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

  • Cuong H. Nguyen
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    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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    File URL: http://www.sml.hw.ac.uk/downloads/cert/wpa/2007/dp0703.pdf
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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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    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 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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