Social networks with organisational resource, generalised trust and informal loans: Evidence from rural Vietnam

The banking system in developing countries is much less developed than in other parts of the world; hence it is more common for households to borrow money through informal channels. Informal loans are characterised by social collateral rather than physical collateral. The literature shows that social networks and social trust are important components of social collateral. While many studies show empirical evidence of an association between social networks and informal borrowing, there is a lack of empirical evidence of the way in which social networks and social trust play as social collaterals. This paper uses a longitudinal dataset to examine the role of generalised trust and social networks, under organisational networking resources, in informal loans among rural households in twelve provinces across Vietnam. Empirical results show that community social networks impose a positive effect on obtaining informal loans and on repayment performance, while generalised trust is associated with the probability of falling into arrears.