An empirical analysis of accessibility and impact of microcredit: the rural credit market in the Mekong River Delta, Vietnam

Type Thesis or Dissertation - Doctor of Philosophy in Finance
Title An empirical analysis of accessibility and impact of microcredit: the rural credit market in the Mekong River Delta, Vietnam
Publication (Day/Month/Year) 2012
This study examines the characteristics of Vietnam rural credit market, credit accessibility and impact of microcredit programme at the household level. The Vietnam rural credit market is imperfect and developing whereby market imperfection creates credit rationing and limits credit access to rural households (Stiglitz & Weiss, 1981), and market development leads to different credit sectors interacting to serve the clients (Bardhan & Udry, 1999). Since the development of the Vietnam Bank for Social Policy (VBSP) microcredit programme in 2003, rural credit accessibility has been improved. However, credit remains insufficient to meet the needs of a large number of rural population. This study investigates the determinants of households’ borrowing decisions in terms of formal and informal microcredit and microcredit accessibility. The results show that informal microcredit alters the households’ decisions to obtain a formal microcredit. If this interaction is ignored when estimating households’ borrowing decision for formal microcredit, the results will be biased. The results show that ease of access to informal microcredit can compensate for their high interest rates in the credit market. The positive factors influencing formal microcredit accessibility include being a local government employee, having credit group membership and a poor certificate, educational attainment, working skills and village road access. The results consistently show a positive impact of the VBSP microcredit programme however data and evaluation methods were analysed. The Propensity Score Matching (PSM) estimators show a positive significant impact of the microcredit programme on household consumption. When the analysis is restricted to only the poor, greater impact estimators were obtained. The fixed effect models with instrumental variables and the PSM both confirm a positive impact of the formal microcredit programme and its loan amount on household per capita consumption and income. If programme exogeneity holds, the microcredit programme impact for the Mekong River Delta is greater than the country average. In terms of policy implications, education and working skills build credit worthiness and road access enhances credit availability. Supporting programmes (e.g., vocational and job training programmes) and incentive policies (i.e., attracting investment to remote rural areas) are helpful to improve credit access to the microcredit programme. Government intervention is necessary to improve formal credit accessibility; however, re-defining microcredit strategies is needed to improve the microcredit programme impact.

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