Financial assistance to the poor people in hochiminh city

Next, the thesis gets to know factors affecting credit participation and credit constraints for the poor in the urban areas and investigates whether credit participation impacts the po

_

A Thesis Presented to

The Faculty of the Graduate School

Tarlac State University

Tarlac City

_

In Partial Fulfillment

of the Requirement for the Degree

Doctor of Philosophy in Business Administration

Major in Business Administration

by

PHAM DUC TRUNG

March 2013

© 2013

PHAM DUC TRUNG

ALL RIGHTS RESERVED

GRADUATE SCHOOL

Tarlac City Awarded Level II (Accreditation Status by the Accrediting Agency of Chartered Colleges and Universities of the

Philippines (AACCUP), Inc

Tel.No.(045)982-2464,Local 232; Facsimile 982-0110;

E-Mail stu@mozcom.com.ph

APPROVAL SHEET

This Dissertation of PHAM DUC TRUNG entitled “Financial Assistance To

Poor People in Ho Chi Minh City,” which is prepared and submitted in partial

fulfillment of the requirements for the Degree of Doctor of Philosophy in Business

Administration, Major in Business Administrationt, is hereby accepted

Accepted and approved in partial fulfillment of the requirements for the Degree

of Doctor of Philosophy in Business Administration, Major in Business Administration

GABRIEL S TABION, DPA

Dean, Graduate School

Date:

Acknowledgements

First of all, I would like to thank all professor of Faculty of Economics in Tarlac

State University at Hong Kong and Tarlac State University in Philippine where I had a

change to complete the Ph.D course

I thank to Dissertation supervisor Pro Dr.Charles H Cranford who led and

supported me to achieve this thesis during the Ph.D course

On the other hand, I thank to all my colleague and all my best friends that they

introduced me to some district, ward government officer in Binh Chanh District , District

12 ,District 3 and Go Vap District and some officers of Department of Labor, Invalids

and Social Affairs where I completed the survey

Beside, I would like to thank to all people who helped me some money and labor

and then, they supported and encouraged enthusiasm to complete this thesis as soon as

ABSTRACT

Although Viet Nam is a developing country, there are still a lot of poor

households in big cities, such as Ho Chi Minh City So we must have many solutions to

help the poor out of poverty One of the typical solutions to improve the poor household

capital is to provide access to credit resources, however, there are many barriers blocking

the poor people access to credit Therefore, this thesis will begin the importance of credit

during the economic transition in Vietnam Next, the thesis gets to know factors affecting

credit participation and credit constraints for the poor in the urban areas and investigates

whether credit participation impacts the poor education and healthcare spending and

benefits others

Besides, this thesis uses five large datasets of Vietnam Household Living

Standard Surveys issued in 1998, 2002, 2004, 2006 and 2008 by Vietnam General

Statistics Office to find the rate of the poor people in Ho Chi Minh City ,Vietnam over

the period of 1998 – 2008 The thesis finds that the rate of the poor household had

increased quickly during the recent economic reform and reached around 8-10 percent

and the thesis help us to know an increasing importance of education in earnings during

the later part of the economic transition in Vietnam So, human capital investment,

including healthcare and education, really need to help the poor escape poverty since they

rely heavily upon labor income, especially in urban and peri-urban areas

urban areas of Ho Chi Minh City, Vietnam in 2008 to investigate how the poor use their

loans and factors affecting their credit participation and credit constraints Then, the

thesis finds the presence of many commercial banks in the areas do not help the poor,

who rely heavily on informal credit Loans in the urban areas are mainly used for

non-productive purposes, which stressed the importance of consumption smoothing motives

Furthermore, households in more peri-urban wards had a higher probability of borrowing

than more urban households, thanks to better community relationships and interpersonal

trust Competition by borrowing neighbors adversely affected the opportunity for

borrowing in urban wards where the poor households ‘borrowing rely more on subsidized

credit funds A clearly look at specified micro-credit sources indicated that the household

behavior is different in each market segment Further, the poor are highly

credit-constrained Wealthier households, in terms of asset holdings and phone possession,

appeared less credit-constrained However, except in the most peri-urban part of the study

area, the likelihood of credit constraints have increased with distance to the nearest banks,

which suggested that supply-side intervention, can help in overcoming credit constraints

Overall, the poor people in urban and peri-urban wards were more credit-constrained

because of exclusion by commercial banks and weak interpersonal trust

Given that a sizeable fraction of the poor people had participated in credit

activities, there was a debate about whether micro-credit had positive impacts on

education and health for borrowing households

TABLE OF CONTENTS

Page

Approval Sheet i

Acknowledgement ii

Abstract iii

Table of Contents v

List of Tables vi

List of Figures vii

CHAPTER

I THE PROBLEM AND ITS BACKGROUND Introduction 1

Objectives of the Study 4

Statement of the Problem 5

Statement of Hypothesis 10

Importance of the Study 11

Scope and Delimitation of the Study 16

II REVIEW OF RELATED LITERATURE AND STUDIES Review of Related Literature 17

Review of Related Studies 18

Conceptual Framework 38

III METHODS OF STUDY AND SOURCES OF DATA Introduction 39

Research Design 44

Description of sampling 45

Population of the Study 45

Sampling Design 47

Methods of Gathering Data 48

Statistical Treatment 49

IV PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA Description of the income data 57

Factors impact on the poor household 66

IV SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

Results and Summary of finding 100

Limitation of the study 103

Recommendations for future study 104

Conclusions 106

BIBLIOGRAPHY 109

APPENDICES 114 CURRICULUM VITAE

LIST OF TABLES

Table 3.1: The list of the surveyed areas at Ho Chi Minh City 50

Table 3.2: Purpose of Loans of the poor households 52

Table 3.3: The commodity summary of the price movement effects on 53

Table 3.4: Total of consumption expenditure of the population group 54

Table 4.1: Yearly GDP per capita over years 59

Table 4.2: Monthly income per capita by (urban, rural, region, sex of household head) income quintile 60

Table 4.3: Monthly average income per capita by (urban, rural , region, sex of household head )income quintile in Ho Chi Minh City(HCMC) 61

Table 4.4: Monthly average consumption expenditure per capita 62

Table 4.5: Monthly structure of average consumption expenditure per capita 62

Table 4.6: The relationship between the poor standard and monthly consumption expenditure in Ho Chi Minh city 64

Table 4.7: Age group of the household members by region and by income 68

Table 4.8: Age group of the household members by sex and by income 70

Table 4.9: Educational level of the household members 72

Table 4.10: Proffesional Level of the household members 73

Table 4.11: Employment changing status in the last 5 years by gender 73

Table 4.12: The rate of employment change by gender and households 74

Table 4.13: Working changing status before and after 75

Table 4.14: Employment status by gender and age 76

Table 4.15: The employment changing situation of the poor 77

Table 4.16: Work position before and after changing ……… 78

Table 4.17: The situation of workplace changed by gender and age group 79

Table 4.18: Educational level of the workplace changing people 80

Table 4.19: The situation of extra employment by sex and age group 82

Table 4.20: The income status of main employment by economic 83

Table 4.21: The income status of extra employment by economic 85

Table 4.22: Income status from other sources according to economic 86

Table 4.23: Total income of households by economic status 86

Table 4.24: Comparison of the average expenditure level of the poor households and the average expenditure level of whole Ho Chi Minh City 88

Table 4.25: Comparison of the expenditure level of the poor households by income groups and the general expenditure of whole Ho Chi Minh City 90

Table 4.26: Increased price affect on expenditure of native poor household group by ranking priority of expenditure scale ( RPES) 92

Table 4.27: The expenditure level of native poor household group by ranking priority of expenditure scale (RPES) 93

Table 4.28: Increased price affect on expenditure of the immigrant worker group by ranking priority of expenditure scale (RPES) 94

worker group by ranking priority of expenditure scale ( RPES) 95 Table 4.30: Increased price effect on expenditure of the native free labor

group by ranking priority of expenditure scale (RPES) 96 Table 4.31: Increased rice affect spending by retired civil officer group by

ranking priority of expenditure scale (RPES) 97 Table 4.32: Increased price effect on the group of workers and employees

with an average income by ranking priority of expenditure scale (RPES) 98

Book: Statistical Yearbook of Ho Chi Minh City

Bouman, F (1989) Small, short and unsecured: Informal rural finance in India

Delhi: Oxford University Press

Helms, B (2006) Access for All: Building Inclusive Financial systems

Washington: The World Bank

GSO (2010) Population and housing census, 1 April 2009 (Complete Report and

Major Findings, General Statistical Office) Hanoi, Vietnam

IFC (2006).Vietnam financial sector diagnostic World Bank group,

International Financial Corporatio

IMF (2010) World Economic Outlook Database Retrieved from

http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weoselser.aspx?a

=&c=582&t=1

Kim, A (2004) A market without the „right property rights Economics of

Transition, 12(2), 275-305

Ledgerwood, J (1999) Microfinance handbook Washington: The World Bank

Nhu Trang (2005, April 11) Should not extend the program 135 VnExpress

Retrieved from http://VnExpress.net/Vietnam/xa-hoi/2005/04/3B9DD288/

Retrieved from the Microcredit Summit Campaign website:

http://microcreditsummit.org/pubs/reports/socr/2004/SOCR04.pdf

Microcredit Summit (2007) State of the Microcredit Summit Campaign Reports

Retrieved from the Microcredit Summit Campaign website:

http://microcreditsummit.org/pubs/reports/socr/EngSOCR2007.pdf

Microcredit Summit (2009) State of the Microcredit Summit Campaign Reports

Retrieved from the Microcredit Summit Campaign website:

Morduch, J (2000) The microfinance schism World Development

Pitt, M., & Khandker, S (1998) The impact of group-based credit programs on

poor households in bangladesh: does the gender of participants matter?

Journal of Political Economy, 106(5), 958-992

Pitt, M., Khandker, S., Chowdhury, O., & Millimet, D (2003) Credit programs

for the poor and the health status of children in rural Bangladesh

International Economic Review, 44(1), 87-118

Rutherford, S (1999) The poor and their money: An essay about financial

Development Policy and Management

Source: data from HCMC Statistical Office

In HCMC public bus price has increased from 3,000 thousands VND / trip to

4,000 thousands VND / trip from 1/2011

The discussion of the workers and employees group with an average income at

the surveyed area dated of May 01/2011

The group of civil and public servants with a coefficient of 3.0 or lower basic

wages (the wages from 2.19 millions per month or less, based on basic salary is

applied 01/05/2011 730,000 VND / month and after that is dated of May

01/2012 1.050.000VND millions per month)

The discussion of retired public servant group personnel in the surveyed areas,

The discussion of native freelance labor in the surveyed areas, May

www.hids.hochiminhcity.gov.vn/c/document /get_file?uuid ’co so khoa hoc va

thuc tien xac dinh chuan ngheo o tphcm’

www.oxfamblogs.org/vietnam/about/

www.vanbanphapluat.com / list-category-van-the-legal-luat.html?

VBSP, (Vietnam Bank for Social Policies), Annual Report of VBSP

http://www.vbsp.org.vn/Icon_BCTN/36.gif

VDR, (1997-2009), Vietnam Development Report( data from HCMC Statistical Office

show that population growth rates are 2.7% and 82% for urban districts and peri-

urban districts over the last 12 years (1997-2009), respectively)

http://www.pso.hochiminhcity.gov.vn/so_lieu_ktxh/2000/Dan_so_va_lao_dong/0

203.htm/view, and

http://www.pso.hochiminhcity.gov.vn/so_lieu_ktxh/2009/Dan_so_va_lao_dong/0

www.hids.hochiminhcity.gov vn/c/document /get_file?uuid…

www.vanbanphapluat.com /list-category-van-the-legal-luat.html?

VDR (2004) Vietnam Development Report 2004 (Joint Donor Report to the

Vietnam consultative Group Meeting in December 2003) Hanoi, Vietnam

VDR (2010) Vietnam Development Report 2010: Modern Institutions (Joint

Donor Report to the Vietnam Consultative Group Meeting, Hanoi,

December 3-4, 2009) Hanoi, Vietnam

VHLSS(1993,2002,2004,2006,2008 and 2010).Vietnam Household Living Standard

APPENDIX

HOUSEHOLD QUESTIONNAIRE

This questionnaire is designed to investigate household’ needs and attitudes:

PART A PERSONAL INFORMATION

Household head (name): ……….……… ………

Gender (Male/Female): ………

Number of people in the household … ………

Permanent residential address………

Current living address………

Cell phone number……… home telephone: ………

number………

Email………

PART B QUESTIONNAIRE LIST OF HOUSEHOLD MEMBERS 1 How old are you? <15 age 16-25 age > 60 age 26-35 age 36-45 age 46 - 60 age 2.What do you have relationship to head of household? Wife / husband child parents

Sister / brother grandmother/grandfather other relationship 3 What is your marital status?( interview people from 15 ages and over) Single Married

Divorced Widowed 4 What is your job? Worker street vendor small trader unemployment Retired housewife government officer other

EDUCATION

5 What is your highest education level? No grade below high school High school

Technical worker Vocational school Junior College University Postgraduate Other

6 What type of school have you learnt in last 12 months?

Public semi-public private

7 How much expenditure for courses do you pay?

Public semi-public private

HEALTH Please tell us some information on your household’s health care

8 Has any of member of your household gone to the health care centre and/or hospital in the recent months,?

Yes No

9 Which health facility have you used?

Ward health center District hospital

Government hospital Private health facility

10 How much expenditure did your household buy medicine for self treatment in a year?

<0.5 millions: 0.5 millions: >0.5 millions: Others:

EMPLOYMENT INFORMATION

11 How long have you worked at current job (seniority)?

< 1 year permanent

1-3 years other

12 What position do you have below in your company?

Manager Supervisor labor

13 How many year did you have the working experiences in your company?

>0.5 millions Others

23 How much total expense do you pay every month?

1.5-2 millions 0.5 - 1 millions

>0.5 millions Others

24 How much living expenses do you pay every month?

<o.5 millions 0.5 millions

>0.5 millions Others

25 How much house rental expenses do you pay every month?

<o.5 millions 0.5 millions

>0.5 millions Others

26 How much other expense do you pay every month?

<o.5 millions 0.5 millions

HOUSEHOLD CREDIT SURVEY

A Please tell us some information about your household credit

30 Do you have an account in the bank, in the last year?

Yes: No:

31 Have your household members demanded to borrow, in the last year?

Yes: No:

32 Have your household members borrowed from friends, relative, banks, credit fund…

in the last year?

Yes: No:

33 Was the demand satisfied?

Yes: No:

34 What are the sources of your loan in the last year?

People Credit Funds

Fund for poor people

Social Policy Bank

Bank for agriculture and rural development

Commercial Bank

Socio - polical Organizations

35 How much is total value of your household’s loans?

VND: Others:

36 What is your purpose of the loans?

School fee health care consumption

Business small production House purchase Debit repayment land purchase building/maintenance Wedding Others

B Please tell us some information about local infractructure and social service of the ward

37 How many commercial centers and supermarkets are there in this ward?

CONSUMPTION FOR FOOD AND DRINKS

47 Did any members of your household eat or drink any food and drink below? Rice Vegetables

Noodles/rice noodle Sugars, milk and milk products

Meat, meat products, fish Coffee, tea, cigarettes

Beverages/alcohol/beer Others

48 How much does it cost to buy some food to your household?

VND: Others:

CONSUMPTION FOR NON-FOOD

49 Did any members of your household buy any non-food below?

Fuel Gas Coal, Wood

Gasoline, lubricant for motorbike other expenses

HOUSING AND ASSETS

51 Which do you have type of transportation below?

Bicycle Motorbike

Public transportation other

52 Do you have the house?

Yes: No:

53 Do you live at permanent residential address?

Yes: No:

54 How many houses do your family own?

One two others:

55 How long has your household lived there?

1-3 years: 3-5 years: 5-10 years:

59 How many do you pay for rent?

SERVICES AND OTHERS

60 Do you use cell-phone?

Yes: No:

61 Does your household use internet?

62 Are there any TVs in your household?

Yes: No:

63 Do you think inflation affect the Vietnamese economy?

I strongly disagree I disagree

I disagree I strongly agree

I somewhat agree

CURRICULUM VITAE

Address: 62/10 Tran Mai Ninh Street, Ward 12, Tan Binh District , Ho Chi Minh City Home phone number: (084) - 62702732 Mobile phone number: 0993194924 Email address: phamductrungdhcn1968@yahoo.com.vn

EDUCATIONS

1991 – 1995: Bachelor of Art in English of Hanoi Foreign Language University, Ha Noi,

Vietnam

1996 – 2000: Bachelor of Finance and Accounting of Trade University, Ha Noi, Vietnam

2007 - 2010: Master Degree of Southern New Hampshire University U.S.A

2008 – 2012: Bachelor of Law of Hue University,Vietnam

EXPERIENCE

May, 2001 – September, 2004: Director of Quint company (Ltd)

From May 1997 – until now: Lecture at :

Vietnam Aviation Academy (VAA) - Lecture

Ho Chi minh University of Industry (HUI) - Head of subject

Ho Chi Minh City University of Natural Resources and Environmen t – Vice Dean of Economic

SKILLS

Microsoft Office skills

Time and Project Management

Team Work skills

Language: English Language

INTERESTS

o Reading book and travelling everywhere

o Observing and analyzing financial and Banking information

REFERENCE

Name: Asso.Pro Phan Thi Cuc Ph.D

Position: Dean of Finance and Banking, Ho Chi Minh City University of Industry

Chapter 1 Introduction

The credit for the poor is one of the important policies of the poor in the

targeted programs to reduce poverty in Viet Nam Viet Nam is a country of

agricultural production, the economy is developing more and more Hence, poverty

reduced target of Viet Nam government is considered a top target to be achieved

According to (Micro-credit Summit, 2004) , mfinance, of which

micro-credit is the main part but also including other micro financial services such as

insurance and savings vehicles, has become a popular approach and a powerful tool in

poverty alleviation strategies in developing countries such as Viet Nam

In Vietnam, micro-credit has continued to be of great importance in providing

credit to the poor and low income households In 2007, there were about 20 million

households in Vietnam, but the number of active microfinance institution clients was

about 7.1 million, of which 4.6 million were from the poorest households

(Micro-credit Summit, 2009)

More, the Vietnam Bank for Social Policies (VBSP), the Job Creation Support

Fund (JCSF), People’s Credit Fund (PCF),Capital Aid Fund For Employment Of The

Poor(CEP) and other political social organizations (e.g Women Union) have typically

provided preferable or subsidized loans All loans from these providers, and from

informal lenders, such as private moneylenders, relatives and friends and other

informal sources, are often small and could be considered micro-credit Taking all the

borrowers of these providers or sources together adds up to more than 65 % of total

borrowing households

Micro-credit, including formal and informal sectors has substantially provided

credit or small loans to the poor and low income households worldwide including

Vietnam

Micro-credit on the poor remain debatable.So, this thesis seeks to empirically

study the impacts of micro-credit on education and healthcare of the poor in Ho Chi

Minh City, Viet Nam

Background Urban population growth in Vietnam and Ho Chi Minh City

Poor is understood simply as shortages, inability to meet necessary for life

such as food, clothing, education, health…at a certain time

Poor express the lack of opportunity to be able to live a life that corresponds

with the standard of minimum The measured of these standards and the causes lead

to poverty depends on locations and times World Health Organization (WHO)

defines that the poverty is low- income Accordingly, a person is the poor if annual

income is less than a half of the average income per capita of the country every year

Poverty in developing countries is increasingly urban, with the poor

urbanizing more quickly than the population as a whole These trends are also

apparent in Vietnam, with the share of urban population rising from 23.7% in 1999 to

29.6% in 2009 In the period 1980-1985 (before the economic reform), migration only

contributed 28% of the urban population growth, but since the reform era immigrants

to urban areas have contributed 50% and 62% of the urban population growth in the

periods 1990-1995 Over the period 1999-2009, 77% of the population growth in

Vietnam is in urban areas The urban population growth rate is 3.4%/year, 8.5 times

as high as that of rural areas (0.4%/year), with this higher growth mainly due to

rural-urban migrations Viet Nam has experienced the highest recent population growth

(3.2%/year) due to the substantial migration to this region The key destination of

immigrants in Viet Nam is Ho Chi Minh City (HCMC) HCMC is not only the largest

city but also the second fastest growing population in Vietnam (3.5%/year) during the

last 10 years Furthurmore, the fact that the fastest growing province of Binh Duong is

adjunct to HCMC makes HCMC is the most dynamic population areas in Vietnam

.The main reason for migration to the region is to seek economic opportunities in

non-agricultural sectors Most migrants to the region arrive in Ho Chi Minh City (HCMC

has many industrial parks and export-processing zones), which is also evident in

Vietnam Poverty sharply declined over the period 1998-2008 from 37.4% to 14.5%

Urban poverty rate has been declining from 9.5% in 1998 to 3.3% in 2008, but the

urban areas have a rising share of poverty, from 5.99% in 1998 to 6.63% in 2008 due

to fast population growth in urban areas during the same period (VHLSS, 2008) The

poverty is becoming more urban in Vietnam, espcially Ho Chi Minh City; so study of

urban poverty is becoming significant for poverty reduction policy in Ho Chi Minh

City, Vietnam

Fast urbanization, employment and poverty in peri-urban and urban areas in

Ho Chi Minh City:

Peri-urban and urban poor people often depend more on wage-paid

employment and cash incomes, but less on agricultural activities to earn because of

the declining arable land due to urban encroachment Further, the higher cost of living

and market reliance could result in a slower pace of poverty reduction in peri-urban

and urban areas Thus, the higher unemployment rate in the areas will result in

unstable livelihoods and imperfect consumption smoothing Moreover, poverty in

urban and peri-urban areas is likely to concentrate on immigrants

Urbanization has reduced agricultural land in HCMC, from 95,799

hectares of arable land for annual crops in 2000 to 44,441 hectare in 2009 (In my

study area District 9, 10, Binh Chanh) agricultural land fell from 5,661 hectares to

332 hectares during the same period This reflects the substantial population growth

rate establishment of new enterprises (from about 400 in 1997 to 1,658 enterprises by

2006), and the construction of HCMC High Tech Park (about 1,000 hectares).As a

consequence of the arable land decline, peri-urban poor in HCMC rely more on

seasonal and unstable jobs such as street vendors, construction workers and unskilled

factory workers This indicates that the poor depend more on labor incomes, thus

adverse shocks which cause loss of working members such as illness, injury,

accidents and death, and limited access to quality social services will lead to unstable

livelihoods So, such approaches as improving human capital (education and health)

and facilitating access to social and financial services are needed to mitigate

vulnerability and effectively eliminate poverty

Objectives of the study

The thesis has some objectives as follow:

The objective enables us to understand the growing importance of credit for

the poor in Ho Chi Minh City, Viet Nam

To define important key factors affecting the probability of credit

participation and credit constraints for the poor in urban areas of Ho Chi Minh City,

Vietnam

To estimate the effects of the poor household credit on education, health care

and consumption expenditure

To examine whether the impacts of household credit on household budget

shares for education and healthcare are heterogeneous amongst the peri-urban poor

population

To determine the impacts of different sources of household credit on the poor

Statement of problem

Existing literature on the impacts of micro-credit has provided

ambiguous or non-robust evidence of impacts Many studies claim positive impacts

Such as the highly cited studies (Pitt & Khandke, 1998; Khandker, 2005) show that

micro-credit has positive impacts and helps the poor out of poverty Beside studies

also find positive impacts on micro-credit borrower welfare The other, suppose one

client is in each borrowing household, thus about one third of households in Viet

Nam, especially Ho Chi Minh City, borrowed from micro-credit sources Micro-credit

and household credit are used interchangeably in this study many other studies are

skeptical of the impact of micro-credit participation on borrower welfare, finding that

micro-credit borrowers are not better off Even some studies of randomized control

trials and provide limited evidence of the impacts Thus, evidence of microcredit

impacts is mixed , the existing literature often considers effects of credit programs or

formal credit but does not consider effects from informal credit Besides borrowing

from programs or the formal credit sector, a sizeable fraction of poor

Poor people also borrow from informal sources such as friends, relatives,

neighbors, moneylenders and other informal credit sources, so the existing estimated

effects would also include informal credit effects Failing to take into account the

impact of informal credit separately from formal credit will cause biased estimates A

further feature of the literature is that most analyses are for rural areas, but rural areas

hold a declining share of the world’s the poor In fact, while the poor in developing

countries often migrate to cities, they tend to reside in peri-urban areas since city

centers are too expensive for them to live In peri-urban areas, credit often supports

consumption expenditure such as healthcare, school fees and food, rather than

production as in rural areas This sort of consumption affects human capital

formation Moreover, the poor people often live on labor income in peri-urban areas

where human capital is the most important household asset and more important than

in rural areas since returns to human capital (education) is higher in urban and

peri-urban areas than in rural areas However, most of the existing literature has focused

on the impacts of micro-credit on rural areas and for production purposes.So, what is

needed is comprehensive research showing the links between credit access and human

capital (in terms of education and health).Further, to the extent that links between

human capital and earnings strengthen in transition economies, the economic impacts

of credit access operating via human capital investment will become more important

over time

Beside, poverty alleviation programs, Ho Chi Minh City has also preferential

loan program for the poor household and near the poor household, financial resources

and other financial services to support the poor people In reality; financial assistance

for the poor people in Ho Chi Minh City is too few; while the poor people were too

much, therefore, the number of poor people are entitled to support from the financial

resources or other sources that are described in the following groups:

.Native poor group

.The group of migrant worker

.The group of native freelance-workers

.The group of pension

.Civil servant group with an average income

Financial assistance will be based on the poverty line in Ho Chi Minh City,

because determining who are the poor household Poverty levels are considered poor

and then the poverty alleviation programs had served for the poor people exactly

Recently, local government announced the form of sustainable poverty

reduction in HCMC.The City developed the People's Credit Fund to help the poor

households to access this fund, and help them avoid borrowing usury But in reality,

funds are not to consumers but to the enterprise that is the disguise move to make a

business money is very risky in HCMC.This makes the poor people are not loans ;

and then some loans were out of poverty and to rise again from the life.The collected

results of the Credit Fund is faced with no collateral

The poor people, the same everyone, need a variety of financial instruments to

accumulate assets, consumption stabilization and protect themselves at risk

Therefore, in the broadest sense, microfinance is finding ways to effectively and

reliably to provide more and more of the microfinance products.Therefore, credit

capital provides not only loans to poor households to generate income and smooth

consumption but also more importantly to help poor households to diversify their

income sources, increase their financial confidence, and to manage their economic

production more efficiently In really, financial resources do not have enough

provides for the poor that is the mainly cause in Ho Chi Minh City

As we know, the effects of the financial assistance to the poor households are

much needed The economic growth is only considered the successful, the sustainable

development as it reduces gradually and go to poverty alleviation at Ho Chi Minh

City The steady economic growth will support them to improve their living standard

and rise up current and for future; and then they think about health care for

themselves and make disease minimum Besides health care, they invested in

education more and more for their children

Experience shows that Credit capital can help poor people increase income

and create sustainable business activities and reduce their vulnerability shocks from

outside Credit capital is a powerful tool to help the poor, especially women,

strengthen the economic power and become the economic subjects

The roles of credit capital in improving the living standard for the poor people

and low-income households and its position in the financial system are very important

to them.Along with the innovation, economic growth in Ho Chi Minh City, the life of

the majority of the population improved markedly However, in the market

economies, the impact of economic development is not uniform to all the regions and

population groups Therefore, a part of residents of different causes have not caught

up with change, difficulties in production and life becomes the poor

Credit capital is the supply for poor households is very small loans, aimed at

helping them to engage in production activities, or initiate smaller business activities

Credit capital is often accompanied by a range of other services such as credit, saving,

insurance, because of the poor people and very poor have a huge demand for financial

products, but they can not access the formal financial institutions

These financial services will ensure stable and continuous cash flows for the

poor people currently and in future Furthermore, financial services help the poor

people expand business, diversify income, promote education and health, save for

future, make use of financial services, and consequently reduce poverty and improve

future livelihoods for the poor In summary, Credit capital helps the poor people not

only to survive but also to plan for future, improve living condition, invest in

healthcare and education, and to empower women

Ho Chi Minh City has a preferential loan program for the poor household and

near the poor household, poverty alleviation program, many social policies such as

health insurance cards, loans for the poor people to do business, grants scholarships

for children of the poor households On the other hand, due to the poverty that a

segment of the population out of poverty, contributing to an important market to

promote economic development

The implication of the study is rationale of determining the poverty line in Ho

Chi Minh City, includes the level of economic development and living standards This

study aimed to help the poor people out of poverty in Ho Ch Minh City, improve in

the present and the future Further, it helps local authorities handle the number of poor

households and how much they were supported and then financial institutions to reach

the poor households how much are

In summary, Ho Chi Minh City has shortened the distance, pulling down the

difference in living standards between the rich and the poor in population groups

What are the poor people?

Poor is understood simply as shortages, inability to meet necessary for life

such as: food, clothing, education, health…at a certain time

Poor express the lack of opportunity to be able to live a life that corresponds

with the standard of minimum The measured of these standards and the causes lead

to poverty depends on locations and times World Health Organization (WHO)

defines that the poverty is low- income Thus, a person is the poor if annual income is

less than a half of the average income per capita of the country every year

Conference on Poverty in the Asia-Pacific was organized by ESCAP in

Bangkok 9-1993, Thailand has given the definition of poverty as follow: "Poverty is a

part of the population do not enjoy and meet the basic needs of human beings, but this

needs to be acknowledged, depending on the socio-economic development level and

customs and practices of local

U.S economist Galbraith also concepts: "People are considered poor when

their income, even though they may be relevant for survival and fall markedly under

the income of the communities Then they can not be what the majority of the

community as the minimum necessary to live a proper way "

World Summit for Social Development held in 1995 had given the definition

of poverty: "The poor are all those that their income under one dollar per day per

person, the amount is considered to have enough to buy the needed products to

survive."

Viet Nam's research group in "Poverty Reduction Program in Vietnam-1995"

had a definition: "Poverty is the lack of ability to participate in national life, especial

involved in the economic field.”

Financial assistance is a broader concept; it is defined as small-scale financial

services to the poor people and low-income households, which include consumer

credit, loans, savings, pensions, insurance, remittances services and other basic

financial services

Conclusion, this study on the impact of micro-credit fails to reach a

consensus conclusion, fails to consider the impact of informal credit, fails to consider

the impacts of micro-credit for urban areas, and fails to establish a link between

micro-credit access and human capital, and then between human capital and earnings

These shortcomings prompt the current thesis to provide empirical evidence on how

micro-credit, including the informal credit, impacts the poor in terms of human capital

investment in peri-urban areas

Research questions

This thesis will answer the following research questions:

Who are the micro-credit clients and what defines household credit

participation and credit constraints in the peri-urban areas?

What are the effects of household credit on healthcare, consumption, and

education expenditure?

Are the micro-credit effects the outcome the distributions of household budget

share?

Importance of the study

Vietnam has experienced impressive economic growth and poverty reduction

over the last 20 years The real GDP per capita has increased remarkably from US$98

in 1990 to more than US$1,000 in 2009 (IMF, 2010) Poverty incidence has declined

sharply, from 75% in the middle of 1980s to 58% in 1993 (VHLSS, 1993) and to

15.5% by 2006 (VHLSS, 2006) These achievements resulted from macroeconomic

policies favoring adjustment to a market economy and from policies targeting the

poor

In Ho Chi Minh City, poverty is universally attributed to insufficient

access to capital and low investment in education To alleviate poverty, Ho Chi Minh

City government has recently introduced micro-credit programs to alleviate poverty

and vulnerability for the poor through the Hunger Elimination and Poverty Reduction

program (HEPRF), the Vietnam Bank for Social Policies (VBSP), Vietnam Bank for

Agriculture and Rural Development (VBARD),), People’s Credit Fund (PCF), Capital

Aid Fund For Employment Of The Poor (CEP) and Job Creation Support Fund

(JCSF) However, there has been no officially reliable study on the program impacts

by any government organizations Nhu Trang (2005) observed that the efficiency of

the programs seems to be rather low in terms of meeting credit demand and long-run

stability because a considerable fraction of households have been continuing to seek

informal credit sources regardless of their usury interest rates More, micro-credit

institutions need subsidies from government funds

For example, in order to survive the VBSP has received government subsidies

for interest disparity and operation costs equivalent to more than 51% of its annual

revenue However, there are only a few studies on the impacts of credit on household

consumption in Vietnam, especially Ho Chi Minh City These few studies focus only

on rural areas and never consider impacts on child schooling, or spending on

education and healthcare, which are important factors affecting human capital

formation and productivity of household members, as well as sustainable poverty

reduction Further more, to the best of my knowledge, no single impact study of

micro-credit for peri-urban or urban areas in Vietnam, especially Ho Chi Minh City,

exists

Figure 1.1: Ho Chi Minh City Population and population density in 2010 by district

Population Population density

Ho Chi Minh City has 24 districts, in which Can Gio, Cu Chi, Nha Be, Binh

Chanh, Hoc Mon, Thu Duc, Binh Tan and Districts 2, 7, 9, 12 are peri-urban districts

(11 districts) These districts(peri-urban) have a certain agricultural contribution in

their GDP and have a lower population density, from 100 to about 25,400

people/km2 These districts are also on the urban fringes, and have experienced fast

population growth, from 32% to 150% (depending on districts) over the period

1997-2009 My study district (District 12), which has about population growth rate of 65 %,

belongs to the peri-urban district group The other 13 districts which have a very high

population density, from 19,233 to 45,241people/km2, are classified as urban

districts Almost whole urban districts have negative or low population growth rates

over the period 1999-2009

Research methods and data sources

This thesis applies survey sample method, analysis of economic activity,

descriptive statistic, Comparison method of dataset to achieve the study objectives:

First, to achieve the objective of studying , this study uses five large datasets

of Vietnam Household Living Standard Survey conducted by Vietnam General

Statistics Office in 1998, 2002, 2004, 2006, 2008 and 2010 are used The samples are

representative for the national level of Vietnam and Ho Chi Minh City The surveys

offer all necessary information to estimate Peri-urban districts and Urban districts

such as :Can Gio,Cu chi,Nha Be,Binh Chanh,Dist 9,Dist 2,Hoc Mon,Dist 12,Dist

7,Thu Duc,Binh Tan,Tan Binh,Dist 8,Binh Thanh,Dist 1,Tan Phu,Go Vap,Dist 6,Phu

Nhuan,Dist 3,Dist 10,Dist 11,Dist 5, Dist 4

Second, the remaining objectives of the thesis, I conducted a field survey A

sample of 250 borrowing and non-borrowing households was interviewed in early

2008 in the peri-urban District 12 of Ho Chi Minh City (HCMC), Vietnam Since my

focus is on micro-credit impacts on poor households, the sample was selected from a

list of poor households whose initial income per capita was below the HCMC general

poverty line of VND 6 million(approximately US$1 per day) The target sample size

was set at 300 households, including 100 reserves, to achieve a realized sample of

200 In really, 300 households were successfully interviewed, accounting for 26% of

the total number of poor households in each of the selected wards in the district 12

The interviewed sample provides about 200 borrowing households and 100

non-borrowing households, with 450 members, 180 males and 200 females, including 70

school-aged children The sample is likely to be representative for the poor group

whose initial income per capita is below the poverty line at the survey time in the

district but will not be representative for Ho Chi Minh City nor for Vietnam

The survey was designed to collect data on household and individual

demographic-economic variables, commune characteristics, household durable and

fixed assets, child schooling and education expenditure, healthcare, food, nonfood,

housed expenditure, and borrowing activities I also collected data on locations of

households and facilities in order to measure distances from each household to

facilities

The surveyed areas are located in the most dynamic region, Ho Chi Minh City

(HCMC), in Vietnam Ho Chi Minh City is the biggest economic-financial centre in

the country; it accounts for only 6.6% of the country’s population in 2005 but one

third of GDP The city economy has recently been growing at above 10% per annum

The surveyed district is the lowest population density district, and one of the

peri-urban districts of HCMC When it was established in 1995, the district relied

heavily on agricultural production, but its economic structure has changed HCMC

has 24 Districts District 12 has the lowest population density of 427,083 (in

2010).The list was provided by the District Department of Labor, Invalids and Social

Affairs

The main economic activities of the district are non-farm economic activities

such as industrial production, construction and services Example, 45% household

heads are small traders, house-wives, casual workers, factory workers and the jobless

Scope and Delimitation of study

This thesis focus on Peri-urban districts Urban districts in Ho Chi Minh City

such as : Can Gio,Cu chi,Nha Be,Binh Chanh,Dist 9, Dist 2, Hoc Mon, Dist 12, Dist

7, Thu Duc, Binh Tan, Tan Binh, Dist 8, Binh Thanh, Dist 1, Tan Phu, Go Vap, Dist

6, Phu Nhuan, Dist 3, Dist 10, Dist 11,Dist 5,Dist 4.one of that district is district 12.In

my study, I selected 2 wards and then households The first is Hiep Thanh ward and

second is An Phu Dong ward

Chapter 2 REVIEW OF RELATED LITERATURE AND STUDIES

Literature review

In my thesis, this chapter 2 will talk about the general literature on

micro-credit, micro-finance and credit to the poor It reviews general concepts of credit

,micro-credit and microfinance, reasons why the poor need micro-credit , reasons for

existence of informal credit in Ho Chi Minh City, and also discusses interest rates

charged by micro-credit providers

Although in many developing economies, especially Ho Chi Minh City in Viet

Nam, there have been great progresses in economic development over the last 30

years, millions of the poor and low-income households, who are just around the

poverty line, rely heavily upon micro-credit, especially informal credit, as primary

sources of credit to meet their demand for credit The existence of an informal credit

sector in almost all of the economies around the world especially in developing

countries is the reality and reflects the failure of formal financial markets to meet poor

clients’ financial needs Understanding the determinants of access to informal credit

and its impacts compared with the impacts of formal credit is thus an important topic,

which the rest of this thesis addresses

The concept of Credit

Credit is an economic category associated with multi-sector commodity

economy On the other hand, credit is social relations, relations of mutual fund use

between these economic subjects and other subjects on the principles of

reimbursement In other words, credit is a temporary transfer of right to use a certain