Research on Access to Informal Credit and Black Credit

Beck et al. (2009) argue that government policies are not always effective and some are even counterproductive. Even financial systems supported by “robust” information and contractual infrastructures can be problematic. Not all borrowers are creditworthy and many countries’ welfare has been affected by loose credit policies. A good example of the negative impact of these policies is the US subprime crisis, which resulted from lending to low-income households that they could not repay. In addition, for countries with developed financial systems, the enforcement of creditor rights is more important and governments often introduce policies to improve this, but this is often very difficult to implement. Haselmann et al. (2010) found that establishing credit registries and reforming collateral-related procedures are more likely to result in long-term improvements in the enforcement of creditors’ rights. Therefore, governments should consider appropriate policies to improve customers’ access to credit.

Kumar (2004) argues that many of the traditional policies enacted in Brazil to expand access to credit services aim to distribute low-interest credit, financial support resources to borrowers and are administered through Brazilian commercial banks at high costs. It is estimated that the funding for expanding access to credit amounts to billions of Reals. However, through analyzing the results of rural finance programs, many programs do not reach many poor farmers but are "dominated" by a segment of the well-off, causing disadvantages for expanding access on a large scale. According to statistics, among the participants in the loan program, those who receive the most loans (usually the well-off households) account for 2% of the total number of program participants but receive 57% of the total credit provided by formal institutions. While small borrowers account for 75% of all borrowers, they receive less than 6% of total credit provided by formal institutions. In addition, introducing policies on low-interest loans to expand access to customers, especially vulnerable ones, is often costly in terms of the volume of credit provided and the consequences for society. Research also shows that financial markets are an important part of the broader group of factor markets, including land and labor markets, which are the basic institutions that underpin the efficient functioning of the economy and the production and supply of goods. Lack of access to credit reduces the potential welfare of individuals and the productivity of enterprises in

an economy. Access to financial markets for vulnerable people is therefore of strategic importance for economic and social development and social inclusion. Failure in these markets has particularly adverse effects on economic productivity and social welfare. However, the use of policies that support these markets is not necessarily good and may even be counterproductive. As a result, these markets are often heavily regulated. However, this regulation, in turn, creates the risk of implementation failure and many regulations can impede access to the poor.

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Diagne and Zeller (2001) point out that in Malaysia, through concessional credit programs, credit institutions provide credit to poor farmers to help them expand their production and increase their income. However, when comparing the net incomes of farmers who participate in the credit program with those who do not, the results are not as expected. Farmers who participate in the concessional credit program often end up with smaller incomes than those who do not participate in the program. The study clearly reflects that providing credit to the poor needs to take into account the real opportunities and constraints that poor farmers face in order for credit to work effectively. For example, credit is often limited to farmers with limited access to roads, markets, health care and are often subject to droughts that can wipe out their crops, such as in Malawi. Therefore, policies designed to support the poor need to take into account certain risks.

Improper implementation of government policies creates a major barrier affecting the use of financial services and access to formal capital sources by people, especially vulnerable groups who need government assistance when they find it difficult to meet loan conditions from banks while credit demand is high.

1.1.4. Research on access to informal credit and black credit

Currently, there have been many studies in the world on access to informal credit, black credit and its impact, however, there are very few authors who study the factors affecting behavior affecting black credit borrowing. Overall, studies often talk about the impacts of black credit, comparing black credit with other types of lending, the emergence and development of black credit, the future of black credit... Studies on informal credit can be divided into two main groups:

The first group approaches from the perspective of factors leading to informal credit behavior and black credit.

According to Fishbein and Bunce (2000), shadow lending often occurs in the subprime mortgage market where borrowers mortgage their assets for personal consumption purposes or to repay debts. Most borrowers have limited access to formal credit due to a number of reasons such as unqualified collateral. Similarly, Carr and Kolluri (2001a) also argue that shadow lending is lending to people with poor credit history, overdue debts, non-payment of fees such as bankruptcy fees, administrative penalties, etc., which makes them unable to access formal credit from banks and recognized financial institutions. Most borrowers are financially illiterate, have low incomes but have a large amount of valuable assets that can be mortgaged or sold to repay debts. For example, business households whose heads are elderly, have little cash, little financial knowledge, and do not have access to formal credit sources, but have many valuable assets such as land or assets to guarantee their ability to repay debts, or assets owned by their children such as houses, cars, etc.; therefore, these assets can be used to borrow informal credit.

According to McCoy (2005), informal credit users (mostly black credit) are often those who are having financial problems with maturing debts, unable to access formal credit from banks due to unpaid debts and are at risk of losing their homes if they do not pay on time. In addition, borrowers are lured by attractive offers of quick loans, low interest rates when they have urgent needs for money. Borrowers are "blinded" by lenders with huge interest rates, non-transparent terms and consider these loans as a manageable monthly payment. Moreover, informal credit providers often emphasize the immediate cash that borrowers receive. For the above reasons, individual businesses in developing countries are increasingly using black credit, especially those who lack knowledge and confidence in their abilities.

Kelso (1941a) argued that the use of black credit is often influenced by the following reasons: (1) to meet urgent family needs such as illness, disease, etc. The more small loans from black credit institutions, the more families have unplanned spending problems; (2) due to the lower income level, the tighter the family's financial budget is, not enough to meet minimum spending needs, and the inability to borrow from official credit institutions makes them "forced" to borrow from black credit institutions to cover their expenses.

life experience; (3) people with unstable jobs, or at the semi-unemployed level such as factory workers, salaried workers in low-income industries... often tend to use illegal credit more than people with good jobs, high and stable income; (4) illness and disease without health insurance is one of the major reasons why people have to resort to illegal credit because they have no other choice.

According to Dang Ngoc Duc (2020), borrowers are often poor people, or people with low incomes, low financial literacy, or borrow money mainly to meet urgent consumption needs, repay debts, build houses, buy houses, produce, do business, pay tuition, treat illnesses, etc. Because almost everyone needs capital, the subjects participating in lending or borrowing include all components of society, but especially the poor, with difficult economic conditions. Farmers need capital to buy seedlings, livestock, continue a new crop or to compensate for losses from the previous crop; to pay production costs, pay employee salaries or deal with urgent situations, etc. Meanwhile, the main purpose of the lender is to make a quick profit, get rich quickly, ignoring the risk of bad debt as well as violating the law. Similarly, Pham Van Tam (2018) also believes that the reason for using black credit is because borrowers participate in social evils or have illegal needs that need to be hidden. In addition, the legal sanctions for handling crimes and violations of the law related to "Black Credit" are still entangled and have not been deterred by informal credit service providers, creating a big loophole for the development of black credit.

According to Nguyen Kim Hung (2019), currently, bank capital is mainly accessed by businesses while individual business households still have difficulty accessing capital and are forced to use black credit as an alternative source of capital.

The second group approaches from the behavior of the lender.

Fishbein and Bunce (2000); Eggert (2001) both mentioned that black credit is the behavior related to deception, fraud and exploitation of borrowers carried out by creditors, brokers, organizations... Eggert (2001) also believes that black credit is unfair loans, fraud, false advertising, dishonesty in implementing loan contracts and taking advantage of borrowers' lack of knowledge for profit. In addition, informal credit service providers also threaten, create pressure, use force, and treat unfairly if borrowers cannot repay their debts on time. Besides, Eggert (2001) also divided black credit into two main activities: (1) Those

Illegal or unscrupulous activities include activities such as misrepresentation, distortion, concealment of terms unfavorable to borrowers, forgery of borrowers' signatures and personal information documents of borrowers, etc.; (2) Activities that cause obstacles and difficulties for credit management agencies. Credit activities are legal, but when exploited by illegal credit institutions, borrowers have to bear loans with costs and interest rates many times higher than the market. Similarly, Morgan (2007) believes that black credit is a welfare reduction related to lending behaviors with lending interest rates many times higher than the legal regulations and deception aimed at some customer segments that are facing financial difficulties and lack of financial knowledge. Informal credit service providers use tricks such as exaggerating the future income that borrowers can obtain if they borrow from these organizations to create a good mentality for borrowers to promote their borrowing decisions. In addition, these organizations also advertise the attractiveness of the loan to attract borrowers.

According to Eubank (1917), in the United States, there are loan sharks who “exploit” individuals who are unable or unwilling to use credit in the formal financial sector. By taking advantage of these people’s immediate need for credit, loan sharks provide loans with special terms, high fees, and high interest rates to be able to seize the borrower’s assets. Many loan sharks often hide under manufacturing companies, service businesses, financial support companies, etc. and often do not have signs to conceal their activities. This research is supported by the research of Bond et al. (2009).

According to Bond et al. (2009), these lenders often approach homeowners who are facing foreclosure if they cannot repay their loans to the bank. These lenders refinance them through loans that allow them to keep their homes and use the homes as collateral for the new loans. However, the ultimate goal of these loan sharks is to seize the homes and real estate through terms that are unfavorable to the borrowers. Eggert (2001) also stated that the goal of loan sharks is to force or trick homeowners into borrowing money at interest rates or fees higher than the market due to having to pay fees when borrowing, low creditworthiness, bad debt history at banks and credit institutions... Moreover, loan sharks also encourage borrowers to borrow large amounts or amounts different from what the borrower needs, wants or can afford to pay in order to reduce costs and interest rates, but in fact they want to maximize profits from the loan and appropriate assets. Loan sharks can be reduced if there is competition between service providers.

informal credit services, but most of these lenders often entice borrowers to sign mortgage contracts before they can find a better source of credit. Research also shows that loan sharks are often only interested in people who own high-value real estate.

According to McCoy (2005), most loan sharks often monitor credit reports for debt problems, buy lists of overdue debts from debt collectors. In addition, they also check mortgage payment records, divorce summonses, tax liens, overdue debt collection cases, etc. to be able to approach people with credit problems. Loan sharks take advantage of this with phone calls, or "door-to-door" offers of quick loans in large amounts, with preferential interest rates that can be adjusted with many promotions to help borrowers delay other debts, solve immediate financial problems and hide the dangers behind. This is what contributes to the escalation of illegal credit.

The authors Carr and Kolluri (2001a), Venkatesan (2004) also argued that in addition to the acts of creating unfavorable contracts for borrowers to create the greatest profit for lenders, these loans are also "designed" to prevent borrowers from paying off the full amount of debt by causing the interest to be added to the principal, causing the outstanding principal to increase, thereby making it easy to seize assets.

Studies by Booth (1991), Chin (1995) and later Morgan (2000) on Chinese crime groups in Hong Kong and North America show that loan sharking is also used by Chinese criminal organizations to bid for territory. This is significant because organized crime often controls the gambling industry, and lending to gambling addicts or “thirsty gamblers” is an important source of revenue for gambling establishments.

According to Dang Ngoc Duc (2020), informal credit service providers establish financial companies, create a cover for profitable business, then organize capital mobilization with interest rates higher than the State Bank's interest rate ceiling to appeal to the greed of people with idle money, organize capital mobilization according to a multi-level model... The mobilized money is used by the subjects for personal purposes or invested in high-risk industries, thereby losing the ability to pay and repay loans. Widely advertise consumer loans with simple procedures, no need to prove financial status to attract people who need to borrow capital but when signing the contract. People

This finance company's staff often briefly explains the contract content and asks the borrower to quickly sign the pre-made contracts with terms that are favorable to the company and complete the loan disbursement. When receiving the contract or when it expires, the borrower discovers that the interest rate is often much higher than the initial consultation or that other fees arise in addition to the loan interest rate. Moreover, the loan contract, which the two parties have committed to, does not show the agreed interest rate. The lender often uses oral agreements and collects interest immediately upon handing over the money to the borrower. In fact, the contract omits information about interest rates, terms and conditions with the borrower. Then, after signing the contract, the parties add information about interest rates, repayment conditions, and capital maturity with the advantage belonging to the lender. When the borrower repays the loan, he or she finds out that the interest rate is higher than the prescribed rate but still has to accept repayment. In addition, black credit organizations also use their underlings to seek and expand lending activities, focusing on the poor, those in difficult circumstances, who need money for production, medical treatment, and living needs but are unable to access bank capital due to lack of collateral as required.

According to Anh Phan (2020), informal credit service providers take advantage of the lack of understanding of the lending processes and procedures of banks, the passive psychology and habits in carrying out economic transactions of a part of the people when they need capital to be able to develop and expand. In particular, "black credit" organizations have penetrated into remote areas, where people's awareness is limited, especially ethnic minorities and farmers, to market credit packages with many incentives, simple procedures, and then establish authorization contracts for people to sign authorization papers for these organizations to stand up to borrow capital from banks, but in fact, these are authorizations for informal credit service providers to have full authority to decide on mortgaged assets. The subjects continue to use authorization papers to borrow capital from banks, in many cases, with the help of bank officials, so the loans are approved without ensuring the loan process. When the informal credit service provider defaults or absconds, the bank proceeds to repossess the mortgaged property, only then will the real owner of the land and the bank know the status of their property. Families face the loss of property, while the bank bears the risk of overdue debt but cannot process the secured property due to a dispute.

According to Pham Thanh Thoi (2020), informal credit service providers often use many methods to reach customers and easily expand their scope of operations based on the strength and influence of the community and people.

confidants and local staff. These organizations also allocate staff according to levels and perform tasks according to designated areas, advertise and provide 24/7 consulting access. In addition, these credit institutions also use risk prevention and debt settlement systems such as sending text messages, making phone calls, sending letters, hiring debt collection companies (for customers who borrow but are not afraid and do not want to pay) ... to deter and remind borrowers to pay.

According to Pham Van Tam (2020), informal credit service providers often have sophisticated tricks such as hiding contracts in secret, easily destroyed places, using social networks to close contracts, dividing loan packages, not showing interest rates in contracts, lending in the form of short-term savings and credit associations, taking advantage of information technology, software, and phone applications to lend... to avoid criminal liability.

2.2. Research gap

From the research overview, some research gaps can be seen as follows:

Firstly, previous studies in the country and around the world on influencing factors have mentioned the "Intention to use" of common goods and services such as Internet Banking, Mobile Banking, regular consumer loans, etc. These services are all publicly provided and the studies were conducted with the purpose of surveying the level of interest and use of these services by customers in order to develop products. Meanwhile, there have not been many studies on the issue of intention to use formal credit services for individual business households. For individual business households in Vietnam, members are both responsible to each other and influenced by people who are considered to have prestige in society (Mai et al., 2009). Besides, there has been no study assessing the intention to use informal credit, especially black credit. Black credit is only common in the underground economy, a sensitive issue that makes it difficult to initially approach and collect information from the subjects providing it.

- Demand as a basis for conducting research on this topic is facing many difficulties. The application of TAM, TRA, UTAUT models to study factors affecting "Intention to use" formal and informal credit services is quite new.

Second, previous studies on credit access have explored both the supply and demand sides of factors affecting borrowing behavior and credit provision as well as limitations in accessing credit services such as McCoy (2005), Fishbein and Bunce (2000) and Eggert (2001), Beck and De La Torre (2006), Claessens (2006)... These studies have

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