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Determinants of Credit Participation and Its Impact on Household Consumption: Evidence From Rural Vietnam

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  • Cuong H. Nguyen

Abstract

This paper analyses the Vietnam's rural credit market to understand the determinants of credit choices and to measure impacts of borrowing activities on borrower's consumption in the 1992-1998 period. There are three main results. First, there exists uniform access to formal credit among rural households in Vietnam. Households' financial activity is found to be determined by household size and agricultural work rather than education or distance from the commune to the nearest bank branch. Education level seems to have an inverse U-shape effect on credit taking possibility; the least and the most educated households borrow least. Second, there is evidence of money lenders being crowded out by formal institutions via competition. Finally, we apply fix-effected regression and propensity score matching estimation on cross-sectional and panel data to assess impact of credit taking on household consumption. Our study demonstrates that formal credit positively affects borrowers' consumption while informal finance has mixed results.

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Paper provided by Centre for Economic Reform and Transformation, Heriot Watt University in its series CERT Discussion Papers with number 0703.

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Date of creation: 2007
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Handle: RePEc:hwe:certdp:0703

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Keywords: rural credit; credit participation; Vietnam;

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  1. Khandker, Shahidur R. & Faruqee, Rashidur R., 2001. "The impact of farm credit in Pakistan," Policy Research Working Paper Series 2653, The World Bank.
  2. Khandker, Shahidur R. & Faruqee, Rashid R., 2003. "The impact of farm credit in Pakistan," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 28(3), May.
  3. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
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Cited by:
  1. Doan, Tinh & Gibson, John & Holmes, Mark, 2010. "What determines credit participation and credit constraints of the poor in peri-urban areas, Vietnam?," MPRA Paper 27509, University Library of Munich, Germany, revised 17 Dec 2010.
  2. Togba, Edith Leadaut, 2012. "Microfinance and households access to credit: Evidence from Côte d’Ivoire," Structural Change and Economic Dynamics, Elsevier, vol. 23(4), pages 473-486.
  3. Kangogo, Daniel & Lagat, Job & Ithinji, Gicuru, 2013. "The Influence of Social Capital Dimensions on Household Participation in Micro-Credit Groups and Loan Repayment Performance in Uasin Gishu County, Kenya," MPRA Paper 48624, University Library of Munich, Germany.

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