INTRODUCTION
Backgrounds
Poverty reduction, access to education, clean water, sanitation, and healthcare are crucial components of the 17 Sustainable Development Goals (SDGs), which evolved from the Millennium Development Goals (MDGs) These significant issues capture the attention of nations worldwide, particularly in developing countries like Vietnam Over the past few decades, Vietnam has made impressive strides in socio-economic development and poverty alleviation.
Statistics reveal a significant decline in the poverty rate, from 37.4% in 1998 to 5.8% in 2016, with rural areas experiencing a rate of 7.5%, nearly four times higher than the 2% in urban areas Many rural households continue to face poor living standards and limited socio-economic opportunities, with an average monthly per capita income of 2,437 thousand VND The income disparity is stark, as the poorest quintile earns only 676 thousand VND monthly, compared to 5,669 thousand VND for the richest, highlighting an 8.4-fold income gap Additionally, rural household consumption remains low, with an average monthly expenditure of 1,609 thousand VND, where the bottom quintile spends only 834 thousand VND, further emphasizing the significant gap in financial resources between the poorest and the wealthiest.
1 New poverty line (Measured by income per capita per month) in 2016 is 630 and 780 thousand VND in rural and urban areas, respectively.
Poverty reduction, income enhancement, and health improvement, particularly in rural areas, are key priorities within the 17 Sustainable Development Goals Numerous initiatives have been launched globally and in Vietnam, including training, agricultural extension, technology advancements, financial support, and job creation, to address these challenges Among these, access to credit is crucial for income-generating activities, as rural households, especially those in poverty, often encounter financial limitations Without access to formal credit, poor farmers struggle to expand their production and enhance their living standards (Li et al., 2011).
Many rural households in Vietnam continue to experience poverty, leading to a significant demand for credit However, the credit market in these areas often struggles with a supply shortage, making it challenging for the poor to access formal credit, primarily due to insufficient collateral In rural Vietnam, formal credit is predominantly offered by the Vietnam Bank for Agriculture and Rural Development, the Vietnam Bank for Social Policies, and more recently, microfinance institutions.
Farmers' inability to access formal credit has hindered their ability to enhance their living conditions, leading them to depend on informal credit sources despite the significantly higher interest rates This reliance can trap them in a 'vicious debt circle' due to their limited repayment capacity The appeal of informal loans lies in their collateral-free nature and the swift borrowing process, which continues to draw farmers into these costly financial arrangements.
Microcredit programs have emerged as a vital resource 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 empower 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 income and overall well-being (Microcredit Summit, 1997) Numerous researchers and practitioners recognize microcredit as an effective tool for improving the quality of life for disadvantaged populations.
This research investigates the accessibility of microcredit and its economic effects on the welfare of rural households It aims to propose relevant policies that enhance access to microcredit for the poor and improve its effectiveness in investment, ultimately raising their living standards To achieve these primary research goals, specific objectives will be outlined and analyzed.
Research problems
Morduch and Haley (2002) highlight that access to credit can enhance the living standards of the poor, yet Brau and Woller (2004) reveal that those in developing countries face significant barriers to formal credit sources, particularly in rural Vietnam Many impoverished households, especially those in remote areas or involved in high-risk sectors like aquaculture, struggle to secure loans from banks and financial institutions (Duong & Izumida, 2002) Consequently, they often resort to informal credit options from friends, relatives, or moneylenders Despite government efforts to improve access to semi-formal and formal credit for rural households, progress remains limited Understanding the factors influencing microcredit accessibility is crucial for developing effective policies that better serve these communities This study aims to investigate these factors affecting rural households' access to microcredit.
Microcredit programs aim to assist the poor, yet research by Nguyen (2008) reveals that fewer poor households have access to these programs compared to their non-poor counterparts This study will explore the ability of poor households to participate in microcredit programs compared to non-poor households.
Microcredit programs often target women as their primary clients, prompting this research to explore the impact of gender on microcredit participation Specifically, the study investigates whether female household heads have greater access to microcredit resources compared to their male counterparts, utilizing binary dependent variable models such as Probit or Logit to analyze the data.
Research question 1: What are determinants of accessibility to microcredit of rural households? Do poverty status and gender matter?
1.2.2 Microcredit and adoption of improved rice varieties
Agriculture is vital to the economies of developing countries, with Vietnam's agricultural sector contributing nearly $33 billion to its GDP in 2015, accounting for about 17% of the total (World Bank, 2016) In 2013, approximately 46.8% of Vietnam's labor force was employed in agriculture (World Bank, 2016), highlighting its role in ensuring food security and generating income for economic growth (Datt & Ravallion, 1996) Additionally, agriculture serves as a primary income source for rural households through domestic sales and exports (Singh et al., 1985) Consequently, improving the quantity and quality of agricultural output is a priority for governments in developing countries (Bonnin & Turner, 2012) However, rapid population growth and urbanization have led to a decline in land resources available for agricultural production, making it essential to focus on adopting high-yielding technologies to enhance productivity.
Rice is a vital staple food globally, particularly in developing countries such as Vietnam, where approximately 7.79 million hectares are dedicated to rice cultivation In 2016, Vietnam produced around 43.61 million tons of rice, making it the leading annual crop in the country Furthermore, rice is the top cultivar by export volume, totaling 4.83 million tons, 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.
Research indicates that adopting improved rice varieties significantly boosts productivity due to their short growth duration, high yield, and resilience to climate change However, to maximize their effectiveness, it is essential to pair these varieties with modern fertilizers and contemporary cultivation methods.
The adoption of new agricultural technology often involves significant initial costs and risks, particularly for financially constrained farmers Research indicates that access to credit can enhance household investment in agricultural innovations, especially improved crop varieties This effect can be understood through two key mechanisms: first, credit alleviates the financial limitations faced by farmers, enabling them to invest in agriculture; second, it serves as a coping strategy against various shocks, including natural disasters and pest infestations.
The adoption of improved cultivar varieties is influenced by various factors, including farmers' perceptions, education levels, risk attitudes, knowledge, management of agricultural extension centers, and local soil conditions These advanced cultivation practices demand more time, labor, and financial investment compared to traditional methods, as farmers must invest in new and certified agricultural inputs like seeds and fertilizers.
Previous research primarily examines the factors influencing the adoption of new crop varieties, often neglecting the critical role of credit in farmers' adoption decisions Additionally, most studies focus on the overall behavior of farmers, with few delving into the specific behaviors of those facing financial constraints compared to their more affluent counterparts Furthermore, existing literature tends to concentrate solely on whether farmers choose to adopt improved varieties, leaving a gap in understanding the two-stage decision-making process that includes both the decision to adopt and the intensity of that adoption.
This study explores the previously unexamined relationship between microcredit and the adoption of improved rice varieties in Vietnam, focusing on the two-stage decision-making process of farmers It investigates the distinct behaviors of poor and non-poor groups, utilizing advanced two-stage models like Double-Hurdle (DH) and Heckman to provide a comprehensive analysis of adoption decisions Additionally, for robustness, Tobit models are employed for comparative purposes.
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, significantly affecting the living standards of rural households Despite extensive research by scholars, practitioners, and policymakers, the findings regarding the impact of microcredit remain mixed and inconsistent.
Microcredit is viewed as a vital tool for combating poverty and enhancing welfare, according to Khandker (1998) and Yunus (2003) Research indicates that microcredit positively impacts the welfare of rural households by increasing their consumption levels (Li et al., 2011b; Mahjabeen, 2008).
7 proved that households with access to microcredit can improve their children’ health condition of (Pitt et al., 2003) or education (You & Annim, 2014).
Some researchers contend that microcredit has a minimal effect on improving living standards for households Coleman (2006) found no evidence of microcredit's impact on less wealthy households, while Khandker and Koolwal (2013) noted that only smaller landholders see benefits through increased agricultural income Additionally, Takahashi et al (2010) concluded that microcredit does not significantly affect various outcomes, except for self-employment sales among the non-poor and schooling expenses for the poor, suggesting that microcredit does not lead to immediate poverty reduction.
Numerous studies in Vietnam have examined the effects of microcredit on rural household welfare Research indicates that microcredit enhances household welfare by boosting income, increasing expenditures, and improving profits from self-employment, ultimately contributing to poverty alleviation (Nguyen, 2008; Quach, 2017; Lensink).
& Pham, 2011; Ho & Duc, 2015) In some cases, microcredit is found to have no impact on income, but only consumption (Phan et al., 2014).
Research on the impact of microcredit on welfare remains contentious, with mixed results that vary based on the indicators used for measurement While numerous studies have explored microcredit in Vietnam, none have assessed its effects on the multi-dimensional aspects of welfare This study aims to fill that gap by examining how microcredit influences household welfare through income, food consumption, and asset accumulation To achieve more accurate results, the research employs advanced impact evaluation techniques, including Propensity Score Matching (PSM), Difference in Difference (DID), and a combination of PSM and DID.
Research question 3: Does microcredit improve rural households’ welfare,measured by income, total production value, food consumption and asset accumulation?
Research objectives
This research aims to examine the accessibility of microcredit programs and their effects on welfare, while also focusing on understanding the mechanisms through which these programs impact individuals To achieve this, the study will adhere to the logical framework of impact evaluation outlined in Section 2.5, establishing specific objectives for a comprehensive analysis.
This study examines the factors influencing rural households' access to microcredit, with a specific focus on whether microcredit programs effectively reach poor and women borrowers Additionally, it analyzes 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 choice to adopt and the quantity to adopt This study further analyzes the findings by categorizing the research sample into poor and non-poor farmers, allowing for a more nuanced understanding of microcredit's effects on agricultural practices.
(3) Evaluate the impact of microcredit on the rural households’ living standards, measured by various indicators such as income, total production value, food consumption, and asset accumulation.
This study explores how microcredit can alleviate the negative impacts of health shocks on households, specifically examining its effects on income, consumption, and labor mobility within the household By investigating the role of microcredit, we aim to understand its potential in mitigating the financial strain caused by health-related issues.
Scopes of research
Microcredit is widely provided in urban and rural areas Both banks and
Microfinance Institutions (MFIs) play a crucial role in providing microcredit, which can be defined using various indicators related to welfare and health shocks The availability of data allows for focused research on these aspects, highlighting the significance of microcredit in improving financial access and resilience in communities.
• This research focuses on the households in the rural areas in Vietnam.
Microcredit refers to small, collateral-free loans, typically under 100 million VND, provided by formal credit institutions such as banks, People's Credit Funds (PCF), and various mass organizations.
• This research focuses on the microcredit used for production or doing business. Thenceforth, it may capture the long-term 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
This study utilizes two key datasets for quantitative analysis: the Vietnam Household Living Standards Survey (VHLSS) from 2010 and 2012, and the Vietnam Access to Resources Household Survey (VARHS) from 2012 and 2014 The VARHS dataset is employed to address the first three research objectives, while the fourth objective is examined using the VHLSS data.
In-depth interviews and focus groups were conducted in the rural areas of Tra Vinh and Long An provinces to enrich the findings from the econometric model and inform policy implications.
Research methods
This study utilizes various methodologies to address specific research objectives, employing a Probit model with panel data to analyze the factors influencing access to microcredit (Research Objective 1) Additionally, a Double-Hurdle model is implemented to further enhance the understanding of these determinants.
The study utilizes DH, Tobit, and Heckman models with cross-sectional data to explore the influence of microcredit on farmers' adoption of improved rice varieties To evaluate the impact of microcredit on living standards, techniques such as Difference in Difference (DID) and PSM-DID are applied using panel data Additionally, a Regression with Village-Fixed-Effect (VFE) approach is employed to investigate how microcredit helps mitigate the effects of health shocks.
According to Merriam (1998), Bogdan and Biklen (1992), and Creswell
Qualitative research, as outlined in 2003, utilizes various 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 approach is particularly effective in gaining a deeper understanding of research issues, specifically within the context of microcredit programs The study focuses on key subjects, including borrowers from the microcredit provided by VBSP, village officials, staff from the Women’s Union and Farmer’s Union in select communes, and specialists in rural finance.
Contribution of the research
The dissertation presents an empirical analysis that primarily employs applied econometrics and builds upon existing models to examine the case of Vietnam Despite this focus, it also contributes to the literature in several significant ways.
This dissertation presents a revised analytical framework that explores how microcredit influences farmers' decisions regarding the adoption of improved rice varieties and other investment options It highlights 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 enhancing the existing literature on this topic.
The dissertation utilizes various applied econometric methods for each research objective to ensure robust results Additionally, it segments the research sample into distinct groups for deeper analysis, facilitating 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 and addressing these critical issues.
The dissertation serves as crucial evidence for local authorities, policymakers, and practitioners, highlighting the significant role of microcredit in promoting investment and enhancing the living standards of rural households Consequently, this understanding can lead to the dissemination of similar programs aimed at better supporting 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.
• Other relevant supporting policies, but not directly related to microcredit, are also implied to improve the effectiveness of microcredit programs.
The dissertation's empirical findings will highlight significant policy implications for microcredit programs, extending their relevance beyond Vietnam to other emerging, transition, and low- to middle-income economies.
Organization of the research
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.
LITERATURE REVIEW
Overview of microcredit
Microfinance serves as a powerful instrument in the battle against poverty and hunger, having been pioneered by the Grameen Bank, established by Nobel Peace Prize laureate Prof Muhammad Yunus in 2006.
Microfinance, as defined by ADB (2000), encompasses a variety 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-governmental organizations; and the informal sector, comprising money lenders, friends, relatives, and shopkeepers Consequently, institutional microfinance refers specifically to the 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 aimed at fulfilling the financial needs of clients.
The Microcredit Summit in 1997 defined microcredit as a program that provides small loans to impoverished individuals, enabling them to initiate self-employment projects that generate income, thereby empowering them to 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:
In Vietnam, the definition of a "small loan" can differ, with formal microcredit amounts typically ranging from under 10 million to 100 million VND, as noted by Khoi et al (2013) and Thanh (2017).
(2) Targeting the poor Microcredit targets the poor and low-income households (Morduch, 1999; Du, 2004; Dasgupta & Rao, 2003)
Microcredit offers a crucial advantage by eliminating the need for collateral, which is typically required by traditional lenders to mitigate default risk This absence of collateral significantly enhances access to credit for the impoverished, who often lack the necessary assets to secure formal loans (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.
However, Li et al (2011a) state that rural households in China prefer microcredit to other credit because of its affordable interest.
The group-lending scheme operates without collateral requirements, relying on members of a credit group to monitor each other's repayment responsibilities In this system, if one member defaults, it can hinder the remaining members' future access to loans This approach is often referred to as "social collateral," which helps lenders mitigate the risks of borrower default and reduce 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 amounts 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 loans used for consumption purposes.
Theory
2.2.1 Overview of rural credit market
Credit markets serve as intermediaries between savers and borrowers, facing challenges such as risk and information asymmetry, which set them apart from goods and services markets Rural credit markets, particularly in less developed countries (LDCs), often exhibit greater imperfections, influenced by various factors that hinder their efficiency and accessibility.
In agricultural production, the processes of borrowing and repayment occur at different times, with borrowing typically happening before repayment Farmers invest their resources today, anticipating returns in the future, which highlights the time-separated nature of these transactions This approach reflects the broader livelihood strategies that require patience and foresight, as the benefits of investment are often realized after the investment cycle is complete.
Lenders face challenges in monitoring borrowers' loan usage, which can lead to risks if funds are allocated to high-risk projects or inappropriate purposes This lack of oversight increases the likelihood of defaults, as borrowers may struggle to repay loans due to unpredictable agricultural yields, business losses, or job instability.
In certain situations, borrowers may choose not to repay loans if they believe it benefits them This issue often arises when contract enforcement is weak, making legal action costly Additionally, limited liability for borrowers means that, in the event of default, credit officers may also bear some responsibility.
In developing countries, the prevalence of informal credit providers is largely attributed to imperfect information and the challenges of monitoring and default risks The informal sector often demonstrates superior enforcement capabilities and access to better information, making it a more reliable option for borrowers in these regions.
In the rural credit market, lenders prioritize caution over borrowers, employing both direct and indirect screening methods to mitigate issues of incentives and enforcement Informal lenders typically implement strategies to prevent adverse selection and moral hazard by thoroughly screening and monitoring borrowers, securing collateral, and potentially threatening to reduce future loan amounts.
Borrowers exhibit varying probabilities of default, making it expensive for lenders 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 exhibits significant variations in interest rates, with annual rates in less developed countries (LDCs) typically exceeding those in developed nations Research by Siamwalla et al (1990) on Thailand's rural credit markets revealed that informal sector interest rates can soar to 60%, compared to a more moderate 12-14% in the formal sector This disparity can be attributed to the monopoly power held by informal lenders, who employ price discrimination strategies to charge different rates to various borrowers Such monopoly power is influenced by natural entry barriers and associated transaction costs However, the informal lenders' monopoly is somewhat mitigated by the presence of formal institutions, such as public banks, and the emergence of semi-formal sectors.
Borrowers face restrictions on the maximum amount they can borrow at a specific interest rate, even if they are willing to pay more Additionally, individuals from lower-income backgrounds often struggle to secure loans at any interest rate, highlighting a disconnection in the credit market that deviates from the typical 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 input and output, and consumption credit for consumption smoothing Among these, fixed capital is crucial for overall economic growth, while working capital and consumption credit play a significant role for the agricultural population.
Low-income individuals often struggle to access formal credit due to several barriers, including insufficient collateral, lack of clear information between borrowers and lenders, and high transaction costs Additionally, lending to poorer populations is perceived as riskier, especially when unexpected events like health crises or natural disasters occur This raises the critical question of whether the rural credit market should exclude the poor from formal and semi-formal credit options 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 the capital-poor to accept higher interest rates to attract lenders However, in an imperfect market, issues like moral hazard and adverse selection arise, making it challenging for formal lenders, such as banks and financial institutions, to guarantee that borrowers will utilize loans appropriately or repay their debts.
Collateral-free loans often come with significantly high interest rates from formal lenders, which can deter responsible borrowers from accessing rural credit markets, particularly within the formal sector.
When excluded from formal credit systems, the poor often turn to informal borrowing sources such as relatives, friends, moneylenders, employers, and rotating savings and credit associations (ROSCAs) Between the 1950s and 1980s, many developing countries attempted to improve rural credit access by creating state-owned banks aimed at supporting poor farmers However, issues such as heavy subsidies, political interests, and corruption hindered the success of these banks, leading to loans being misallocated away from those in need As a result, microfinance has emerged as a viable solution to address the credit constraints faced by the rural poor.
The rural credit market is crucial for agricultural production and rural development in developing countries It often faces an imbalance between demand and supply, leading to excess demand for credit As a result, only a limited number of households can access formal credit sources However, the credit shortage is not solely due to high demand; it is also influenced by asymmetric information within the market.
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 assessing and determining the amount of credit to be granted This framework, as outlined by Zeller (1994) and others, aids in empirical research by making models more estimable and providing a clear structure for understanding the dynamics between demand and supply in lending.
(1994) states that the borrowers and lenders may make their decision simultaneously and the lending process may occur at any 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 dynamics (labor, land, poverty status, and assets), communal infrastructure and support programs, as well as the procedures and interest rates set by financial institutions Accessibility to credit is viewed as a sequential decision-making process that begins on the demand side, as established by Zeller (1994) This framework serves as a standard for analyzing credit accessibility Although numerous empirical studies have explored the determinants of credit accessibility, including microcredit, their findings have yielded mixed results.
Education level Quach and Mullineux (2007), Barslund and Tarp (2008) and
Research indicates a complex relationship between education and microcredit accessibility Li et al (2011a) suggest that higher education enhances households' access to microcredit programs, as educated individuals often have better skills and knowledge, increasing their credit demand due to greater exposure to risk 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 They contend that better-educated households tend to be wealthier, which may diminish their need for microcredit.
The age of a household head significantly influences their borrowing behavior, with older heads generally exhibiting a lower propensity to engage with formal credit programs due to increased risk aversion (Anjugam & Ramasamy, 2007) Conversely, Doan (2010) suggests that age may positively impact access to credit, while Barslund and Tarp (2008) report no discernible effect of age on credit accessibility.
Marital Status Acessibility 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 access, with Banerjee et al (2010) and Khoi et al (2013) highlighting that male borrowers dominate rural areas in developing countries due to their roles as household heads and decision-makers This male advantage stems from greater social capital, allowing them to represent their families when seeking loans Conversely, women often face empowerment challenges that limit their access to credit However, Barslund and Tarp (2008) found that women in Vietnam are increasingly accessing microcredit, as some programs specifically aim to empower them, making women a targeted client group for these initiatives.
Social capital plays a crucial role in enhancing access to credit, particularly in developing countries, as highlighted by researchers like Fafchamps (2000), Okten and Osili (2004), and Udry (1994) It can lower monitoring and enforcement costs for lenders, thus facilitating credit accessibility (Okten & Osili, 2004) However, there is a noticeable gap in studies examining how social capital influences 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 tend to have a higher likelihood of accessing credit, including microcredit, a finding supported by Doan (2010) and Nguyen (2007) in the context of Vietnam However, Li et al (2011a) challenge this notion, suggesting that larger households may actually face reduced access to microcredit While a bigger household can mean more labor and increased demand for credit, it can also lead to a higher dependency ratio, which negatively impacts credit accessibility.
The dependency ratio plays a significant role in microcredit access, with studies showing mixed outcomes Husain (1998) suggests that households with a higher dependency ratio face challenges in securing microcredit due to reduced repayment capacity Conversely, Li et al (2011a) highlight a positive correlation between dependency ratio and microcredit participation In Vietnam, Duong and Izumida (2002) found that households with more dependents are more likely to access credit sources This suggests that a higher dependency ratio may indicate lower income per capita, potentially increasing accessibility to microcredit as these households may be viewed as targeted clients.
Research indicates that major ethnic groups, such as the Kinh in Vietnam, often have better access to credit programs, including microcredit, as noted by Becker (1971), Yinger (1998), and Fafchamps (2000) However, a study by Khoi et al (2013) reveals that non-Kinh minority ethnic groups may actually have a greater likelihood of accessing these microcredit programs, as they are specifically targeted by the initiatives.
Land is a valuable asset that serves as collateral in financial transactions, particularly in formal credit arrangements Households without land often face challenges in accessing loans from banks and financial institutions, as highlighted by researchers such as Gale & Collender (2006) and Unger (2002) Studies by Davis et al (1998), Quach and Mullineux (2007), and Nguyen (2007) further emphasize the importance of land ownership in securing formal credit.
Izumida (2002) state that households with more land have higher probability of participation in credit programs, including microcredit However, Khandker (2001,
2005) show that large land-holders are less likely to 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 can be attributed to the tendency of households with higher savings to have a lower demand for credit, ultimately limiting their accessibility to borrowing options.
Research indicates that the distance from household residences to district centers does not significantly impact access to microcredit, as noted by Barslund and Tarp (2008) Additionally, studies by Sharma and Zeller (1999) and Duong and Izumida further explore the geographic factors influencing microcredit accessibility.
Geographic location significantly influences rural households' access to credit, as factors such as residing in mountainous or remote areas can hinder information flow and transportation Households in disadvantaged regions often face poverty, heightening their demand for microcredit, making them prime targets for lending programs However, these households may also exhibit risk aversion, leading to a reduced desire for credit due to potential borrowing costs Additionally, credit providers consider transaction costs, which can impact their lending decisions in these areas.
Distance to banks or financial institutions Ho (2004), Vaeseen (2000),
Research by Duflo et al (2008) and Li et al (2011a) indicates that households located farther from banks face significant barriers to accessing credit programs This distance not only increases transaction costs related to monitoring, travel, and communication but also serves as a substantial obstacle to financial inclusion.
35 households’ demand for credit and lenders’ decision on granting the loan (supply side), which thereby reduce rural households’ accessibility to credit.
Communal facilities, as identified by Khandker (1998), enhance residents' access to microcredit through essential services such as post offices, all-weather roads, and radio broadcasting stations These infrastructures not only provide vital information but also lower transaction costs for rural households, improving their credit accessibility However, communes with superior infrastructure may experience a higher level of development, leading to wealthier residents who may have diminished demand for credit, ultimately limiting their access to financial resources.
Definitions of welfare
Empirical studies on the economic impacts of microcredit reveal numerous indicators for measuring welfare For a detailed overview, refer to Table 2.1, which outlines various definitions and measurements of welfare variables (see Appendix 2.4 for further information).
Income, revenue, net production output, sales, profit
Assets (land and non-land)
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, focusing on the mechanisms behind this impact To achieve this, an analytical framework for evaluating these effects has been proposed, as shown in Figure 2.4 Based on this framework, four specific objectives will be pursued to deepen the understanding of microcredit's influence on household welfare.
Figure 2.5 shows detailed analytical framework used in research.
The first research objective focuses on assessing households' accessibility to microcredit, particularly for target clients like the poor and women It highlights that accessibility begins on the demand side, with microfinance institutions determining loan approval The findings from this objective will be instrumental in calculating propensity scores to match borrowers with similar non-borrowers, aiding in the evaluation of program impact in the subsequent research objective.
The second research objective focuses on the outcomes of microcredit, particularly its application in both farm and off-farm activities Understanding the livelihood strategies that rural households employ when utilizing microcredit is crucial before assessing its economic impact on financial outcomes This study will explore whether households are using microcredit for production purposes or self-employment opportunities, with a specific emphasis on investments in improved rice varieties.
This research objective focuses on assessing the impact of microcredit on the welfare of rural households It aims to determine whether the utilization of microcredit for agricultural investments or self-employment leads to improvements in household welfare, measured through various indicators such as income, consumption, and asset accumulation.
This research objective aims to explore the impact of microcredit on alleviating the effects of health shocks Specifically, it will assess whether access to microcredit enhances household income and consumption, improves healthcare access, and reduces the mobility of non-working-age individuals during health crises.
Rural Households face financial constraints, so they need credit to do production or business
Bank/ Financial Institutions investment more in rural financial market.
Bank/ Financial Institutions implement various credit programs for the poor.
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.
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)
Figure 2.5 – Analytical framework on accessibility to microcredit and its impact on welfare