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Access to Credit and Borrowing Behaviour of Rural Households in a Transition Economy

Access to Credit and Borrowing Behaviour of Rural Households in a Transition Economy. Cuong H. Nguyen Centre for Economic Reform and Transformation (CERT) Heriot-Watt University Edinburgh, UK. Research Objectives. To understand

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Access to Credit and Borrowing Behaviour of Rural Households in a Transition Economy

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  1. Access to Credit and Borrowing Behaviour of Rural Households in a Transition Economy Cuong H. Nguyen Centre for Economic Reform and Transformation (CERT) Heriot-Watt University Edinburgh, UK

  2. Research Objectives To understand Determinants of credit access and credit sector choice of rural household Determinants of credit amount household obtained

  3. Data • Vietnam Living Standard Survey 1992/93 & 1997/98 • VLSS92/93: 4,800 households & 150 communes • VLSS97/98: 6,000 households & 194 communes

  4. The Model of Partial Observability • Credit Demand equation (1) • Credit Supply equation (2)

  5. The Model of Partial Observability • Credit Participation (3) • Probability of being credit participant

  6. Partial Observability BivariateProbit Result

  7. Findings and Discussion Uniform access to formal credit across communes Inverse u-shape impacts of education, the least and the most educated household heads borrow least Rapid expansion of formal sector But demand for formal credit is estimated at low level

  8. Determinants of Loan Size The Heckman Selection Model

  9. Heckman two-step estimation result

  10. Findings and Discussion The further distance to bank branch, the less participation probability and the smaller loan amount Land size, house ownership, domestic labour, and education significantly positively increase supply of credit Impacts of health condition on choice of credit sector

  11. Policy Implications Expanding formal credit network via social organisations i.e. Woman Union, Youth Union, Postal System to increase the accessibility of formal credit The low demand for formal credit implies lack of investment opportunities for poor rural households. Hence, government should introduce a policy calling for more investment in far and distant rural areas

  12. Thank you!

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