Social capital and informal credit access: empirical evidence from a Vietnamese household panel survey

Informal lending is more common in less developed countries, regions and among more disadvantaged communities. While the literature advocates that social capital affects access to informal credit through many mechanisms, there is little empirical evidence on the effect of social capital at individual and community levels. This paper uses a longitudinal dataset to examine the impact of social networks at both levels on the access to informal credit among rural households in twelve rural provinces across Vietnam. Our empirical results show a stronger effect of community's social network on informal credit access. In the case of negative shocks, households become more reliant on informal credit, and the effects of social capital become stronger. Additionally, households with family relatives holding political positions are more likely to obtain informal credit. Our results are robust as possible endogeneity issues have been accounted for by the fixed-effect estimator and "E-value"—a new tool to assess the robustness of findings to unobserved confounders.