UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM NETHERLANDS PROGRAMME FOR M A IN DEVELOPMENT ECONOMICS IMPACT EVALUATION OF MICROCREDIT O[.]
UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS IMPACT EVALUATION OF MICROCREDIT ON WELFARE OF THE VIETNAM RURAL HOUSEHOLD BY PHAM TIEN THANH MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, OCTOBER 2012 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS IMPACT EVALUATION OF MICROCREDIT ON WELFARE OF THE VIETNAM RURAL HOUSEHOLD A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By PHAM TIEN THANH Academic Supervisor: DR PHAM BAO DUONG HO CHI MINH CITY, OCTOBER 2012 DECLARATION I certify that the contents of thesis have been carried out and written by me to the best of my knowledge and with the support in preparing this paper from many different sources I certify that this thesis has not been submitted to any other programs or journals HCMC, October 15th , 2012 PHAM TIEN THANH i ACKOWLEDGEMENTS This thesis is impossible to be achieved without the support and assistance of the following people: Firstly, I would like to express my greatest gratitude to Dr Pham Bao Duong, my academic supervisor, who advised and instructed and supported me during the process of this thesis His expertise and his suggestions have provided a good basis for the improvement of my research His enthusiasm and encouraging is also a motivation for me to achieve me thesis I would like to give my special thanks to Prof.Dr Nguyen Trong Hoai, Dean of Vietnam–The Netherlands Programme and Dr Pham Khanh Nam, Academic Director of Vietnam –The Netherlands Programme Their knowledge and enthusiasm has supported me a lot during my thesis writing process This is also a good opportunity to express my appreciation to all the lecturers who equipped me with valuable knowledge during my study at Vietnam –The Netherlands Programme I would also like to appreciate Mr Nguyen Khanh Duy, Lecturer at the Faculty of Development Economics, University of Economics, Ho Chi Minh City His support with data as well as using econometrics software is a great contribution to the completion of my thesis Lastly, I am grateful to my beloved parents who gave moral support and encouraged me to finish my thesis during writing process ii ABSTRACT This research evaluates the impact of microcredit on the welfare of households living in the Vietnam rural areas, especially the poor The research is analyzed based on a data of the Vietnam household living standard survey (VHLSS) in the year 2008 The difference of the research in comparison with the previous studied about the relationship between microcredit and welfare is the employment of propensity score matching (PSM) method, thus it reflects the impact of microcredit on rural households’ living standard better and more precisely The result shows that microcredit will result in better welfare of rural households via a greater increase in the income and consumption per capita per month of the participating households However, the result about the poor rural households showed that microcredit does not result in a higher increase in income of the participants than that of the nonparticipants, but contributes to a greater rise in the consumption The research also showed the determinants on the accessibility to microcredit programs of the households living in rural regions The results found out that the probability of accessing the microcredit sources of the rural households in Vietnam is still low Moreover, the proportionate of accessibility to microcredit of the poor household is even less that of the nonpoor households, which means microcredit programs mistarget the poor households From those results, the research gives policy recommendations to improve microcredit programs in rural areas as well as to support more poor households to access to microcredit sources iii TABLE OF CONTENT DECLARATION i ACKNOWLEDMENTS ii ABSTRACT iii TABLE OF CONTENT iv LIST OF ABBRIVIATIONS vi LIST OF TABLES AND FIGURES vii CHAPTER I .1 INTRODUCTION 1.1 Problem Statement .1 1.2 Objectives of the study 1.3 Research questions .4 1.4 Organization of the research CHAPTER II .6 LITERARTURE REVIEW 2.1 Overview of Poverty 2.1.1 Definition 2.1.2 Method of defining poverty 2.2 Overview of Microcredit .8 2.2.1 Some definitions 2.2.2 Characteristics of Microcredit 2.2.3 Overview of rural credit market in Vietnam 11 2.2.4 Overview of microcredit program in Vietnam .12 2.3 Empirical Study 17 2.3.1 Impact of micro credit on welfare/ living standard of the rural households 17 2.3.2 Determinants of the accessibility to microcredit programs 24 iv CHAPTER III 30 RESEARCH METHODOLOGY AND DATA DESCRIPTION .30 3.1 Model of determinants of access to credit 30 3.2.Impact Evaluation techniques .34 3.2.1 Some Definition 34 3.2.2 Impact evaluation using PSM technique 34 3.2.3 Impact evaluation using DID technique 38 3.3 Data Description 41 3.3.1 Survey area 41 3.3.2 Data sources 41 3.3.3 Sample selection 41 CHAPTER IV 44 RESULT 44 4.1 Descriptive Statistics 44 4.2 Determinants on microcredit participation .46 4.3 Impact of microcredit on welfare of rural households using PSM .51 4.4 Impact of microcredit on welfare of the rural poor using PSM 52 4.5 Impact of microcredit on welfare of rural households using DID with fixed effect 55 4.6 Comparison between the results of PSM and DID method 56 4.7 Comparison with previous studies .57 CHAPTER V 59 CONCLUSION, POLICY RECOMMENDATION AND LIMITATION 59 5.1 Conclusion 59 5.2 Policy Recommendation 62 5.3 Limitation 64 REFERENCES 65 APPENDIX .63 v LIST OF ABBREVIATIONS GSO General Statistics Office MOLISA Ministry of Labor, Invalids and Social Affairs DOLISA Department of Labor, Invalids and Social Affairs MFIs Micro Finance Institutions VBA Vietnam Bank for Agriculture and Rural Development VBSP The Vietnam Bank for Social Policies WB World Bank UN The United Nations PSM Propensity Score Matching VHLSS Vietnam household living standard survey NN Nearest neighbor PSM Propensity Score Matching DD or DID Difference in Difference or Double Difference vi LIST OF TABLES AND FIGURES List of Tables Table 2.1: Poverty Rate in Vietnam Table 2.2: Characteristics of Microcredit Programs in Vietnam from 2005 to 2011 12 Table 2.3: Main Characteristics of the MFIs in 2011 14 Table 2.4: Characteristics of Microcredit Programs by VBSP from 2005 to 2011 16 Table 2.5: Summary of Some Main Findings about the Impact of Microcredit Programs on Welfare/ Living Standards 20 Table 3.1: Descriptions of the Determinants on Accessibility to Microcredit 31 Table 3.2: Variables in the Analysis of the Impact of Microcredit using DID 40 Table 3.3: Characteristics of Comparison Groups in 2008 43 Table 4.1: Impact of Microcredit on Income/Consumption of Rural Households using Independent Sample T-Test Methods 44 Table 4.2: Impact of Microcredit on Income/Consumption of the Rural Poor using Independent Sample T-Test Methods 44 Table 4.3: Distribution of Eligibility with respect to Treatment Households 45 Table 4.4: Credit Access with respect to Eligible Households 45 Table 4.5: Probit Estimations of Determinants on Accessibility to Microcredit 47 Table 4.6: Probit Estimation of Model with Marginal Effect 48 Table 4.7: Impact of Microcredit on Income of Rural Households using PSM 51 Table 4.8: Impact of Microcredit on Consumption of Rural Households using PSM 52 Table 4.9: Impact of Microcredit on Income of the Rural Poor using PSM 53 Table 4.10: Sector of Production and Business on Which the Loan was Spent 53 Table 4.11: Reasons of Unchanged or Worse Living Condition 54 Table 4.12: Impact of Microcredit on Consumption of the Rural Poor using PSM 54 Table 4.13: Impact of Microcredit on Welfare of Rural households using DID with fixed effect 55 Table 4.14: Result Comparison between PSM and DID Method 56 Table 4.15: Results from the Previous Studies 57 vii List of Figures Figure 2.1 : Gross Loan Portfolio of microcredit in Vietnam from 2005 to 2011 13 Figure 2.2 : Characteristics of Microcredit Programs by VBSP from 2005 to 2011 15 Figure 2.3 : Determinants on Accessibility to Microcredit and Welfare Indicators 29 Figure 3.1 : Illustration of Impact Evaluation Using DID Method 39 viii ... income of the poorest households than that of the medium-income households in Vietnam rural regions, then this leads to the positive impact on poverty alleviation In a research on the case of the Vietnam. .. the determinants on the participation of microcredit programs; and the most important, the result of the impact of microcredit programs on the welfare of the household via income per capita and. .. in the program, measure the difference in outcome among factors at the same time (separate the impact of microcredit and other factors on welfare) , and the difference in outcome of impact of the