Rural credit and household consumption : evidence from Vietnam

This thesis is a contribution to the research literature of the Vietnamese rural credit market during 1990s. The data' used is from the Vietnam Living Standard Surveys carried out in 1992/93 and 1997/98, providing both cross-sectional and panel data. The thesis consists of four main chapters. Chapter 2 provides an overview ofthe rural credit markets. We find a big expansion of the formal credit sector over years but financial system remains largely underdeveloped with a dual structure in which formal and informal sectors exist side by side. Chapter 3 is a study assessing determinant factors of household's credit participation formal and informal credit markets. We contribute to the literature as the first research attempts to estimate the credit demand and the credit supply functions separately. We are also the pioneer in applying the bivariate probit model with partial observability in empirical study using data from Vietnam. The empirical analysis in the Chapter 4 highlights the determinant factors of credit amount obtained. We find that poor rural households who seem to borrow most often are not those who borrow the largest loan size. The last chapter aims to assess the impact of formal credit on household consumption. To address problem of selection bias, we employ instrumental variable method. We show that on average each percent increased in household's formal credit per capita would lead to 0.26 percent increased in consumption per capita. Our results draw some important policy implications. First, even though formal credit network continues to expand greatly to ,cover most rural areas, there is a question on the outreach and flexibility of credit services because rationing remains as a serious problem for rural households. Credit institutions should develop a better screening system, e.g. credit scoring system, to reduce collateral requirement which actually considered as one of the most obstacles of the formal credit access. Land regulations and fixed asset legal entitlement should also be reviewed together with improvement of administration procedure to enable households to use their property as collateral if required. In addition, increased demand for credit implies more investment opportunities. Hence, government should continue to improve the economic infrastructure to facilitate agricultural product trade market, provide better health and education system to maintain this demand.EThOS - Electronic Theses Online ServiceGBUnited Kingdo