SME credit constraints and access to informal credit markets in Vietnam

Abstract

PurposeA 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.Design/methodology/approachThis study uses a trinary approach and correlated random-effects Probit and Tobit techniques to avoid the incidental coefficients problem.FindingsThe 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.Originality/valueTo 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.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2017-0543