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Outreach of credit institutes and households' access constraints to formal credit in Northern Vietnam

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  • Dufhues, Thomas
  • Buchenrieder, Gertrud
Abstract
Most policy and research interest regarding rural credit markets revolves around the perception that poor households in developing countries lack access to credit, which is believed to have negative consequences for household welfare. An important feature of the rural credit market is that access to credit is easier for some groups than for others. The Vietnamese government supplied credit on preferential terms, particularly to rural households, through state-owned financial intermediaries. The share of the informal sector was thus considerably reduced from 78% (1992/93) of all outstanding loans to 54% (1997/98) in favor of the formal sector. However, there is evidence from other developing countries that credit constraints persist despite the expansion of rural finance. Hulme and Mosley (1996) state that there is increasing evidence that the poorest 20% of the population are excluded from rural credit programs. Thus, even in Vietnam the question remains: did the Vietnamese government succeed in reaching the poor, or do groups of people exist who are still access-constrained? Quantitative (N=260) and qualitative data collection took place between March 2000 and 2001. The quantitative data comprise cross-sectional household-level data from two different districts in Northern Vietnam. The poverty outreach of formal rural lenders was analyzed using Principal Component Analysis, while access to formal credit was investigated using a binary logit analysis. The poverty outreach of the formal lenders is quite satisfactory since about 50% of all predominantly poor rural households have access to formal credit. However, the poorest households are seldom clients of formal lenders. Yet, it is not their extreme general poverty that determines their access to formal credit. The results indicate that only certain aspects of poverty, e.g. low quality of housing, have an important influence on access to formal credit in Vietnam. The poorest households simply have much less demand for formal credit. Offering new credit products would only slightly improve the credit coverage of poorer households. More promising would be a specialized pro-poor extension service to widen the scope of their investment ideas and possibilities, combined with general improvement of the infrastructure. All in all, the most appropriate tool to incorporate poorer households into the formal financial system would be mobilization of savings. Nevertheless, the number of access-constrained households is surprisingly low. One reason for the low number is the weakening or eradication of former access constraints. Some access barriers do still exist, e.g. towards ethnic minorities or female-led households. To reduce these access barriers, the actions to be taken should be catering to the specific needs and the circumstances of those households that lack access.

Suggested Citation

  • Dufhues, Thomas & Buchenrieder, Gertrud, 2005. "Outreach of credit institutes and households' access constraints to formal credit in Northern Vietnam," Research in Development Economics and Policy (Discussion Paper Series) 8535, Universitaet Hohenheim, Department of Agricultural Economics and Social Sciences in the Tropics and Subtropics.
    • Handle: RePEc:ags:uhohdp:8535
    DOI: 10.22004/ag.econ.8535
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    Cited by:

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    2. Do Xuan Luan & Nguyen Thanh Vu & Kieu Thi Thu Huong & Duong Hang & Siegfried Bauer, 2016. "Is Access to Agribank Credit an Effective Tool in Improving Household Income? Evidence from the Northern Mountainous Region of Vietnam," Asian Social Science, Canadian Center of Science and Education, vol. 12(8), pages 110-110, August.
    3. Tran, Minh Chau & Gan, Christopher & Hu, Baiding, 2014. "Credit Constraints and Impact on Farm Household Welfare: Evidence from Vietnam’s North Central Coast region," 2014 Conference, August 28-29, 2014, Nelson, New Zealand 187495, New Zealand Agricultural and Resource Economics Society.
    4. Balgah Roland, Azibo & Emmanuel Yenshu, Vubo & Innocent Ndoh, Mbue & Jude Ndzifon, Kimengsi, 2015. "Rural development NGOs and service delivery to the very poor: An empirical analysis of a training center in rural Cameroon," Asian Journal of Agriculture and Rural Development, Asian Economic and Social Society (AESS), vol. 5(04), pages 1-13, April.
    5. Jia, Xiangping & Piotrowski, Stephan, 2006. "Land property, tenure security and credit access: a historical perspective of change processes in China," Research in Development Economics and Policy (Discussion Paper Series) 9083, Universitaet Hohenheim, Department of Agricultural Economics and Social Sciences in the Tropics and Subtropics.
    6. Luan, D. X. & Bauer, S. & Kuhl, R., 2016. "Income Impacts of Credit on Accessed Households in Rural Vietnam: Do Various Credit Sources Perform Differently?," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 8(1), pages 1-11, March.
    7. Alcaraz V., Gabriela & Zeller, Manfred, 2007. "Use of household food insecurity scales for assessing poverty in Bangladesh and Uganda," 106th Seminar, October 25-27, 2007, Montpellier, France 7939, European Association of Agricultural Economists.
    8. Mai, Nhat Chi, 2013. "Essays on Farm Household Decision-Making: Evidence from Vietnam," OSF Preprints 96azx, Center for Open Science.
    9. Do Xuan Luan, 2015. "Microcredit and Poverty Reduction: A Case Study of Microfinance Fund for Community Development in Northern Vietnam," Journal of Agricultural Science, Canadian Center of Science and Education, vol. 7(8), pages 1-44, July.
    10. Ta Nhat Linh & Hoang Thanh Long & Le Van Chi & Le Thanh Tam & Philippe Lebailly, 2019. "Access to Rural Credit Markets in Developing Countries, the Case of Vietnam: A Literature Review," Sustainability, MDPI, vol. 11(5), pages 1-18, March.
    11. Balgah Roland Azibo & Emmanuel Yenshu Vubo & Innocent Ndoh Mbue & Jude Ndzifon Kimengsi, 2015. "Rural development NGOs and service delivery to the very poor: An empirical analysis of a training center in rural Cameroon," Asian Journal of Agriculture and rural Development, Asian Economic and Social Society, vol. 5(4), pages 103-115, April.
    12. Dufhues, T. & Buchenrieder, G., 2007. "Reaching the poorest with microcredit an impossible attempt? New evidence from Northern Vietnam," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 42, March.
    13. Shewakena Aytenfisu Abab & Feyera Senbeta & Tamirat Tefera Negash, 2023. "The Effect of Policy and Technological Innovations of Land Tenure on Small Landholders’ Credit-Worthiness: Evidence from Ethiopia," Land, MDPI, vol. 12(5), pages 1-19, May.

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