Assessing the financial accessibility of households and SMEs regarding financial services services in Vietnam – recommendations and solutions

Abstract

Improving access to banking services, or in a broader sense, promoting the level of financial inclusion is simply defined as the rate of individuals and businesses that are able to use basic financial services, including: savings, credit, payments and insurance. The financial access plays an extremely important role in reducing poverty, approach an equitable distribution of wealth, supporting a comprehensive and sustainable development (WB, 2014). Conversely, lack of access to finance is the underlying cause which leads to income inequality, poverty trap and lower growth. Accessing banking services helps individuals and businesses to find affordable financial resources and/or funds to meet needs as business opportunities comes, for an investment in children’s education or for retirement savings. Bank loans also helps farmers and the poor protecting themselves against in life financial shocks such as illness, disease, crop failures and natural disasters. These poor people would be able to avoid the vicious circle of borrowing unofficial funds from shark borrowers at high interest rates. This increases the burden of higher repayment in value which could possibly cause the poor people to become even worse off. Owning no bank accounts may also cause people to be excluded from other services such as healthcare, insurance, being the basic instruments keeping them healthy and safe. Expanding the access to banking services also helps to reduce the cost of government programs regarding social activities, to have better management through increased transparency, and to have a better approach against corruption. A society with access to financial services will enhance the social participation level of people in general, improve fairness and equality, thus, the whole society’s capability also raised.

Improving access to banking services is one of the important measures to enforce the role of the banking system for economic growth, improve the quality and living standards of citizens, promote the omission of poverty and strive for sustainable economic growth. The Action plan to implement the “Overall strategy to develop the Service industry of Vietnam until 2020”, issued under Decision No.808 / QD-TTG on 29th June 2012 of the Prime Minister identified a task of conducting the “Improving access to banking services for the economy” project and approved in 2015. The implementation of such project would be of great significance, not only to promote growth and omit poverty in Vietnam but also helps to support financial stability, creating precedents and content for Vietnam to participate in the implementation of the Millennium goals after 2015 that the United Nations set out (UN, 2014).

Some findings regarding the level of access and barriers have been identified. The popularity of banking services in rural Vietnam is currently still low as (i) type of banking services in rural areas are less diverse, local residence mostly know and use credit services, whereas savings and payment services are hardly used; (ii) the proportion of people that open and use bank accounts are low compared to urban areas of Vietnam and rural areas of other countries. The demand for credit in rural areas are reasonably high, the proportion of people having access to credit from formal institutions are also good, however, the informal sector remains to keep an important role in the provision of capital for rural areas. Besides the demand for credit, the demand for savings within the rural population is relatively high but the proportion of adults having a savings account with formal institutions remains low. Along with the development and changes in the socio-economy, the needs to make transfers and payments increases rapidly in rural areas.

Barriers to access banking servives have also been identified for the rural population, allocated to different sources of the found causes, relating to banks, people themselves and policies. Relating to banks: (i) the operational network of formal financial institutions in rural and remote areas is still sparse; (ii) the loan product lines are designed for all areas without customization to suit with each and every specific region, aiming especially to the rural population; (iii) the promotion activities of financial institutions regarding product and services in rural areas are still very limited. Relating to the people: (i) the perception of rural people on the existence of the series of banking services is low; (ii) the ability to adopt rural banking services such as the ability to set up business plans, understanding production process and financial literacy is limited. And other findings regarding policy settings.

This paper aims to solve the followings: 1. Assessing the current status of financial inclusion in Vietnam 2. Finding gaps within the Financial Accessibility spectrum of Vietnam and setting out goals to be achieved in 2020. 3. Proposing recommendations and solutions to enhance financial access for households and from which promote sustainable economic growth in general.