterprise customers are 
not reported in bank documents disclosed to investors. Commercial banks enterprise group 
aggregated micro customer segmentation into small and medium-sized enterprises as a report 
without specific dissection led to the collection of data is very limited. This makes it difficult to 
analyze the situation of microenterprise lending in Vietnamese commercial banks. 
5. Conclusion 
In line with the objective of reviewing and classifying some studies, several issues that 
relate to commercial banks‘lending to microenterprises have been discussed. Micro enterprises 
are classified based on some criteria such as capital scale, labor size, turnover, assets and costs. 
Inadequate access to bank credit is one of the main obstacles that delaying the development of 
micro enterprises. Some factors that prevent micro, small and medium enterprises from 
accessing credit facilities are high repayment costs, collateral requirements, unwilling guarantors 
and fees. credit management and short repayment period, education level of businesses‘ owners. 
0%
2%
4%
6%
8%
10%
12%
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The advantages and obstacles of commercial banks when lending to micro enterprises are also 
pointed out in this study. 
The results of this study have a number of implications, which can be helpful to decision 
makers, commercial banks‘ managers. First of all, commercial banks need to carefully study the 
characteristics of micro enterprises in Vietnam. This makes it possible for commercial banks to 
develop products that are suitable for this segment. Secondly, depending on the characteristics of 
each bank, banks can choose the appropriate model to lend to micro businesses. Finally, micro 
enterprises themselves need to improve their financial knowledge in order to have better access 
to bank capital. 
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