Table 13: Actual loan usage of surveyed households
Target
Huong Hoa | Thanh Hoa | Average | ||||
Number of households (Household) | STBQH (Trđ) | Number of households (Household) | STBQH (Trđ) | Number of households (Household) | STBQH (Trđ) | |
Crop | 3 | 7.67 | 6 | 5.69 | 9 | 6.35 |
Animal husbandry | 14 | 16.79 | 13 | 18 | 27 | 17.37 |
Afforestation | 4 | 15 | 3 | 11.67 | 7 | 13.57 |
NNDV | 8 | 23.75 | 6 | 20 | 14 | 22.14 |
Family expenses | 1 | 10 | 5 | 4.61 | 6 | 5.64 |
+ Pay hospital fees | 0 | 0 | 1 | 10 | 1 | 10 |
+ Debt repayment | 1 | 10 | 0 | 0 | 1 | 10 |
+ Vocational training investment | 0 | 0 | 1 | 5 | 1 | 5 |
+Other expenses | 0 | 0 | 3 | 2.94 | 3 | 2.94 |
Total | 30 | 17.27 | 30 | 14.90 | 60 | 16.09 |
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(Source: Actual survey data)
From the above table, it can be seen that Thanh Hoa commune has the highest number of households that borrow capital for the wrong purpose, with 5 households borrowing, of which 1 household used the capital for the wrong purpose completely, using it for their child to learn to drive with the amount of 5 million VND and 1 household that borrowed for livestock had to use the loan of 10 million VND to send their child to the hospital, 3 households used the remaining amount after investing in production activities for spending with the average amount per household being 2.94 million VND. Huong Hoa commune has 1 household that used the loan for the wrong purpose completely, that is the household that borrowed for livestock but used it to pay off debt with the amount of 10 million VND. The reason for the misuse of loans in Thanh Hoa commune is partly due to the necessity of households' spending, due to difficult life, little savings, so when risks occur, they cannot overcome them on their own. On the other hand, because farming and livestock are two areas that after investing in buying seeds and paying bank interest, families often take advantage of their available resources, so the loan amount is often a little surplus and households have used it for daily expenses.
Forestry and service industries are two areas where there are no households that allocate capital for the wrong purpose, because the small amount of loan (households borrow to plant forests) is only enough to invest in production, and
Because service industry activities require large investment capital, loans are only enough to meet seasonal investment, while most households also use their own capital.
In general, the initial situation of loan allocation for people is relatively effective. Borrowers have plans for borrowing and using their loans, thereby further improving the efficiency of capital use, ensuring debt repayment efficiency and the quality of people's lives is increasingly improved and significantly enhanced.
2.2.3.4. Results and effectiveness of loan use of surveyed households
To reflect the results and production efficiency of the surveyed households, I use the following indicators: GO, VA, IC, MI, and NB; GO/IC, VA/IC, MI/IC, NB/IC are calculated on average per household in a year for the fields of crop production, livestock production, and service industries (NNDV). As for the 7 households that borrowed capital to plant forests, due to the long production cycle, to evaluate the results and production efficiency more accurately and objectively, I use the financial analysis indicators NPV, IRR calculated on average/household/ha of planted forest and compare IIR with the bank loan interest rate (i) to determine the efficiency of the investment capital.
a. Production performance results of surveyed households
Through Table 14, it can be seen that cultivation is the sector that brings the lowest production value, added value as well as profit and income, because cultivation is a small, fragmented production sector, requires a lot of effort to care for, the prices of input factors are high, depends on nature so is often risky, the yield is low, production mainly relies on family labor, so the production value is not high, the average net profit per household of the two communes is only 0.94 million VND.
Table 14: Production performance of surveyed households (Average/household)
Unit: Million VND
Target
Huong Hoa | Thanh Hoa | Average | |||||||
Crop | Animal husbandry | NNDV | Crop | Animal husbandry | NNDV | Crop | Animal husbandry | NNDV | |
GO | 22.99 | 60.18 | 231.38 | 15.95 | 58.14 | 169.43 | 18.06 | 59.2 | 204.83 |
IC | 8.54 | 31 | 115 | 5.52 | 31.10 | 95.59 | 6.43 | 31.05 | 106.68 |
VA | 14.45 | 29.18 | 116.38 | 10.43 | 27.04 | 73.84 | 11.64 | 28.15 | 98.15 |
KH | 0.44 | 1.01 | 4.62 | 0.71 | 1 | 3.40 | 0.63 | 1.01 | 4.1 |
MI | 14.01 | 28.17 | 111.76 | 9.72 | 26.04 | 70.44 | 11.01 | 27.14 | 94.05 |
Tc | 11.89 | 11.51 | 20.25 | 9.28 | 13.71 | 18.20 | 10.06 | 12.57 | 19.37 |
NB | 2.12 | 16.66 | 91.51 | 0.44 | 12.33 | 52.24 | 0.94 | 14.57 | 74.68 |
(Source: Processing actual survey data)
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The service industry is the sector that brings the highest results, because the service industry (civil carpentry, trading agricultural products, groceries, food and beverage services, etc.) is a sector that requires a large amount of capital to participate in investment activities, including both borrowed capital and the household's own capital. At the same time, this is also the sector that uses the most outsourced labor among all sectors, so in the production and business process, it has created great pressure for investors to use capital to achieve the highest results. This is also an activity that does not have people using capital for the wrong purpose. In addition, NNDV is an activity that does not have to bear many risks like other industries, the average production value is 204.83 million VND/household, the average mixed income per household in the year that NNDV brings is 94.05 million VND and the net profit (NB) is 74.68 million VND.
Next is the livestock industry, the average production value per household is 59.2 million VND after deducting all expenses, the net profit in the year that the household earns is 14.57 million VND, livestock farming brings quite high results because the area has many advantages for development, the production land area is quite large so households can implement a model of combining livestock farming with crop farming, thereby taking advantage of available food types of the crop farming industry for livestock farming (corn, vegetables, bran, ...) to thereby reduce costs and increase income for the family. At the same time, the area has a forest area, with large grasslands creating conditions for grazing buffaloes and cows, thereby reducing the work of herding as well as finding food for them. In addition, households can also take advantage of the pulling power of buffaloes and cows to plow for hire, collect fertilizer to increase family income... However, livestock farming is also a field where many households misuse capital and are also affected by risks such as foot-and-mouth disease in buffaloes and cows, blue ear disease in pigs and avian influenza,... which have occurred locally in some areas, causing the income and profits of the industry to decrease significantly.
In general, the above table shows that Thanh Hoa commune has a lower total GO as well as added value and income (MI), profit (NB) of all 3 production sectors than Huong Hoa commune. This result is due to the impact of investment as well as different development conditions of each region. As presented in the general situation of the surveyed household group, Huong Hoa commune has more conditions for development than Thanh Hoa commune (favorable in both geographical location and infrastructure conditions, socio-economics). On the other hand, Huong Hoa commune has fewer people borrowing money for the wrong purpose than
Thanh Hoa commune. In addition, the educational level of Thanh Hoa commune is quite low, which has greatly affected the ability to plan production investment as well as the ability to access capital of households. Through practical research, we know that in the recent past, Thanh Hoa commune has also had to bear many risks in production such as epidemics, floods, ... which have greatly affected the lives and production of the people here, making the already difficult lives of the people even more difficult. Therefore, it is understandable that the production results of Huong Hoa commune are higher than those of Thanh Hoa commune.
In summary, with the above results, in general, any production investment activity brings profit to the household, the household can improve the family's life as well as contribute to increasing the local income, which proves that the use of loan capital by production households has initially brought results. However, there is still a situation of improper use of loan capital by a part of the borrowing households, at the same time, due to the poor ability to plan production as well as debt repayment plans of the households, it has affected the production results of the household as well as the effectiveness of debt repayment. Therefore, in order to increase the efficiency of capital use, at the same time contribute to improving the quality of family life as well as the socio-economic development of the locality in the coming time, borrowing households need to be more serious in the issue of using their loans. Local authorities need to have investment policies, support, and economic restructuring, encouraging people to invest in advantageous areas that bring high efficiency (agricultural production, livestock, etc.). At the same time, banks also need to create favorable conditions for people to borrow capital and need to pay attention and guide them on how to use capital for the right purpose and achieve high efficiency.
b. Production efficiency of surveyed households
Production and business efficiency is an economic category that represents economic development in depth, it reflects the level of resource exploitation in the reproduction process to achieve business goals. It is a relative indicator expressed by production results compared to production costs. Here, to express the production and business efficiency of my household, I use a number of indicators: GO/IC, VA/IC, MI/IC, NB/IC
The production results of the surveyed households as analyzed above partly reflect the efficiency in using the household's loan capital. However, not every production activity that brings high added value or higher profits is more effective. To accurately reflect the efficiency of using
Using the loan capital of production households, we must see how much production value, added value, income and profit the household will receive for each intermediate cost dong that the household spends in production . Through calculation from the data in Table 14, the results obtained in Table 15 are as follows:
Table 15 shows that cultivation (the sector with the lowest production results) is the sector with the highest efficiency in capital use. The average production value over intermediate costs (GO/IC) of cultivation is 2.89 times, the added value over intermediate costs (VA/IC) is 1.89 times, the mixed income over intermediate costs (MI/IC) is 1.72 times and the net economic profit over intermediate costs (NB/IC) is 0.13 times. Thus, with one dong of intermediate costs invested in cultivation, 2.89 dong of production value is created, corresponding to 1.89 dong of added value, 1.72 dong of income and 0.13 dong of profit. Meanwhile, for the service industry (the sector with the highest production results), with 1 dong of intermediate cost, households only earn 1.91 dong of production value, corresponding to 0.91 dong of added value, 0.87 dong of income and 0.69 dong of profit. Livestock is the sector with the lowest efficiency among the 3 production sectors, with 1 dong of intermediate cost, households earn 1.91 dong of production value, corresponding to 0.91 dong of added value, 0.88 dong of income and 0.47 dong of profit.
The reason for the above results is that farming is a field that requires little investment capital and takes advantage of the family's available resources: family labor and animal traction, and fertilizer from the livestock industry.
Animal husbandry is a field in which after investing in breeding animals and paying bank loan interest, households can take advantage of available family resources such as labor, food from the farming industry, etc., helping producers save costs, contributing to improving the production efficiency of the industry. However, due to difficult conditions as well as poor production capacity, households have often used capital for the wrong purposes, leading to low efficiency.
Meanwhile, NNDV is a field that requires a lot of investment capital (buying raw materials, goods, tools, means of production, in addition, some households also hire more workers and due to large loans, the interest paid to the bank is also large), causing the cost per capital to increase, although the production value is large, the cost is also large, and this is a field with low self-sufficient resources participating in production and business activities, mainly family labor, the rest is all cash including borrowed capital and self-owned capital. To bring in 204.83 million VND of production value and 74.68 million VND of profit, households have to spend up to 106.68 million VND of intermediary costs. Therefore, the production efficiency of the service industry is low.
Table 15: Production efficiency of surveyed households (Average household)
Unit: Times
Target
Huong Hoa | Thanh Hoa | Average | ||||||||||
GO/IC | VA/IC | MI/IC | NB/IC | GO/IC | VA/IC | MI/IC | NB/IC | GO/IC | VA/IC | MI/IC | NB/IC | |
Crop | 2.69 | 1.69 | 1.64 | 0.25 | 2.89 | 1.89 | 1.76 | 0.08 | 2.83 | 1.83 | 1.72 | 0.13 |
Animal husbandry | 1.94 | 0.94 | 0.91 | 0.54 | 1.87 | 0.87 | 0.84 | 0.40 | 1.91 | 0.91 | 0.88 | 0.47 |
NNDV | 2.01 | 1.01 | 0.97 | 0.80 | 1.77 | 0.77 | 0.74 | 0.55 | 1.91 | 0.91 | 0.87 | 0.69 |
(Source: Processing actual survey data)
56
Thus, in general, the investment of capital in production and business of households is effective, but the efficiency is not high. Through practical research, it is known that one of the reasons leading to the low efficiency of investment in production and business of households is that investment activities are still largely dependent on external conditions, so production and business activities of households are still subject to many risks. The investment level is still low, production is small, fragmented and spontaneous, so the results obtained per unit of cost are not large. At the same time, the service industry is a large borrowing sector, but the ability to manage finance and organize production and business of households is poor, updating market information is limited, and households have not proposed plans and plans to repay debts to banks. On the other hand, due to households using and allocating capital for the wrong purpose, the efficiency of capital use is significantly reduced. That also explains why the bad debt ratio of production households at the branch in the past time as analyzed above is very large.
In general, Thanh Hoa commune is also a commune with lower efficiency per intermediate cost of most production sectors (livestock, service industry) than Huong Hoa commune. That is also inevitable because, the production results of Huong Hoa commune are higher and the rate of borrowers using capital for the wrong purpose in Huong Hoa commune is lower than in Thanh Hoa commune, at the same time, the production scale of Huong Hoa commune is also larger than that of Thanh Hoa commune, so it is natural that production in Huong Hoa commune will achieve better results than Thanh Hoa commune.
*) Evaluation of the effectiveness of forest planting activities of surveyed households
Afforestation is an investment field with a relatively long production cycle, so in the investment and production process, we must consider the time value of money. In order to accurately assess the effectiveness of production activities as well as the effectiveness of capital use, I calculate and analyze a number of financial indicators that reflect the effectiveness of investment projects: Net present value (NPV) is used to evaluate the effectiveness of afforestation models with the same investment scale and structure. This indicator shows the scale of profit in terms of quantity. If NPV > 0, the production activity is effective and vice versa; Internal rate of return (IRR) is an indicator to evaluate the ability to recover capital. IRR is the discount rate when this rate makes NPV = 0. IRR is calculated in % and is used to evaluate economic efficiency. The higher the IRR, the higher the economic efficiency. Through the calculation process, the results are shown in Table 16 below:
Table 16: Production efficiency of forest planting activities of surveyed households
(Average/household/ha)
Target
Huong Hoa | Thanh Hoa | Average | |
NPV (Trđ) | 8.4 | 7.84 | 8.16 |
IRR (%) | 43 | 41 | 42.14 |
Bank interest rate (%) | 15 | 15 | 15 |
(Source: Processing survey data) Table 16 shows that afforestation activities bring relatively large efficiency.
The average NPV/household/ha of planted forest is 8.16 million VND > 0, proving that the investment activity has brought income and benefits to the investor, so people should borrow capital to invest. However, if only using the net present value, it still does not reflect the effectiveness of the investment capital is really effective or not, and NPV also depends on the interest rate (if the interest rate increases, NPV decreases and vice versa, if the interest rate decreases, NPV increases). Therefore, to more clearly assess whether the investment activity in afforestation of the people is really profitable or not, whether they are able to repay the loan or not, we consider the internal rate of return (IRR) which is the interest rate at which the project's income just recovers the investment capital, this is the recovery rate that the project itself creates. The table above shows that the average IRR of afforestation activities is 42.14%/year, so with the bank loan interest rate (i) of 15%/year => IRR is 2.81 times higher than the bank loan interest rate, according to the investment project selection rule, when the IRR is greater than the project's capital cost, the project will be selected, so it can be concluded that the capital used to invest in afforestation by the people has been effective, and production activities have been profitable.
In general, the afforestation activities of both communes have achieved positive results. After fully recovering the investment capital, the average benefit of the afforestation project of the two communes is 8.16 million VND and the average IRR that the afforestation activities bring to the two communes is 42.14% => afforestation will ensure profits for the people.
The table of names also shows that Huong Hoa commune has higher NPV and IRR than Thanh Hoa commune by 0.56 million VND and 2%. And the IRR of Huong Hoa commune compared to bank loan interest is also larger than the IRR of Thanh Hoa commune when compared to bank loan interest. Normally, projects with high NPV and IRR are often preferred (NPV and IRR are one of the criteria used to select investment projects). That proves that the afforestation activities in Huong Hoa commune have achieved higher results than Thanh Hoa commune.
The reason for this phenomenon is that Huong Hoa has more favorable conditions than Thanh Hoa commune in terms of consumption market as well as investment scale. Through practical research, it is known that the revenue from forest planting activities depends largely on the location, production site, as well as the quality of the products produced. Therefore, with a large investment scale and favorable conditions, the revenue generated on the same area and at the same time of Huong Hoa commune is larger than that of Thanh Hoa commune by 1.38 million VND/ha. Therefore, the efficiency achieved by Huong Hoa commune is larger than that of Thanh Hoa commune, which is inevitable.
2.2.3.5. Some assessments on credit capital sources for production households at the branch of the Bank for Agriculture and Rural Development in Tuyen Hoa district
a. Some general assessments of credit sources for production households of the surveyed households
Table 17: Some general assessment indicators of credit sources for households
manufacture
Indicator Number of observations (Households) Percentage (%)
Information channel
60 | 100 | |
- Government Decree | 3 | 5 |
- Branch propaganda activities | 33 | 55 |
- From previous borrowers | 24 | 40 |
Understanding the regulations | 60 | 100 |
- Understand | 32 | 53.3 |
- Relatively clear | 9 | 31.7 |
- Not sure yet | 9 | 15 |
The ability of the bank to meet capital needs | 60 | 100 |
- Meet enough | 29 | 48.3 |
- Insufficient response | 31 | 51.7 |
Customer's ability to repay | 60 | 100 |
- Pay on time | 56 | 93.3 |
- Overdue debt | 4 | 6.7 |
Need to borrow more | 60 | 100 |
- Need to borrow more | 50 | 83.3 |
- No need to borrow again | 10 | 16.7 |
(Source: Survey data processing)
Through the survey of 60 production households, it was found that households knew about the branch's capital mainly through the branch's propaganda activities and from previous borrowers. However, the proportion of borrowers who knew about the capital through the branch's propaganda activities was still low, with only 33 households out of 60 surveyed households, accounting for 55% of the total number of borrowers. At the same time, the table above shows that people who knew about the capital through previous borrowers also accounted for a fairly large proportion, 24 households out of 40%, so the role of previous customers is very important, so the branch needs to rely on this group to be able to promote propaganda work, and also rely on them to be able to better understand customers, build new policies, measures, and targets that are more suitable for each customer group to further improve credit quality. Through that, we also see that in the total number of households accessing capital at the branch through Government decrees, there are very few, only 3 households, accounting for 5%. This also shows that the ability of people to access policies and documents of the State and Government is still limited, leading to people misunderstanding or not understanding policies and regulations on borrowing and using credit capital, leading to misuse of capital, leading to subjective psychology, dependence, waiting for preferential policies without a plan to repay the bank, causing a lot of overdue debt and bad debt. Of the total number of surveyed households, up to 9 households did not know clearly (as if they did not know) about regulations, documents, and credit policies, accounting for 15% of the total number of households borrowing capital. Only 32 households clearly understood the regulations, documents, and policies, accounting for 53.3%. This caused a significant obstacle in the debt collection work of the bank. Some customers, when the debt payment deadline came, the bank collected, but they answered that it was not due yet or they did not know, forcing the bank to go back and forth many times, which was very costly, and at the same time, the debt collection efficiency of the bank was also reduced.
Of the total 60 households surveyed, 4 households did not repay their debts on time, forcing the bank to intervene, including 2 households in Huong Hoa commune and 2 households in Thanh Hoa commune. Of which, 1 household in Huong Hoa commune borrowed 5 million for farming, but could only repay the remaining 1 million to the bank. Because their child was seriously ill, the household had to use the money to repay the bank to take their child to the hospital, and the bank created conditions for this household to extend the debt; 1 household borrowed capital for livestock farming, but the household used the 10 million VND borrowed from the bank to repay a high-interest loan that the household had previously borrowed, so when the debt was due, the household could only repay a part to the bank, but later the household overcame the problem and paid the bank the remaining overdue amount. As for the two households borrowing in Thanh Hoa commune, one household was affected by an epidemic that killed 6 pigs, causing the household to be unable to repay the entire amount.
In case of debt to the bank, the household is also facilitated by the bank to extend the debt and borrow more capital to overcome difficulties and fulfill the task of repaying the debt to the bank. And a household borrows for livestock but due to limited production capacity, does not have a reasonable production and debt repayment plan, so when the debt repayment deadline comes, the household is unable to repay the debt to the bank. Therefore, in the coming time, the branch needs to further promote propaganda work to help borrowers better understand policy documents so that they can have better production and business plans and debt repayment plans to the bank, at the same time to attract customers, create conditions for people to access more capital, help them use capital properly and more effectively.
Due to limited capital resources, as well as to limit risks, and at the same time to ensure the reasonable use of capital by customers, avoiding waste in the use of capital, before lending, the Bank must carefully assess and consider the customer's ability as well as the project, production and business plan, and then determine the appropriate amount and loan term. According to regulations, when lending, the Bank often bases on the customer's loan demand , the maximum loan ratio compared to the value of the asset used as collateral for the loan (usually the collateral must be twice the loan amount) according to the Government's regulations and the State Bank's instructions, depending on the customer's ability to repay and its capital resources to decide on the loan amount, but the total outstanding loan balance for a customer must not exceed 15% of its own capital . Therefore, the customer's loan demand is very large, but the Bank can only meet a part of the customer's demand. Through the actual investigation, it was found that out of the total 60 surveyed households, the bank only met the needs of 29 households, accounting for about 48.3%. The remaining 31 households, in addition to borrowing capital from the branch, also accessed capital from other sources such as policy banks (23 households), private loans, savings and loan associations, loans from relatives and friends, etc. (8 households). This shows that the branch's ability to meet the capital needs of customers is still limited. Therefore, in the coming time, the branch needs to expand its scale and increase capital mobilization to better meet the needs of production capital for people in order to create conditions for people to expand their production scale.
When asked about the need to continue borrowing, up to 50 households wanted to continue borrowing, accounting for 83.3% of the total number of households borrowing capital. Households that continued borrowing aimed to expand production scale for households that were operating effectively, so now they wanted to invest in expanding production or investing in new production in industries that they previously did not have enough or could not invest in. And out of the total 50 households that wanted to continue borrowing, up to 47 households had