(Luận văn thạc sĩ) an analysis of factors affecting the results of the vietnam bank for social policies (VBSP) microcredit use by poor households a case of soc son district

i VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY NGUYEN HAI LONG AN ANALYSIS OF FACTORS AFFECTING THE RESULTS OF THE VIETNAM BANK FOR SOCIAL POLICIES VBSP MICROCREDIT U

i

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

NGUYEN HAI LONG

AN ANALYSIS OF FACTORS AFFECTING THE RESULTS OF THE VIETNAM BANK FOR SOCIAL POLICIES (VBSP) MICROCREDIT USE

BY POOR HOUSEHOLDS: THE CASE OF SOC

i

VIETNAM NATIONAL UNIVERSITY, HANOI

VIETNAM JAPAN UNIVERSITY

NGUYEN HAI LONG

AN ANALYSIS OF FACTORS AFFECTING THE RESULTS OF THE VIETNAM BANK FOR SOCIAL POLICIES (VBSP) MICROCREDIT USE

BY POOR HOUSEHOLDS: THE CASE OF SOC

SON DISTRICT

MAJOR: PUBLIC POLICY

CODE: PILOT RESEARCH SUPERVISOR:

Prof Dr HIROICHI KAWASHIMA

Dr BUI HAI THIEM

Hanoi, 2019

to alleviate poverty The study will use a quantitative approach with the analysis conducted with SPSS and the data collected from Soc Son District and VBSP Soc Son

On the other hand, the author also used in-depth interview with both the bank’s officers and poor borrowers in order take a closer look on the matter To conclude, the author will suggest some recommendations for VBSP and local government to improve the usage of the loan

iii

Acknowledgement

No one can achieve anything without the help of others This thesis could not be completed without priceless assistances of many people I would like to express my gratitude to all of them

First of all, I sincerely express my gratefulness to my two supervisors Professor Hiroichi Kawashima and Dr Bui Hai Thiem for their instructions and time to consult

me on my thesis With profound knowledge and experience, they helped me improving

my research Without their instructions, the thesis would be undone

Secondly, I want to express my gratefulness to all the professors, JICA members

in Vietnam Japan University, professor Sharma, and Dr Linh who conveyed to me numerous courses and knowledge With the provided knowledge from them, I am confident that I can contribute something to develop my beloved country I will keep in mind all the memories that we had during my time at Vietnam Japan University

Lastly, I want to express my gratefulness to VBSP Soc Son that provided me the data, accesses to the poor households for my internship and research, I hope VBSP Soc Son will achieve more success in the future to support poor households and the society

In addition, I am so thankful with the help of my family, they looked after and provided me supports during this intensive time

Sincerely

9th May 2019 Nguyen Hai Long

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Table of Contents

Acknowledgement ii

Table of Contents iii

List of Table v

List of Figure vi

List of Abbreviations vii

Chapter 1: Introduction 1

1.1 Research Background 1

1.2 Problem Statement 2

1.3 Overview of Microcredit Loan for the Poor 3

1.4 Research Objective 4

1.5 Significance 5

1.6 Research Question 5

1.7 Research Limitation 6

1.8 Thesis Structure 7

Chapter 2: Literature Review 8

2.1 The definition of Microcredit 8

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2.2 The Principles of Microcredit Scheme 10

2.2.1 The social and economic Principle 10

2.2.2 The impact of microcredit on the community 12

2.2.3 The factors affect the result of microcredit loan 14

Chapter 3: Material and Methodology 17

3.1 Research Site 17

3.2 Thesis Method Design 18

3.3 In-depth interview plan 20

3.4 The Quantitative model 22

3.5 Information Collection Paper Design 26

Chapter 4: The analysis and findings 27

4.1 Current situation in Soc Son district 27

4.2 Overview of VBSP 27

4.3 In-depth interview findings 28

4.3.1 The structure of VBSP Soc Son 28

4.3.2 The process of borrowing VBSP’s microcredit loan 30

4.3.3 The command of the Central Bank 32

4.3.4 Encouragement of borowers to focus on the business effectiveness to repay the loan 35

4.3.5 Difficulties borrowers often face when doing their business 36

iv

4.4 The Analysis of the Poverty Alleviation result of the loan 38

4.4.1 General information of the survey 38

4.4.2 The Findings 44

Chapter 5: Conclusion and Recommendations 47

5.1 Conclusion 47

5.2 Recommendations 47

5.2.1 Increase advices, instructions, supports and supervision for the use of the microcredit loan 47

5.2.2 Provision of knowledge and techniques for poor borrowers 48

5.2.3 Increase public investment on key infrastructure 48

5.2.4 Increase the loan’s amount limit 49

Reference 50

Annexs 55

v

List of Table

……… ……… Page

Table 3.1 The In-depth Interview Plan……… ……… 20

Table 3.2: Overview of the model’s variables……… 24

Table 4.1 Total outstanding loan lended to the poor households……… 33

Table 4.2: Bad Debt Ratio of VBSP Soc Son from 2016-1018……… 33

Table 4.3: Measurement of Bad Debt Ratio……… 34

Table 4.4: Bad Debt Ratio of VBSP Soc Son………34

Table 4.5: Model Summary……… 40

Table 4.6: Omnibus Tests of Model Coefficients……….….40

Table 4.7: Variables in the Equation……… 41

Table 4.8: Classification Table……… 43

vi

List of Figure

……… ……….……….Page

Figure 2.1: The principle of microfinance initiative……… … 11

Figure 3.1: The research framework……… ……… 19

Figure 4.1: The structure of VBSP Soc Son……… ……… 28

Figure 4.2: The process of borrowing the loan……… 30

List of Abbreviations

ADB Asian Development Bank

IMC International Micro-Finance Mission SBV State Bank of Vietnam

VBSP Vietnam Bank for Social Policies VND Vietnam Dong (Currency)

WB World Bank

in making stable business

In Vietnam, poverty is still a refectory issue Poverty reduction, hunger alleviation and improving the income of the poor are always concerned and determined by the State as

a crucial goal to achieve the country's socio-economic development goals Through VBSP, The State has provided preferential credit to millions of poor people, contributing significantly to the remarkable result of poverty reduction in Vietnam However, many concerns are now focused on the sustainability of poverty reduction after many poor households have fallen again to poverty Even if the poor households have access to the microcredit, the pivotal part is still the usage of the loan If the borrowers can use the loan effectively, they will be more likely to escape poverty and get higher income Thus, studies on the factors that affect the usage will be needed so the bank can improve the result of microcredit-use

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Problem Statement

Microcredit for poor people in Vietnam is defined as the use of financial resources mobilized by the State, lending to the poor with incentives such as lower interest rate and easy access compared to commercial credit, it aims to improve the quality of life, contribute to poverty reduction and ensure social security Through microfinance, the poor and other policy’s beneficiaries will be able to address the financial constraints that always hinder them from capital needs for production The largest financial institution

to provide microcredit loan in Vietnam is Vietnam Bank for Social Policies (VBSP), controlled and warranted by the government, VBSP has a national system which conveying microfinance transaction for the poor throughout the country After more than

15 years of operation, VBSP has provided the preferential credit to millions of poor households with 3.4 million households lifted out of poverty borderline With the effort

of the government and VBSP, the poverty rate in Vietnam continues to fall, especially among ethnic minorities, with a sharp decline of 13 percent, the biggest decline in the past decade (Pimhidzai, 2018) However, due to the limitation in business experience, education level, equipment, the use of microfinance loan often goes to small-scale and agricultural production such as farming, cultivation, and ranching, which contains high economic risks

Soc Son is a district located in the northwest of Hanoi, the district has targeted to eradicate poverty with the orientation of trade - service, industry, tourism, education – training In recent years, with the effort of the local government and the preferential credit policy, many poor households had access to the microcredit loan from VBSP, improving the average standard of living in the area and decreasing the percentage of poor households to 2.72%1 However, the loan often went to agricultural activities, which

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are considered risky for households to be trapped in the vicious cycle of poverty Furthermore, Soc Son is aiming to transform its economic structure from agriculture to industry-driven; the surge of agricultural activities of poor households would lead to excessive supply and inefficient investments To that end, the study will try to investigate the reasons behind the investment decisions of the borrowers to propose possible solutions to encourage the poor households to use the loan more efficiency

Overview of Microcredit Loan for the Poor

Target: Poor households, which are defined in the newest poverty standard of the

government, are eligible to borrow money from the bank

Duration of the loan:

+ Short-term: 12 months (1 year)

+ Medium-term: from over 12 months to 60 months (5 years)

+ Long-term: Lending over 60 months

Lending Ceiling: The maximum loan’s amount for a poor household is 30 million VND

(until 2018)

Interest rate:

+ Interest rate: 0.55% / month (Nearly 6.6% per year)

+ In case of overdue debt, the interest rate will be equal to 130% of the lending interest rate

The Poverty Standard:

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+ Rural area poor household is a household that meets one of the two following criteria:

- Having an average income per capita/month of 700,000 VND (30.0518 USD) or less

- Having an average income per capita per month over 700,000 VND to 1,000,000 VND (30.0518 USD - 42.918 USD) and lack of three indicators of access to baic social services

+ Urban area means a household that meets one of the two following criteria:

- Having an average income per capita/month of 900,000 VND (38.6263 USD) or less

- Having average income per capita per month from 900,000 VND (38.6263 USD)

to 1.300.000 VND (55.79350 USD) and lack of three indicators of access to basic social services

+ Ineligible households to borrow from VBSP

- Households, which have no physical labour capacity, people who are in time to execute judgments from the court, lazy households that have no intention to work Households that are involved in felonies or crime such as gambling, drug addiction, theft, etc

- Poor households that are belonging to other social policy program which is associated with social assistance by the government

Research Objective

The thesis will try to shine a light on the matter of what are factors that affect the use of microcredit loan use According to many other studies, it is varied and combined of many factors On the other hand, the thesis will apply the findings of the analysis in order to

to make the fund more efficient

Research Question

Given the situation, the study will endeavor to figure out what impact of internal and external factors to the poor people in which lead them to their investment decisions In

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order to answer the question, many other aspects need to be taken to analyze the efficiency of the loan’s usage For instance, the efficiency of each with an expected scenario that the borrowers mostly use the loan for farming and ranching activities and they tend to keep the production small instead of continuing to borrow more capital to expand their business

Keywords: Microcredit, Poverty, Affected Factors

Main Question: What are the factors that affect the result of the microcredit-loan use

for poor households in VBSP Soc Son?

Sub-question:

+How the bank manages to achieve such a result?

+ How the characteristic of the loan affect the result?

+ How the intrinsic of the borrowers affect the result?

+ What recommendations that the Bank should take in order to improve the result?

Research Limitation

Due to the limited time and resources, the author could not collect more variables in the survey On the other hand, some factors that affect the use of microcredit cannot be quantitated, so the study needs to conduct more research, which is comprehensive in order to further elaborate the result of the loan-use, in other words, the model needs a more comprehensive analysis with more variables Likewise, the in-depth interview has not yet been sophisticated enough to set a light on the effort of the Bank’s employees Therefore, the author hopes the next research will be able to solve these problems and conduct more research that is comprehensive

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Thesis Structure

The Thesis will consist of four chapters:

+ Chapter 1: Introduction

+ Chapter 2: Literature Review

+ Chapter 3: Material and Methodology

+ Chapter 4: Analysis and Findings

+ Chapter 5: Conclusions and Recommendations

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CHAPTER 2: LITERATURE REVIEW

2.1 The Definition of Microcredit

Microcredit is not traditionally a new financial industry as one of its first form appeared

in Ireland, called as “Irish Loan Fund”, the fund was initialized by Jonathan Swiff to provide a small sum of money to the poor in Ireland The success of the fund had encouraged more organizations to follow the model to provide loan to the poor during the 18th and 19th century (Hollis and Sweetman, 2013) Then, in 19th century in Germany, there were a number of rural credit cooperative organizations that supported the farmers

in rural area as the land reform in Prurussia at the time had a very little effect on the holding structure and the grief of war and economic downturn was upon the poor farmers (Prinz, 2002) Other types of microcredit scheme were also established in Pakistan as

land-“Comilla Model” by Akhtar Hameed Khan but deemed as failure due to the excessive intervention and what called “elite captured” by Bateman (2010) Having said that, the world often see the establishment of Grameen Bank of Muhammad Yunus as the start of the industry and the expansion of Microcredit for poor people worldwide He spent his money to build a bank to lend the money to whom are constrained by the shortage of credit especially poor farmers, contributed to the economic development and poverty reduction in Bangladesh Furthermore, the Grameen Bank has inspired many countries with thousands of organization to have been established since then, argued by Bateman (2010) The initial purpose of Grameen Bank is non-profit to provide credit to the poor Through time, the types of microcredit provider became more diverse, more and more organizations now positioned themselves as commercial banks and considered microcredit as a real business rather than a non-profit organization, called as the commercialization of microfinance (Drake, D., & Rhyne, E n.d , 2002)

Microcredit is a fundamental component of the microfinance industry, which consists of many other types of financial services such as insurance or saving Most of the

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transactions in microfinance organizations are to borrow the microcredit loan for business Generally, microcredit provides the poor with additional capital and employment, assuming to give them the opportunity to cover their expense to create some kind of income-generating microbusiness To that end, it is safe to say that most

of the research on microfinance somehow related to the microcredit scheme (Bateman, 2010) Furthermore, there are at least nine characteristics of microfinance that in fact simultaneous in line with microcredit (Karlan, D, & Goldberg, N, 2007):

1 Small transactions and minimum balances (whether loans, savings, or insurance)

2 Loans for entrepreneurial activity

3 Collateral-free loans

4 Group lending,

5 Target poor clients

6 Target female clients

7 Simple application processes

8 Provision of services in underserved communities

9 Market-level interest rates

The types of microcredit provider is also important to find out the motive and the characteristics of each loan to find sound business decisions or public policy For instance, Muhamad Yunus had categorized several types of microcredit organizations in

2006 as below:

A) Informal microcredit for the poor such as relatives, acquaintances, etc

B) Microcredit based on traditional informal groups

G) Partnership between bank and Non-profit organization (NGO) microcredit

H) Grameen style of microcredit

I) NGO microcredit

J) Other types of microcredit organization

To that end, Yunus insisted that identifying the type of the microcredit organization plays

a vital role in analyzing the operation of the financial institutions as well as clarifying the characteristics of the loan Thus, the research will be more accurate and comprehensive

2.2 The Principles of Microcredit Scheme

2.2.1 The Social and Economic Principle

Armendáriz et.al (2010) explained why the capital often ignore the poor people, who

willing to pay higher interest rate and generate more money than a richer entrepreneur (Marginal Diminishing Productivity) To depict the economics of microcredit, the basic model of Marginal Diminishing Productivity illustrated that the more capital you put on the investment the output will increase but at one point, the additional capital will bring lesser output The model also demonstrated that the smaller the sum of money invested, the higher the marginal rate of return, and higher capability to pay for the loan so the investor should lend the money for small-business owner or farmers with small capital

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needed to gain high profit This can explain the recent movement of the capital from rich countries to poor countries where the firms are able to get higher marginal return a bit However, in reality, the situation is complicated, most of the case the capital will go in the adverse direction, and the large stake often goes to big business or rich country One reason to explain is that the risk calculation is difficult in the poor target (poor households, poor region, etc.) due to its instability in social, economic, political plight The second is the moral problem when the bank is not able to seek trust to poor borrowers due to lack of information to assess the potential effort of the borrowers to repay the loan The third reason is that in poor regions, the judicial system often deemed as ineffective to enforce and the transaction cost hinders the banks To that end, lending to the poor is hard for traditional banking system because of lacking information about the borrowers and the potential returns of poor entrepreneurs often lower than the risk of the investors

Y

K

Figure 2.1: The principle of microfinance initiative (Source: Author)

Y=f (K)

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Paulson, Anna L., and Robert M Townsend (2005) have shown the financial constraint

in Thailand in pre-crisis, crisis, and post-crisis and argued that the wealthier a person, the easier to start a business, many people saw the opportunity to start a business or expand the current business Nevertheless, as explained above, the poor often find themselves trapped in a vicious cycle and got into the loan shark with high interest and excessive risk of being bankrupted, leading to many social problems Thus, the creation

of microfinance and microcredit is a key factor influencing the choice of poor people to encourage them to avoid the loan shark, which contains high risk (Bateman, 2010)

In term of economic ideology, microcredit often coined and supported by neoclassical economists as the tool to improve the welfare for the poor and make the financial market more inclusive, reduce poverty, and women empowerment It explains the use of the free market mechanism and solution to achieve economic and social development (Bisen, A., Dalton, B., & Wilson, R., 2012) In line with the neoclassical idea, the microcredit organizations are gradually stepping out of the purpose of helping the poor, and commercialize with higher interest rest rate Nonetheless, this approach has been heavily criticized even the by the founder of Grameen Bank Yunus, argued that the banks are trying to take the advantage of the poor people instead of helping them and it is no different with the loan-shark (Drake, D., & Rhyne, E n.d ,2002)

2.2.2 The Impact of Microcredit on the Community

As mentioned above, one of the main problem in poverty alleviation challenges is the shortage of small-transaction and access to finance in poor regions Khandker, Shahidur

R (1998) proved that each year about 5 percent of the clients who participate in microcredit program could lift their families out of poverty as well as the rate of schooling, women empowerment, etc A World Bank (1998) report showed may criterions improved after the participants borrow microcredit loan from the microfinance financial institutions especially woman often have better performance than man in the

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assessment Dao, V.H (2001) who claimed that over 99 percent of 1833 participant interviewed in World Bank program saw the microcredit had positively increased their living standard and beneficial to their lives Lam T.V Bui (2014) claimed that then microcredit scheme of the Vietnamese Government had contributed significantly to the income of the poor in Vietnam through the relation between the household’s credit and their non-food expenditure However, in the case of the food-expenditure became negative, suggested that it is difficult to have a comprehensive research on the relationship between microcredit and the amelioration of poor people living standard Deepak R et.al (2012) showed the positive impact of microfinance in several developing countries, suggested that microcredit indeed contributed to the result of poverty reduction performance Chowdhury et.al (2002) conducted a study in Bangladesh suggested that microfinance does help to reduce the poverty rate but it was considered

as short-term impact, which may imply the impact of small-scale agricultural production may affect the long-term impact of microfinance loan as the borrowers are easily getting

back to poverty in the long-term Bateman, M & Ha, J.C (2012) argued that

microfinance only generated short-term positive outcomes for a few people, otherwise, there are little evidence to prove that the microfinance model establish a sound mechanism for poor people to sustainably alleviate poverty and create favourable environment for successful enterprises development On the other hand, microfinance may harm the whole prosperity due to several reasons:

 Microfinance often ignores the role of scale economies

 Microfinance generated too many informal micro-businesses

 Microfinance dilutes the creativity, innovation, and industrial sector

Dichter, T W., & Harper, M (2007) argued that microcredit is literally micro debt and there was no way that it can warrant the poor people that they can escape poverty if they

do productive business or employment There are many risks that go beyond the control

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of borrowers such as sickness, natural disaster, epidemic, etc that led to the possibility

of bankruptcy and indebtedness for poor people Sinclair (2012) even went farther; he gathered evidences on the failure of microcredit and microfinance industry in several cases, notably the level of indebtedness in Nicargua and suicide rate in India due to the high-interest rate of MFIs

Nevertheless, in a study of Joana Vieira dos Reis Robalo (2015), although he conceded that MFIS did not contribute to the innovative enterprises but it nurtured multiple micro-business to flourish, overall supported a vital sector in many countries

2.2.3 The Factors Affect the Result of Microcredit Loan

There are many kinds of research have focused on what and how the internal and external factors affect to results of the borrowers use the microcredit loan For instance, Ferdousi,

F (2015) research indicated that the lack of business skills, knowledge, experience, and training had eroded the capacity of borrowers to facilitate the use of microcredit in order

to fight against the challenges and hinders of poverty Tu et al (2015) had proved that poor households generally get more income if they invest the loan to non-farm activities Otherwise, the study also indicated that non-farm activities generate a better chance to get out of poverty than agricultural production Education is also a good indicator to measure the investment decision and efficiency of the loan as fully educated household can make proper business plan and get better condition according to the study

Nam, M.V& Duc, A.V (2009) conducted research in Hau Giang Province showed that the term of the loan and the amount of the loan both affected considerably to the result

by adverse effect, the longer the term the lower the income of the households as well as the efficiency of the loan use On the other hand, the higher the rate of interest rate, the more positive of the outcome The education level had also contributed to the result of the loan, as the borrowers should have basic knowledge to calculate how to invest the capital to the business Trinh V.B &Phuong T.T.N, (2014) conducted a similar research

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in Soc Trang province; consolidate the conclusion that the loan’s term has adverse effect

on the income of the poor people However, the research claimed that the interest rate had positive effect on the income as lower the interest rate, the higher the income of poor households To put it another way, in the research, they pointed out the relation between the number of labour in each households may correlate with the possible result of microcredit use, with every additional labour participate in the production, the overall revenue increase Dao M.T.H (2016) studied the effect of microcredit to the income of poor households by conducting regression analysis with multiple variables, and concluded that the household’s size and dependent percentage affect the income of the poor households as the more people who do not take part in the production the more likely that the income will decrease Huong et al (2018) studied the factors that affect the use of microcredit in Can Tho city, Southwest of Vietnam, indicated five factors that affected the result of the microcredit loan, these are the amount of the loan, the percentage that borrowers use for productive work, land size, instruction of bank’s employee Besides, in other studies in finance and economics, the education level and business skills, affected significantly to the result of the microcredit use

To summarize the literature, several factors had been identified by scholars For instance, the factors include the loan’s amount, business experience, education, innovation, and instructions from the Bank, most of the studies conducted in a small-scale area, provincial or district level On the other hand, the multiple regression model and Probit model have been frequently used as the model for this kind of research However, the author found that all the previous studies have only focused on the result of the microcredit-use through the income, or revenue of the borrowers, it only reflected a measurement that coped with the living of the borrowers or in term of the borrower’s perspective To put it another way, the result of the usage may also come from the Bank’s indicator such as the Bad Debt Ratio and the local government’s perspective such as the poverty reduction result Therefore, in the Thesis, the author will propose a new approach

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which look into other perspective on the usage of the loan to analyze the possible factors that may affect the result of the loan

of each preferential microcredit program to people monitor loan disbursement right at the transaction point Thereby, it helps to transfer microcredit capital preferential timely and effectively to the right beneficiaries It can be said that policy of providing microcredit has contributed positively to the implementation of the national goal of sustainable poverty alleviation, which has helped the poor and other beneficiaries groups

in Soc Son to become self-reliance, create jobs, improve living standards, income, ensure social security in the area, and build new rural areas

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Thanks to the focus on poverty reduction of the local government, Soc Son has achieved many successes in poverty alleviation In between 2010 and 2015, the district has reduced 8,500 poor households, decrease the poor households from 15.04 percent to 2.1 percent (Kien, 2015) VBSP and the preferential microcredit program for poor households have a significant contribution to the result of poverty alleviation in Soc Son district However, the sustainability of poverty reduction in Soc Son has not yet been evaluated thoroughly as the result only illustrated the statistic number rather than the long-term implication For example, one household who has just escaped poverty may quickly fall back to poverty due to the risk of the market if it depends on agricultural production On the other hand, the question of optimization during the process of using the microcredit loan of VBSP needs to be carefully analyzed to ameliorate not only the performance of the loan but to sustain the capability of borrowers in the future

3.2 Thesis Method Design

Soc Son district is transforming itself to be an industrial zone of Hanoi, nevertheless, the structural modification of the local economy has just begun based on the development plan of Hanoi The local poor households mainly located across the district’s ward around the core urban area of the district and the density of the poor households heaped around the underdeveloped areas, namely mountainous areas such as Bac Son The research will cover all the wards in Soc Son except the central area where the number of poor households is small and the usage of the loan cannot be verified in this area as the loan often goes to consuming the instant needs rather than investment On the other hand, other areas cover most of the proportion of poor households in the area and the loan often can be rectified by observing the daily production of each household With the help of the VBSP Soc Son, the author has collected 548 survey’s questionnaires on the site of each household

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To be able to set a light on the factors that affecting the result of the microcredit use, the

research will use both quantitative and qualitative approach to understand the current

situation of the micro-credit loan use, a quantitative approach will be conducted with the

dependent variable, collected through the bank’s database and information collection

paper In qualitative approach, the author will use the in-depth interview to understand

the perspective of both the bank and borrowers on the factors that might affect the result

Assessments of the bank’s structure, loan process as well as the perspectives of the bank on the factors affecting the microcredit-loan use

On the other hand, the perspective of the borrowers about the factors that may affect the result of the loan will also

be assessed

To identify the factors that affect the microcredit use and formulate recommendations for the bank to improve further

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3.3 In-depth Interview Plan

The author conducted in-depth interviews with the officers of VBSP Soc Son, the department of operation and credit for instance Otherwise, some poor households which borrowed the micro-credit loan would also be interviewed in accordance with the use of the microcredit loan

Table 3.1 The In-depth Interview Plan

VBSP

+ The policies that the bank exert to improve the result of the micro-credit

loan use

+ To get deeper knowledge of VBSP Soc Son and the microcredit scheme

5 + How they manage to

improve the use of the microcredit-loan for poor

Poor Borrowers 12 + Identify their

difficulties and the factors that they think might affect the use of the loan

+ Their recommendations

to the bank

+ To figure out what might be the factors that may affect the result

Source: Author

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3.4 The Quantitative Model

The author decided to use the logistic binary regression model to evaluate the result of the microcredit use This is a new model but in accordance to previous studies that used the multiple variables regression model and Probit Model The author found that, with a very distinctive dependent variable (poverty reduction result), the research should use a model that can work well to find the effect of independent variables on the probability

of the independent variables Therefore, the binary logistic regression model will be used

in this study

Log (p /1−p) = + β 1X1 + β 2X2 + β 3X3 + β4X4 + β 5X5 + β 6X6+ β 7X7+ β 8X8+ β 9X9 +  (Binary Logistic)

(0 denotes that the borrower has not yet to escape poverty, 1 denotes that the borrower has been left out of the poverty list The result of the microcredit-use will be reflected through the probability of whether they can escape poverty or not The independent variable will be colleted through the data of the Department of Labor, Society, and Veteran in Soc Son District The list consisted of the poor households in the area, the author will check the list in the year when poor households lent the money from the bank

At the end of the term, the author will evaluate on whether if the borrowers escape the poverty or not by checking the name of the household on the poor household list of the Department

The main variables of interest should be the variables collected through the in-depth interview, they are loan’s amount, interest rate, business experience, education Otherwise, after reviewed multiple studies the author decided to add several more independent variables as follow: loan’s term, borrower’s age, gender, household’s size, type of business Likewise, the autor also concluded that some control variables should

be held constant such as household’s asset, the number of labour, and disaster during the production process Accodring to other studies, the independent variables are appropriate

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to put in the model, no further problems had been detected in the time the model was formulated and no sign of endogeneity problem

The amount of the loan that borrowerers borrowed and received from the loan

Trịnh, Phương (2014) +

X2: Loan’s term The term calculated by the

date when borrowers lend the loan to the due date of the loan (as days)

Trịnh, Phương (2014)

X3: Interest rate The interest rate per year

that accompanied with the loan (as percentage)

Trịnh, Phương (2014) +

X4: Education level The number of years the

participant spent in school

Trịnh, Phương (2014) +

X5: Borrower’s age The age of the borrowers

when they borrowed the loan

Trịnh, Phương (2014)

-X6: Gender Control variable, if the

borrower is men, the value

of variable is zero If the borower is women, the value of the variable will be

1

Trịnh, Phương (2014) +