Social Capital and Lending Activities Tdvm.

Social capital of an individual is the ability to grasp information, communication and social relationships of that individual to help them understand to solve and overcome problems related to imperfect information in society. In personal social capital, trust and reliability are two important characteristics that have a great influence on the individual's decision about society. The elements and scope of research of social capital can include relationships such as social capital and social networks, social capital and resources, social capital and trust, social capital investment and the pursuit of benefits, social capital and public goods.

Classical economic models (SEM) when studying social capital are often built with the assumption that people are selfish and self-interested. Based on the research of SEM, behavioral economic models (BEM) have added the assumptions about altruism and even human malice. According to Wilkinson (2008), people often compare and compete with those who have more utility than them. However, they can also feel guilty if they have more utility than others, fearing inequality (inequality aversion). Economists believe that trust in social capital can be a tool, a means to reduce costs because other forms are often more costly to society. Researchers believe that trust is considered an important component of social capital. Experimental results of Karlan (2005) have shown that the more trust in others, the higher the ability to save; The more trustworthy, the less likely to be exposed to credit risk; and the more you contribute to the community, the less likely you are to be exposed to credit risk. Knack and Keefer (1997), Karlan (2005) argue that countries and social cultures with more mutual trust will have better and higher economic growth and development rates. Trust and confidence are two essential and important elements within individual social capital. Glaeser et al. (2000) argue that behavior in the trust game is correlated with the previous contact and interaction of the participants in the game. Those who are more trusted are more trustworthy, but they are less trustworthy in the trust game.

TCHV is rapidly growing and uses knowledge from psychology to understand how human behavior influences the decisions of individual and professional investors, markets, and managers (Ackert and Deaves, 2013). Specifically, it analyzes the future events that underlie individual rationality (Lawless et al., 2013). Glaeser et al. (2000) analyzed trust and social capital, and found that trust and confidence increase with social connections. Differences in race and nationality reduce trustworthiness. And people with high status can be assumed to have higher social capital and trust has an impact on altruism.

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Knack and Keefer's (1997) study found three main findings: First , civic trust and cooperation are associated with strong economic growth. Second , associational activity is unrelated to economic performance—contrary to Putnam's (1993) findings across regions of Italy. Third , civic trust and cooperative norms are stronger in countries with formal institutions that effectively protect property and contract rights, and in countries that are less polarized into opposing groups along class or ethnic lines.

2.2.2. Social capital and microfinance lending activities.

Glaeser et al. (1999) analyzed the formation of social capital using an individual optimal investment decision model. The analysis showed that the model of social capital accumulation is consistent with the standard economic investment model. Cassar et al. (2010) asked whether social capital matters for economic decision making. They performed treatments for social identity, group tracking, and group self-selection. The results showed that social trust has a positive and significant effect on the contribution rate of lending groups. Their findings are: (1) Trust is important, individuals with greater trust exhibit higher contribution rates, sharing benefits with other members of their group . (2) When people lack confidence in the behavior of others, bad outcomes for all are more likely to occur. (3) Religious identity promotes better group lending performance, but the overall evidence is not impressive.

(4) Higher contribution rates in real- world microfinance lending groups than in group lending environments, and possibly in other situations such as group work, may have negative as well as positive effects on individual behavior.

Glaeser et al. (2000) combined two experiments and a survey to measure trust and trustworthiness—two key components of social capital. Following Berg et al. (1995), they measured trust and trustworthiness using experiments with monetary rewards. The results showed that as individuals became socially closer, both trust and trust increased. Trustworthiness decreased when the partners were different in race or nationality. High-status individuals were able to inspire more trust in others.

Feigenberg and Field (2010) provide the first empirical evidence of the economic benefits of social interaction in the context of microfinance lending. Their results indicate that group lending is successful in achieving low non-performing loans without collateral not only because it taps into existing social capital but also because it builds new social capital.

Akram and Routray (2013) investigated the causal relationship between social capital and microfinance in Pakistan. The results showed that social capital index had a negligible impact on microfinance participation. Social capital can be leveraged in the design and delivery of microfinance programs as well as other rural development activities. The findings of the study also encourage policy makers to invest in the creation of social capital either directly or by providing a supportive environment for its emergence. Trust as a measure of the cognitive dimension of social capital proved to be the most important factor in facilitating group-based microfinance. Poor households can use and substitute their social capital as collateral to access credit. The limitation of this study is that it only applies to group lending and not to individual lending.

Karlan (2005) found that higher levels of social capital were associated with higher levels of debt repayment and savings. He also found that in environments with high levels of social capital, group members were better able to distinguish between bad debt due to deviant motives and bad debt due to negative personal shocks. Wydick (1999) studied data from Guatemala and found that peer monitoring had a significant impact on group lending through incentives to participate in group insurance. Group pressure had a small effect on preventing moral hazard, while the effect of social ties among members was statistically insignificant.

Wenner (1995) studied a credit program in Costa Rica and found that groups that protected and monitored members and used local information had lower rates of default than groups that did not monitor. However, less than half of the groups had a certain level of interest, and the proposal that group lending might improve information flow was an internal and sensitive design.

Greiner and Wang (2009) studied the issue of P2P (people-to-people) direct lending, i.e., lending to individuals without going through credit institutions. The results show that there is an information asymmetry between lenders and borrowers. Lenders have less information about the borrower's ability to repay. The benefits of social capital are access and exchange of information among group members. Groups can share their experiences and knowledge within their group. Group members can draw on the collective knowledge of the group. Social capital reduces interest rates and positively affects the borrower's access to finance and repayment.

Robert, Thönia, Erik (2010) designed two games of online community contribution in Denmark, the results showed that trust was related to cooperative preferences but not to cooperative beliefs. Fairness was related to cooperative behavior. Both trust and fairness were positively related to cooperative behavior.

2.2.3. Research on social capital in Vietnam.

In Vietnam in recent years, social capital has received much attention from the State and researchers related to policy making as well as support for credit institutions in developing microfinance and other socio-economic issues. Previous studies on social capital in Vietnam have often been considered and studied in rural areas and underdeveloped poor areas. Research by Nguyen Tuan Anh and Thomése (2007) on the impact of social capital on the issue of land consolidation in agricultural production shows that, thanks to social capital, the difficult and troublesome issues in land consolidation have been well implemented and informally without the need for administrative or legal measures.

Nguyen Van Ha and Kant (2004), studying households in paper recycling villages in Vietnam, concluded that social capital has a strong and positive contribution to household income as well as a larger income contribution for poor households than for rich households.

The study of Appold and Nguyen Quy Thanh (2004) on the borrowing of start-up capital of small and medium enterprises also mentioned the impact and influence of social capital. Hoang Ba Thinh (2009) has done research on the costs of maintaining social capital. Tran Huu Dung (2003) suggested that the characteristics of social capital should be clarified in relation to other types of capital. He also pointed out the relationship between social capital and economic policy; between social capital and economic development. He also concluded that social capital has a great influence on the quality and speed of human capital accumulation. Tran Huu Quang (2006) said that social capital is a typical implementation of the connections between people in a community or a society. He is also interested in analyzing social capital in the context of socio-culture and social institutions. Dinh Hong Hai (2013) noted the negative side of social capital. He believes that a superficial or incorrect understanding of social capital will lead to wrong orientations and consequences that degrade social capital as well as the social moral foundation. And he also suggests that social capital theory should be included in

Le Ngoc Hung (2008), social capital plays an important role in economic transactions and warns that it can be counterproductive or highly risky because businesses often rely heavily on social capital from social networks.

Ngo Thi Phuong Lan (2011) studied the impact of social capital on risk reduction in the process of converting from rice cultivation to shrimp farming in the Mekong Delta. Through that, the author shows that market rationality is not the only way to understand the nature of risk-taking behavior but also shows decentralized thinking and risk reduction. Clearly shows the impact of social capital such as capital support, labor support, technical information, experience...

Nguyen Hong Thu's (2018) study on the impact of microfinance on poor households in the Southeast region concluded that microfinance has an impact on the income of poor households, especially the size of loans has a positive impact and there is a correlation between income and the ability to access microfinance. In addition, the size of the workforce also increases income and the study also shows that non-financial activities also contribute significantly to increasing income for poor households. Mai Thi Hong Dao (2016) studied the impact of microfinance on the income of poor households in Vietnam with data from the 2012 household living standards survey, concluding that factors such as age, household size, dependency ratio, total assets, microfinance and region have an impact on the income of poor households. Phan Dinh Khoi (2013) studied the factors affecting access to formal and informal credit of farmers in the Mekong Delta. The results showed that: Working for local authorities, members of loan groups, poor household registration, education level, skilled labor and inter-commune roads affect the ability to access credit and factors such as land ownership, official interest rates and informal loan terms affect informal loans. The results also showed that there is an interaction between credit markets, in which the amount of informal loans increases the ability to access credit programs.

Dinh Phi Ho and Dong Duc (2015) studied the impact of formal credit on household income in Vietnam and confirmed the factors of household characteristics,

Location, environmental risk shocks impact on income and expenditure of Vietnamese farming households.

For current microfinance lending in Vietnam, it is mainly implemented by Agribank and the Vietnam Bank for Social Policies, accounting for the highest proportion of outstanding loans, while the remaining official and semi-official microfinance institutions have limited outstanding loans. Another part of the supply is implemented by NGOs and local mass organizations through forms of social capital relations such as the Farmers' Association, Women's Union, Youth Union, Veterans' Association, etc. However, the level of contribution is not much. In fact, supporting loans through forms of social relations, unions, beliefs, etc. is very good, but the source of capital supply is very limited. Thus, it can be said that social capital has a great impact on many areas in an economy as well as in society. There has also been no systematic and formal research on the issue of how social capital affects and impacts credit activities. How does the risk in microfinance lending of microfinance institutions manifest itself and how is it measured? This is also the issue that I am interested in researching in this thesis.

2.3. Measuring the efficiency and risks of TCVM operations.

2.3.1. Concept of TCVM.

Microfinance has long been considered an effective tool in the process of poverty reduction in many countries around the world. In recent decades, with the strong development of microfinance, most countries and international organizations in the world are interested in developing and providing financial services and support services for the poor to increase income, improve and stabilize the lives of the poor. The phrase " microfinance " is understood as models of providing financial services to the poor to help them have conditions to develop production and business, improve their lives. And up to now, most countries in the world have had development policies for microfinance to support the poor.

There are many concepts proposed by economists and international organizations researching microfinance. According to the Consultative Group to Assist the Poor (CGAP), “ Microfinance is the provision of basic financial services to meet the needs of the poor, including: savings, credit, pensions, money transfers, insurance, etc.” According to Ledgerwood. J (1999), “ Microfinance is a method of economic development through financial services to benefit low-income people… often including both elements: financial intermediation and social intermediation .” According to the United Nations Capital Development Fund (UNCDF): “ Microfinance is the provision of financial services to those who do not have access to the formal financial system .” At the Global Summit on Microfinance in Washington, USA held in February 1997, it was defined as “ Activities aimed at providing small-scale loans to the poor to carry out production and business, generate profits, and improve the quality of life ”.

According to ADB (2000), “ Microfinance is the provision of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and their small businesses ”. Since 2000, ADB has begun implementing a strategy to develop microfinance in 21 developing countries and by 2010, ADB had approved nearly US$2.8 billion through loans, grants, technical assistance, and private sector investment. As of December 31, 2012, ADB had approved support programs totaling US$2.59 billion (ADB, 2000). Over two-thirds of ADB’s portfolio has supported the creation of an effective policy environment for countries receiving assistance from ADB.

According to the Law on Credit Institutions of Vietnam, “ Microfinance Institutions are a type of credit institution that mainly performs a number of banking activities to meet the needs of individuals, low-income households and micro-enterprises ”. Decree 28/2005/ND-CP on the organization and operation of small and medium-sized financial institutions in Vietnam: “ Microfinance Institutions

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