Credit accessibility and small and medium sized enterprises growth in Vietnam

Small and medium sized enterprises (SMEs) have been highly conducive to economic development in Vietnam. SMEs are a mean of income generation, job creation, poverty reduction, and government revenue contribution, etc. However, SMEs have lagged far behind other business sectors in terms of performance. It is claimed that one of the major reasons is their inability to access credits. This study empirically tests the impact of access to different sources of financing on SMEs’ growth. Primary data was obtained from a survey of 487 SMEs in Hanoi in June 2013. The empirical models include Ordinary Least Square (OLS) estimation and Heckman Two Stage Procedure model to account for endogeneity issue. The models reject the claim that the inability to access credit adversely affects SMEs growth. The result is consistent in both OLS model and the Heckman Two Stage Procedure model. Furthermore, the results from the Heckman Two Stage Procedure model indicated that there is a remarkable difference in the growing pattern of externally and internally financed group. The fastest growing SMEs are those who did not borrow externally and their growth strategy relies on the owner’s human capital (i.e. young and well‐educated), direct export and network developed with customers. On the other hand, the SMEs group that obtained external finance grows faster as their enterprise size increases and they keep financial records