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Can microcredit reduce vulnerability to poverty? Evidence from rural Vietnam

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  • Chung Thanh Phan
  • Thang Tat Vo
  • Diem Thi Hong Vo

Abstract

Extant literature has extensively explored microcredit's impacts, confirming its essential role in poverty alleviation. However, most studies focus on poverty measures that exclusively emphasize current poverty status without adequately addressing the potential of falling into or remaining in poverty. Furthermore, the role of credit services in helping the poor in rural areas appears to be underexamined in the literature. To address this knowledge gap, this study investigates whether rural microcredit can reduce household vulnerability to poverty. A theoretical framework is developed to capture the mechanism by which microcredit borrowing has a vital role in household businesses and impacts the probability of being poor in the future. The Vietnam Access to Resources Household Survey data set from 2008 to 2016 is used to explore this issue. The findings indicate that rural Vietnam's access to microcredit significantly reduces vulnerability to poverty. Moreover, better‐off households are seemingly the most effective at using microcredit, whereas the opposite is found among worse‐off households. These results are found to be robust using the propensity score matching method.

Suggested Citation

  • Chung Thanh Phan & Thang Tat Vo & Diem Thi Hong Vo, 2023. "Can microcredit reduce vulnerability to poverty? Evidence from rural Vietnam," Review of Development Economics, Wiley Blackwell, vol. 27(1), pages 608-629, February.
    • Handle: RePEc:bla:rdevec:v:27:y:2023:i:1:p:608-629
    DOI: 10.1111/rode.12951
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    References listed on IDEAS

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    1. Bo Yang & Xiangnan Wang & Tong Wu & Weihua Deng, 2023. "Reducing farmers' poverty vulnerability in China: The role of digital financial inclusion," Review of Development Economics, Wiley Blackwell, vol. 27(3), pages 1445-1480, August.

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