INTRODUCTION
Backgrounds
Poverty reduction, access to education, clean water, sanitation, and healthcare are critical components of the 17 Sustainable Development Goals (SDGs), which evolved from the Millennium Development Goals (MDGs) These issues are of paramount importance and garner significant attention from nations worldwide, particularly developing countries like Vietnam Over the past few decades, Vietnam has made significant strides in socio-economic development and poverty alleviation.
Statistics reveal a significant decline in the poverty rate, dropping from 37.4% in 1998 to 5.8% in 2016 (Demombynes & Vu, 2015; GSO, 2016) However, the 2016 report highlights that the poverty rate in rural areas (7.5%) is nearly four times higher than in urban areas (2%) This indicates that many rural households continue to experience poor living standards and limited socio-economic opportunities The average monthly per capita income for rural households is 2,437 thousand VND, with the poorest quintile earning only 676 thousand VND and the near-poor quintile earning 1,246 thousand VND.
In 2016, the new poverty line was set at 630,000 VND for rural areas and 780,000 VND for urban areas This highlights a significant income disparity, with the poorest earning approximately 8.4 times less than the wealthiest, who have an average income of 5,669,000 VND Consumption among rural households remains low, with an average monthly per capita expenditure of 1,609,000 VND Specifically, the bottom quintile (the poorest) spends only 834,000 VND per month, while the second bottom quintile (the near-poor) spends 1,154,000 VND, and the top quintile (the richest) spends 2,576,000 VND, further illustrating the substantial gap in expenditure between the poorest and the richest.
Poverty reduction, income enhancement, and health improvement in rural areas are critical components of the 17 Sustainable Development Goals (SDGs) In both the global context and Vietnam, various initiatives such as training, agricultural extension, and job creation have been launched to meet these objectives Notably, access to credit is vital for income-generating activities, as rural households, particularly those in poverty, often encounter financial limitations Without access to formal credit, poor farmers struggle to expand their production and enhance their living standards.
Many rural households in Vietnam continue to experience poverty, leading to a significant demand for credit among the poor However, the rural credit market often suffers from a supply shortage, making it challenging for these individuals to access formal credit due to insufficient collateral In this context, the primary sources of formal credit are the Vietnam Bank for Agriculture and Rural Development and the Vietnam Bank for Social Policies.
Duc, 2015), and recently by microfinance institutions
Farmers' inability to access formal credit has hindered their ability to invest and improve their living conditions As a result, they often turn to informal credit sources, which come with significantly higher interest rates, potentially trapping them in a 'vicious debt circle' due to their limited repayment capacity Despite the risks, farmers are drawn to informal loans because they require no collateral and offer a quick borrowing process.
Microcredit programs have emerged as vital resources for the poor, offering them easier access to formal and semi-formal credit sources (Li et al., 2011) These programs are characterized by their collateral-free nature, specifically designed to assist low-income individuals Defined as small loans aimed at enabling the poor to engage in productive activities or businesses, microcredit plays a significant role in enhancing their income and overall well-being (Microcredit Summit, 1997) Many experts view microcredit as an effective tool for improving the welfare of impoverished communities This research focuses on evaluating the accessibility of microcredit and its economic effects on the welfare of rural households, ultimately proposing policies to enhance access to microcredit and boost its effectiveness in investments, thereby elevating living standards.
Therefore, to capture these primary research objectives, the following specific objectives will be included and analyzed:
Research problems
Morduch and Haley (2002) highlight that access to credit can significantly enhance the living standards of the poor However, Brau and Woller (2004) reveal that the poor, particularly in developing countries, face substantial challenges in obtaining formal credit In Vietnam, rural households, especially those that are poor, located in remote areas, belong to ethnic minority groups, or engage in high-risk activities like aquaculture, struggle to access credit despite their high demand (Duong & Izumida, 2002) Consequently, many resort to informal lending from friends, relatives, or moneylenders Although the Government has made efforts to improve access to formal and semi-formal credit for these households, the outcomes have been limited To enhance the effectiveness of financial services for the poor, it is crucial to understand the factors influencing rural households' participation in microcredit, which this study aims to investigate.
Microcredit programs aim to assist the poor, yet Nguyen (2008) reveals that fewer poor households have access to these programs compared to non-poor households This research will explore the participation levels of poor households in microcredit programs relative to non-poor households Additionally, it will examine the influence of gender on participation, specifically assessing whether female household heads have better access to microcredit resources than their male counterparts The study employs binary logistic models with panel data to achieve its objectives.
This research advances the understanding of microcredit accessibility by utilizing binary logistics with longitudinal data, allowing for the analysis of changes over time It employs various robust estimation methods, including Random Effect, Fixed Effect, and Pooled estimation, to ensure reliable results Additionally, the study decomposes the sample into poor and non-poor groups to explore heterogeneity and gain deeper insights The practical implications of these findings will inform policies aimed at improving access to microcredit and expanding the reach of microcredit programs.
The determinants of accessibility to microcredit for rural households include factors such as poverty status and gender Understanding how these elements influence access to financial resources is crucial for improving economic opportunities in rural areas.
1.2.2 Microcredit and adoption of improved rice varieties
Agriculture is vital to the economy of developing countries, including Vietnam, where it contributed nearly 33 billion USD to the gross domestic product (GDP) in 2015, accounting for approximately 17% of the total (World Bank, 2016) Furthermore, as of 2013, nearly half (46.8%) of Vietnam's labor force was employed in the agricultural sector (World Bank, 2016) This sector not only ensures food security but also plays a significant role in generating income for economic development (Datt &).
In developing countries, agriculture serves as a vital income source for rural households, primarily through domestic sales and exports Consequently, enhancing both the quantity and quality of agricultural output has become a key focus for governments However, rapid population growth and urbanization have led to a decrease in available land for agricultural production, making it increasingly impractical to improve productivity by expanding land area.
Therefore, the most possible solution to enhance output is to adopt new high-yield technologies, such as mechanization, modern inputs and production practices
Rice is a vital staple food globally, particularly in developing countries such as Vietnam, where approximately 7.79 million hectares are dedicated to rice farming In 2016, Vietnam produced around 43.61 million tons of rice, making it the leading annual crop in the country Additionally, rice is the top cultivar in export volume, with 4.83 million tons exported, and ranks second in export value at $2.1 billion Enhancing the quantity, quality, and value of rice is crucial for boosting export earnings in rice-dependent economies like Vietnam.
Adopting improved rice varieties is an effective strategy to boost productivity due to their short duration, high yield, and climate resilience (Sall et al., 2000) However, the effectiveness of these varieties in enhancing productivity is maximized when they are used in conjunction with modern fertilizers and cultivation practices (Karanja et al., 2003).
Adopting new agricultural varieties often involves significant initial costs and risks, which can deter financially constrained farmers from making such decisions Research indicates that access to credit can enhance household investments in agricultural innovations, particularly in improved varieties This relationship can be understood through two key mechanisms.
Credit alleviates financial constraints for farmers, enabling them to invest in agriculture Additionally, it serves as a coping mechanism for agricultural shocks, such as disasters and pest infestations.
The adoption of improved cultivar varieties is influenced by various factors, including farmers' perceptions, education, risk attitudes, knowledge, and the management of agricultural extension centers, as well as local soil conditions Additionally, this adoption often necessitates more complex cultivation practices, requiring increased time, labor, and capital compared to traditional methods, as farmers must invest more in new and certified agricultural inputs like seeds and fertilizers.
The previous studies only investigate the determinants of adoption of new varieties in general, but do not focus on the role of credit on adopting decision
Most previous studies focus on the behaviors of all farmers, with few examining the specific actions of those with and without financial constraints or differing economic statuses Additionally, many studies only analyze the factors influencing the adoption of improved varieties, neglecting the decision-making process regarding both adoption and the intensity of use Notably, there is a lack of empirical research in Vietnam exploring the relationship between microcredit and the adoption of improved rice varieties.
This study aims to address existing gaps by examining the impact of microcredit on farmers' decisions regarding the adoption of improved rice varieties in two stages: whether to adopt and the extent of adoption Utilizing advanced two-stage models such as Double-Hurdle (DH) and Heckman, the research clarifies farmers' adoption decisions, with Tobit models applied for robustness checks Additionally, the study employs Instrumental Variables (IV) to address potential endogeneity issues related to microcredit By categorizing the sample into poor and non-poor groups, it provides a detailed analysis of specific behaviors The findings will inform relevant policies to enhance the adoption of improved rice varieties through credit programs, including microcredit.
Research question 2: Does microcredit enhance the farmers’ decision on adoption of improved rice varieties in two stages, including whether to adopt and how much to adopt?
1.2.3 Impact of microcredit on households’ welfare
Microcredit programs have been implemented globally to combat poverty and hunger Numerous scholars, practitioners, and policymakers have examined the effects of microcredit on the living standards of rural households, yet their findings remain varied and inconsistent.
Microcredit is recognized as an effective tool for combating poverty and enhancing welfare, as noted by Khandker (1998) and Yunus (2003) Research indicates that microcredit positively impacts the welfare of rural households by boosting their consumption (Li et al., 2011b; Mahjabeen, 2008) Additionally, access to microcredit has been shown to improve children's health conditions (Pitt et al., 2003) and educational outcomes (You & Annim, 2014).
Research objectives
The main goal of this research is to examine the accessibility of microcredit programs and their effects on welfare, while also understanding the mechanisms through which microcredit impacts individuals To achieve this, the study follows the logical framework outlined in Section 2.5 and includes specific objectives aimed at capturing these dynamics.
This study explores the factors influencing rural households' access to microcredit, with a specific focus on its impact on poor and women borrowers Additionally, it examines the differences in access between poor and non-poor households.
Microcredit plays a crucial role in influencing farmers' decisions regarding the adoption of improved rice varieties, impacting both the decision to adopt and the extent of adoption This study further analyzes the research sample by categorizing it into poor and non-poor farmers to gain deeper insights into these dynamics.
(3) Evaluate the impact of microcredit on the rural households’ welfare, measured by various indicators such as income, total production value, food consumption, and asset accumulation
Microcredit plays a crucial role in alleviating the impact of health shocks on income and consumption, as well as influencing labor mobility within households, particularly for children and the elderly By providing financial support, microcredit enables families to better manage unexpected health-related expenses, ensuring stability in their economic activities and improving overall well-being.
Scopes of research
Microcredit is offered extensively in both urban and rural settings by banks and Microfinance Institutions (MFIs) Various indicators can be utilized to define microcredit, as well as its impact on welfare and health shocks The research focuses on these aspects, guided by the availability of data.
• This research focuses on the households in the rural areas in Vietnam
• Microcredit used for analysis is defined as collateral-free and small loan (less than 100 million VND) granted by the formal credit providers
• This research focuses on the microcredit used for production or doing business, thus it can capture long-run and sustainable impact of microcredit on welfare
• Welfare indicators used for analysis include total output value, revenue, income, consumption, accumulation of assets, and non-working-age labor
• Two types of health shocks are used for analysis, including illness/ disease/ injury of any members and working-age members.
Research data
Secondary data This research applies two datasets for quantitative analysis, including Vietnam Household Living Standards Survey (VHLSS) in 2010 and
2012, and Vietnam Access to Resources Household Survey (VARHS) in 2012 and
2014 VARHS is applied for the first three objectives while VHLSS for the fourth objective VARHS and VHLSS are complementary sources of information
Primary data collection involved conducting in-depth interviews and focus groups in the rural areas of Tra Vinh and Long An provinces This approach aimed to enhance the findings from the econometric model and inform policy implications.
Research methods
This research utilizes various methodologies to address specific research objectives A Probit model with panel data is employed to analyze the determinants of accessibility to microcredit (Research objective 1) To investigate the impact of microcredit on farmers' decisions regarding the adoption of improved rice varieties, Double-Hurdle (DH), Tobit, and Heckman models with cross-sectional data are applied (Research objective 2) Impact evaluation techniques, including Difference in Difference (DID) and PSM-DID with panel data, are used to assess the effects of microcredit on living standards (Research objective 3) Finally, a regression with Village-Fixed-Effect (VFE) using panel data is utilized to examine the role of microcredit in alleviating the effects of health shocks (Research objective 4).
According to Merriam (1998), Bogdan and Biklen (1992), and Creswell
Qualitative research, as outlined in 2003, utilizes methods such as observation and in-depth interviews—conducted face-to-face, via focus groups, or over the phone—as well as media like photos and recordings This study specifically employs in-depth interviews and focus groups to gain a deeper understanding of the issues surrounding microcredit programs The research focuses on various subjects, including borrowers from microcredit provided by VBSP, village officials, staff from the Women Union and Farmer Union in select communes, and specialists in rural finance.
Contribution of the research
The dissertation is an empirical work, which mainly uses applied econometrics and models from previous studies to testify for the case of Vietnam
However, the dissertation still makes some contributions to literature, including:
This dissertation enhances an analytical framework that explores how microcredit influences farmers' decisions regarding the adoption of improved rice varieties and other investment options It further examines the subsequent effects on household welfare and the potential to alleviate the negative impacts of health shocks.
• The dissertation modifies and test empirical models of the determinants of accessibility to microcredit
• The dissertation also makes contributions on literature about the effects of microcredit on farmers’ decision on whether to adopt and how much to adopt improved rice varieties
This dissertation explores how microcredit can alleviate the impact of health shocks on intra-household labor mobility, significantly contributing to the existing literature in this area.
To achieve robust results for each research objective, various applied econometric methods are utilized Additionally, the dissertation segments the research sample into distinct groups for deeper analysis, ensuring a comprehensive understanding of the findings.
• Finally, the dissertation contributes to the academic aspect regarding policy analysis methods using IV 2SLS and PSM-DID
Poverty alleviation, quality education, gender equality, and health are key priorities in the Sustainable Development Goals (SDGs) Microcredit serves as a powerful instrument for enhancing household well-being.
The dissertation serves as crucial evidence for local authorities, policy-makers, and practitioners to comprehend the impact of microcredit on enhancing investment and improving the living standards of rural households This understanding will enable them to implement and promote similar programs that effectively support these communities.
• Moreover, the dissertation provides policy implications toward improving households’ accessibility to microcredit to increase the outreach of microcredit, especially to the poor or the disadvantaged
To enhance the effectiveness of microcredit programs, it is essential to consider additional supporting policies that, while not directly linked to microcredit, play a significant role in their success.
The dissertation's empirical findings will highlight significant policy implications for microcredit programs, applicable not only in Vietnam but also across other emerging, transition, and low- to middle-income economies.
Organization of the research
The structure of this dissertation is organized as follows:
Chapter 1: This chapter introduces research problems, research methodology, research questions and objectives, and contributions of the research
Chapter 2: This chapter presents literature review, including theoretical and empirical studies associated with to four research objectives, including:
Determinants of accessibility to microcredit, (2) Microcredit and adoption of improved rice varieties, (3) Impact evaluation of microcredit on welfare, and (4) Role of microcredit in mitigating the effects of health shocks
Chapter 3: This chapter describes some overviews of microcredit and rural financial market in the world and Vietnam
Chapter 4: This chapter presents the contents related to the first research objective (Determinants of Accessibility to Microcredit), including method, data, results and discussions
Chapter 5: This chapter presents the contents related to the second research objective (Microcredit and Adoption of Improved Rice Varieties), including method, data, results and discussions
Chapter 6: This chapter presents the contents related to the third research objective (Impact Evaluation of Microcredit on Welfare), including method, data, results and discussions
Chapter 7: This chapter presents the contents related to the third research objective (Role of Microcredit in Mitigating the Effects of Health Shocks), including method, data, results and discussions
Chapter 8: This chapter summarizes main findings in the research, gives policy implication, mentions limitations and further research tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg
LITERATURE REVIEW
Overview of microcredit
Microfinance serves as a powerful instrument in the battle against poverty and hunger It was pioneered by the Grameen Bank, established and led by Prof Muhammad Yunus, who was awarded the Nobel Peace Prize in 2006 for his contributions.
Microfinance, as defined by ADB (2000), encompasses a wide array of financial services, including deposits, loans, payment services, money transfers, and insurance, aimed at supporting poor and low-income households and their microenterprises These services are offered through three main sources: the formal sector, which includes banks and cooperatives; the semi-formal sector, represented by non-government organizations; and the informal sector, comprising money lenders, friends, relatives, and shopkeepers Consequently, institutional microfinance refers specifically to the microfinance services provided by the formal and semi-formal sectors.
Morduch (1999): “Microfinance is defined as the provision of small-scale financial services for the poor”
Micro-finance, as defined by Dasgupta and Rao (2003), refers to financial services offered in small amounts by financial institutions to assist the poor These services encompass a range of options, including credit, savings, insurance, leasing, and money transfers, all designed to address the financial needs of clients.
The Microcredit Summit in 1997 defined microcredit as a program that provides small loans to impoverished individuals for self-employment initiatives, enabling them to generate income and support themselves and their families.
Ault and Spicer (2008): “microcredit is a model of lending that give small loans to the poor who lack access to formal financial institutions”
Dash (2012): “Microcredit symbolizes small loans extended to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families”
Literature document that microcredit may include the following attributes:
(1) Small loan size The term “small loan" may vary in each country In
Vietnam, amount of formal microcredit ranges from less than 10 up to 100 million VND (Khoi et al, 2013; Thanh, 2017; Thanh & Dung, 2017)
(2) Targeting the poor Microcredit targets the poor and low-income households (Morduch, 1999; Du, 2004; Dasgupta & Rao, 2003)
Microcredit offers a significant advantage by eliminating the need for collateral, which is typically required by formal lenders to mitigate default risk This absence of collateral allows individuals with limited assets, particularly those in poverty, to access credit more easily As a result, microcredit enhances financial inclusion for the poor, enabling them to secure funding that would otherwise be unavailable to them (Li et al., 2011a; Thanh, 2017).
(4) For investment purpose Borrowers may use microcredit to invest in either farm or on-farm activities (Khandker & Koolwal, 2016)
(2) High interest rate The rate may vary from 15 to 35 percent per year
Li et al (2011a) highlight that rural households in China favor microcredit over other forms of credit due to its lower interest rates.
The group-lending scheme operates without collateral requirements, where members of a credit group monitor each other's repayment responsibilities If one member defaults, it can hinder the others' ability to secure future loans This approach is viewed as a form of "social collateral," allowing lenders to mitigate default risks and lower transaction costs (Anderson & Nina, 2000; Besley & Coate, 1995).
(7) Targeting women Around 74 percent of all microcredit borrowers in the world are women (Cheston & Kuhn, 2002) Thenceforth, it indicates that microcredit programs mostly target female clients
This research defines microcredit as small loans, specifically less than 100 million dong, sourced from formal institutions, aimed primarily at production or self-employment Additionally, for the final research objective, the scope of microcredit is broadened to include consumption purposes.
Theory
Credit markets serve as intermediaries between savers and borrowers, facing challenges related to risk and information Unlike goods and services markets, credit markets have unique characteristics that influence their functioning (Hoff and Stiglitz, 1990, 1997).
Similar to credit market in general, rural credit markets are normally imperfect and more so in the less developing countries (LDCs) Some plausible explanations are:
In financial transactions, the processes of 'buying' (borrowing) and 'paying up' (repayment) occur at different times, with 'buying' typically happening first and repayment following later, often after the investment cycle This is particularly evident in agricultural production, where farmers invest resources today to reap the benefits in the future.
Lenders often face challenges in monitoring borrowers' use of loans, which can lead to risky investments or misallocation of funds This lack of oversight increases the risk of default, as borrowers may struggle to repay loans due to unpredictable factors such as agricultural production fluctuations, business losses, or job insecurity.
In some cases, if borrower feels better off not returning the loan, he will not
Weak contract enforcement and the high costs of legal action contribute to the issue of borrowers' willingness to repay loans Additionally, limited borrower liability means that when defaults occur, credit officers may also bear some of the responsibility.
In developing countries, the prevalence of informal credit providers is largely attributed to imperfect information, limited monitoring capabilities, and the risk of default The informal sector often demonstrates more effective enforcement mechanisms and superior information and monitoring practices, making it a viable alternative for borrowers.
In rural credit market, lenders seem to be more careful than borrowers
Lenders, particularly informal ones, employ both direct and indirect screening mechanisms to mitigate issues related to incentives and enforcement To combat adverse selection and moral hazard, they typically assess and monitor borrowers, require collateral, or threaten to reduce future loan amounts.
Borrowers exhibit varying probabilities of default, making it expensive to accurately assess the risk level for each individual This challenge is commonly referred to as screening, where lenders evaluate borrowers based on the information at hand.
• It is costly to make sure that borrowers take actions which make higher probability of repayment This is called incentives problem
• It is difficult to make repayment compulsory This problem is known as enforcement
The rural credit market in developing countries is marked by significant variations in interest rates, with annual rates typically exceeding those found in developed nations Additionally, the informal sector tends to impose higher interest rates compared to the formal sector, as highlighted in the study by Siamwalla et al (1990) on rural credit markets.
Thailand, found informal sector annual interest rate to be 60% whereas formal sector rate ranged from 12-14% This may be explained partly by monopoly
Informal credit providers often employ price discrimination strategies, allowing them to charge varying interest rates to different borrowers This practice is influenced by natural entry barriers that create monopoly power, which is evident through transaction costs However, the monopoly power of informal lenders is limited due to competition from the formal sector, such as public banks, and the emergence of semi-formal sectors.
Borrowers can borrow only up to a limited amount at a given interest rate, and will not be granted a greater amount even if they are willing to pay higher rate
The poor normally face difficulties in borrowing at any interest rate This indicates that credit market does not follow standard demand-supply equilibrium
In the credit market, demand for credit arises from three primary sources: fixed capital for new startups or production expansion, working capital for ongoing production due to the time lag between inputs and outputs, and consumption credit for smoothing consumption Among these, fixed capital is crucial for overall economic growth, while working capital and consumption credit play significant roles for the agricultural population.
Accessing formal credit is a significant challenge for low-income individuals, primarily due to a lack of collateral, imperfect information with lenders, and high transaction costs Additionally, lending to the poor carries higher risks, as unexpected events like health issues or natural disasters can jeopardize their financial stability Consequently, it is crucial to consider whether the poor should be excluded from the rural formal and semi-formal credit markets The answer is no, as doing so would lead to inefficiencies in capital allocation.
In a perfect market, credit allocation is based on the marginal return of capital rather than wealth, leading poorer individuals to accept higher interest rates to attract lenders However, in an imperfect market, issues such as moral hazard and adverse selection arise, making it challenging for formal lenders, like banks and financial institutions, to ensure that borrowers will utilize loans appropriately or repay them, especially since loans to the poor are often collateral-free.
Therefore, the formal lenders will tend to charge high interest rates, which may drive good borrower out of the rural credit market, especially formal sector
When excluded from formal credit systems, the poor often turn to informal borrowing sources such as friends, family, moneylenders, employers, and rotating savings and credit associations (ROSCAs) Between the 1950s and 1980s, many developing countries established rural state-owned banks to support poor farmers, but these efforts were undermined by heavy subsidies, political interests, and corruption, which diverted loans away from those in need As a result, microfinance has emerged as a viable solution to address credit constraints faced by the rural poor.
The rural credit market is crucial for agricultural production and rural development in developing countries It often experiences a disequilibrium characterized by excess demand, limiting access to formal credit sources for many households However, the shortage of credit is not solely due to high demand; it is also influenced by asymmetric information.
Asymmetric information occurs when one party has superior information compared to another, potentially leading to adverse selection and moral hazard This theory, initially proposed by Akerlof in 1970 and further developed by Spence and Stiglitz, is widely applicable across various fields In the context of the credit market, asymmetric information arises from the disparity in knowledge between lenders and borrowers, impacting their interactions and decisions.
Empirical studies
Since four specific objectives are included in this research, this section, in succession, will present empirical studies relevant to those four objectives
2.3.1 Determinants of rural households’ accessibility to microcredit
The sequential lending process begins with households seeking credit, followed by lenders determining the amount of credit to be granted (Zeller, 1994; Li et al., 2011a; Khoi et al., 2013) This framework aids empirical research by allowing for the estimation of models Zeller (1994) also notes that borrowers and lenders may make decisions simultaneously, indicating that the lending process can occur at various stages.
The demand for microcredit is influenced by various factors, including the attributes of credit, characteristics of household heads (such as age, education, and marital status), household conditions (like labor, land, poverty status, and assets), communal infrastructure, and the procedures and interest rates of financial institutions Accessibility to credit is viewed as a sequential decision-making process that begins on the demand side, as outlined by Zeller (1994) This framework serves as a standard for analyzing credit accessibility While numerous empirical studies have explored the determinants of credit accessibility, including microcredit, their findings have yielded mixed results.
Research indicates that higher education levels can enhance households' access to microcredit programs, as noted by Quach and Mullineux (2007), Barslund and Tarp (2008), Li et al (2011a), and Revindo and Gan (2017) Educated households often possess greater skills and knowledge, leading to increased exposure to risk and a higher demand for credit Conversely, Khandker (2001, 2005) and Nguyen (2007) argue that when the household head has a higher education level, the likelihood of participating in microcredit programs decreases, as these households may be more affluent and thus less reliant on microcredit.
The age of the household head significantly influences borrowing behavior, with older heads being less inclined to utilize formal credit programs due to increased risk aversion (Anjugam & Ramasamy, 2007) Conversely, Doan (2010) suggests that age may positively impact access to credit, indicating a complex relationship between age and credit demand.
Meanwhile, Barslund and Tarp (2008) find no effect of age on accessing credit
Marital Status Accessibility to credit, including microcredit, is found to be higher for the case of married individuals and vice versa (Doan, 2010; Khoi et al.,
2013) Single individuals are normally considered as disadvantaged group with less social networks, which thereby are less likely to borrow from formal credit
Research indicates a significant gender disparity in microcredit borrowing, with Banerjee et al (2010) and Khoi et al (2013) highlighting a higher proportion of male borrowers in rural areas, where men typically serve as household heads and primary decision-makers This social dynamic often grants men greater access to credit, while women remain less empowered Conversely, Salgado and Aire (2018) report that female borrowers can secure more credit than their male counterparts Additionally, Barslund and Tarp (2008) found that women in Vietnam are more likely to access microcredit, as some credit programs specifically aim to empower women, making them the target clients.
Social capital plays a crucial role in enhancing access to credit sources, particularly in developing countries, as highlighted by Fafchamps (2000), Okten and Osili (2004), and Udry (1994) It can lower monitoring and enforcement costs for lenders, thereby improving credit accessibility (Okten & Osili, 2004) However, there is a notable gap in research regarding the impact of social capital on microcredit accessibility in Vietnam.
Research indicates a complex relationship between household size and access to credit programs Schreiner and Nagarajan (1998) and Ho (2004) highlight that larger households are more likely to access credit, including microcredit, a finding supported by Doan (2010) and Nguyen (2007) in Vietnam Conversely, Li et al (2011a) and Revindo and Gan (2017) suggest that larger households may face challenges in accessing microcredit While a greater number of household members can increase labor availability and credit demand, it may also lead to a higher dependency ratio, which can hinder credit accessibility.
The dependency ratio plays a significant role in microcredit accessibility Husain (1998) indicates that households with a higher dependency ratio are less likely to access microcredit due to reduced repayment capacity Conversely, Li et al (2011a) suggest that a higher dependency ratio can positively influence participation in microcredit programs In Vietnam, Duong and Izumida (2002) confirm that households with more dependents have greater borrowing opportunities This suggests that a higher dependency ratio may reflect lower potential income per capita, which could enhance access to microcredit as these households are often viewed as target clients.
Research by Becker (1971), Yinger (1998), and Fafchamps (2000) indicates that major ethnic groups enjoy greater access to credit programs, including microcredit Consequently, it can be inferred that Kinh households in Vietnam are likely to have better borrowing opportunities from microcredit sources.
Khoi et al (2013) conducted research in Vietnam revealing that non-Kinh minority ethnic groups have a higher likelihood of accessing microcredit programs, as they are specifically targeted as clients of these initiatives.
Land is a valuable asset for securing loans in financial transactions, particularly with formal credit sources like banks Consequently, households without land often face challenges in accessing these financial resources.
Research by Quach and Mullineux (2007), Nguyen (2007), and Duong and Izumida (2002) indicates that households with larger landholdings are more likely to engage in credit programs, including microcredit Conversely, findings from Khandker (2001, 2005) reveal that larger landholders tend to have lower access to microcredit programs.
Savings Khoi et al (2013), Quach and Mullineux (2007), and Fenwick and
According to Lyne (1998), savings, whether financial or non-financial, negatively impact access to credit, including microcredit This is likely because households with higher savings typically have a lower demand for credit, which in turn diminishes their accessibility to it.
Location and geographic factors play a crucial role in microcredit accessibility Research by Barslund and Tarp (2008) indicates that the distance from a household to the district center does not significantly impact access to microcredit Additionally, studies by Sharma and Zeller (1999) and Duong and Izumida further explore these dynamics.
Geographic location significantly impacts rural households' access to credit, as highlighted by (2002) Factors such as the type of terrain (mountainous or plain) and proximity to markets and all-weather roads play a crucial role Households in remote areas often face challenges in accessing microcredit due to limited information and transportation There are two key arguments regarding location: first, households in disadvantaged regions typically experience higher poverty levels, increasing their demand for credit and making them prime targets for microcredit programs This enhances their likelihood of securing loans Conversely, these households may also be more risk-averse, leading to reduced credit demand due to concerns over potential costs associated with borrowing Additionally, credit providers may face transaction costs that influence their lending decisions.
Distance to banks or financial institutions Ho (2004), Vaeseen (2000),
Definitions of welfare
Empirical studies on the economic impacts of microcredit reveal a wide range of indicators for measuring welfare For detailed definitions and measurements of welfare variables, refer to Table 2.1 and Appendix 2.4.
Income, revenue, net production output, sales, profit (total & sub-sector)
- Imai et al (2010); Mahjabeen (2008); Li et al (2011);
Takahashi et al (2010); Khandker & Koolwal (2016)
- Nguyen (2008); Lensink & Pham (2012); Phan et al
(2014); Ho & Duc (2015); Thanh (2017; Quach (2017) Saving Coleman (2006); Mahjabeen (2008)
Consumption expenditures (total & sub-groups)
Coleman (2006); Takahashi et al (2010); Li et al (2011)
- Nguyen (2008); Lensink & Pham (2012); Phan et al
Assets (land and non-land)
Coleman (2006); Mahjabeen (2008) Food security Imai et al (2010)
Income inequality Mahjabeen (2008) Poverty reduction - Takahashi et al (2010);
- Nguyen (2008) tot nghiep down load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg
Logical framework of impact evaluation of microcredit on welfare
The main goal of this research is to analyze how microcredit affects the welfare of rural households Understanding the impact mechanism of microcredit programs is crucial To achieve this, an analytical framework based on established impact evaluation methods is proposed This framework is visually represented in Figure 2.4, which outlines the logical structures for assessing household welfare Based on this framework, four specific objectives are pursued, with Figure 2.5 providing a detailed overview of the analytical approach utilized in the study.
The first research objective focuses on assessing households' accessibility to microcredit, particularly for target clients like the poor and women It explores how accessibility is initiated from the demand side, leading to decisions made by microfinance institutions regarding loan approvals The findings from this objective will provide estimated results that can be utilized to calculate propensity scores, enabling the matching of borrowers with similar non-borrowers to evaluate the program's impact in the third research objective.
The second research objective focuses on the outcomes of microcredit, which can be utilized for both farm and off-farm activities Understanding the livelihood strategies that rural households employ with microcredit is crucial before assessing its economic impact on financial outcomes This objective specifically investigates whether households allocate microcredit towards production or self-employment, with a particular emphasis on the investment in improved rice varieties.
This research objective focuses on examining the impact of microcredit on the welfare of rural households It aims to determine whether the use of microcredit for investments in agriculture or self-employment leads to improvements in various welfare outcomes, including income, consumption, and asset accumulation.
This research objective aims to explore the impact of microcredit on alleviating the effects of health shocks Specifically, it examines how microcredit can enhance income and consumption, improve access to healthcare, and reduce the mobility of non-working-age individuals in households experiencing health crises.
Figure 2.4 - Logical framework on impact evaluation of credit on welfare
Source: Built on Banerjee et al (2009),DFID (2011), and Khandker et al (2010)
Bank/ Financial Institutions investment more in rural financial market.
Households, especially the poor, receive loans.
Households invest in on-farm, or off-farm activities
Households can escape poverty, improve accessibility to better education or health care, higher social status, or empower women.
Bank/ Financial Institutions implement various credit programs for the poor.
Rural households often encounter financial limitations, making access to credit essential for their production and business activities.
Figure 2.5 – Analytical framework on accessibility to microcredit and its impact on welfare
Short-term decision, Long-term impact
Im pact o n Con sum pt io n Lo wer Welfare