(Luận văn) an analysis of access to formal credit of the households in rural areas

INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM t to ng VIETNAM-NETHERLANDS hi PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS ep w n lo ad AN ANALYSIS OF ACCESS TO FORMAL CREDIT OF THE HOUSEHOLDS IN RURAL AREAS ju y th yi The case of the Mekong River Delta pl n ua al n va fu ll BY m TRAN THI THU HONG oi at nh z z k jm ht vb MASTER OF ARTS IN DEVELOPMENT ECONOMICS om l.c gm n a Lu va HO CHI MINH CITY, December 2012 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS t to ng ' hi • VIETNAM-NETHERLANDS ep PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS w n lo ad ju y th AN ANALYSIS OF ACCESS TO FORMAL CREDIT OF THE HOUSEHOLDS IN RURAL AREAS yi pl The case of the Mekong River Delta ua al A thesis submitted in partial fulfillment of the requirements for the degree of n MASTER OF ARTS IN DEVELOPMENT ECONOMICS n va ll fu oi m By TRAN THI THU HONG at ' nh ) z z k jm DR TRAN TIEN KHAI ht vb Academmic Supervisor om l.c gm an Lu n va 't re HO CHI MINH CITY, December 2012 CERTIFICATION t to "I certify that the substance of this thesis has not already been submitted for ng any degree or examination hi ep I certify that to the best of my knowledge, help received in preparing this thesis, and all sources used, have been acknowledged in this thesis." w n lo Signature ad ju y th yi pl ua al TRAN THI THU HONG n Date: 31112/2012 n va ll fu oi m at nh z z k jm ht vb om l.c gm a Lu n ' n va te re Pagei ACKNOWLEDGEMENTS t to First of all, I would like to thank for my teacher, Dr Tran Tien Khai who has ng taught me methodically conduct research, for his encouragement, and guidance during hi ep the completion of this thesis I would like to express my appreciation towards the teachers and staffs of w V~etnam-Netherlands Program, for the knowledge that I received throughout the n lo years This knowledge helped me to complete thesis ad y th Finally I would like to thank my family, my husband who have encouraged and ju hctlped me very much in my study yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va t re Page ii ABSTRACT: This study attempts to find out what are the main determinants that affect the access to t to the formal credit sector of the households live in the Mekong River Delta with the ng data extracted from VHLSS 2006 and 2008 To fulfill the research objective, this hi study relies on the function of credit given to a household of M.H Quach, A W ep Mullineux, V Murinde (2004) With the helpings of Stata- and Stata -11 software, w the logistic model and Ordinary Least Squared method are employed to explore the n lo main factors that can be used to measure households' access to formal credit sector by ad y th the possibility of getting credit or not and the loan amount that households got from ju the formal credit sector The results of regression indicates that some variables such as yi poor household, real per capita expenditure, purpose of loan, house own, household pl ua al head's education, farm size and interest rate have significant effects on households n access to formal credit Therefore, in order to broaden the access to formal credit of n ' va the households in the Mekong River Delta as well as Vietnam, the banking system and oi m at nh I I I I ll m~ntioned above fu the government should concentrate on solving problems that related to variables KEYWORDS: access to formal credit, households, Mekong Delta River z z ht vb k jm om l.c gm n a Lu n va t re Page iii I I TABLE OF CONTENTS Acknowledgements : 11 t to Abstract ············································································································ iii Tables of contents .iv ng hi List of abbreviations • •.••.• •.• • •.•.• •.• • • • • .• •• .•.• Vl· ep List oftables and figures ························· v 1·1· CHAPTER 1: INTRODUCTION w n Problem statement Research objectives 3 Research questions Research hypothesis Data sources and methodology Scope and limitation of the research lo ad ju y th yi pl n ua al I Structure of the thesis n va fu CHAPTER 2: LITERATURE REVIEW I ll 2.1.1 Households and households in rural areas nh I Formal credit versus Informal credit at 2.l2 oi m 2.1 Definitions ., I z Micro finance and Access to credit z 2.1.3 vb 2.2 Theoretical framework related to determinants that affecting to the formal credit ht k jm by rural households : 2.2.1 Traditional approach - the dominant paradigm in the 1950s- 1970s gm l.c 2.2.2 Financial repression approach 10 2i.2.3 New institutional economics approach 12 om 2.2.4 Conclusions ofthree approaches 13 a Lu 2.3 Credit market model : 13 n 2.4 Empirical studies related to the determinants that affecting to the formal credit by rural households · · · 19 2.4 The household charact~ristics 20 Page iv re 2.3 Credit supply and behavior of formal lenders 17 n va 2.3.1 Households' borrowing behavior and the Demand for Credit 15 2.4.2 The lender characteristics 23 2.4.3 The location characteristics or the availability of the formal funds 24 t to 2.4.4 The local market characteristics 24 I ng 2.5 Chapter remark 24 hi ep CHAPTER 3: RESEARCH METHODOLOGY26 Methodology 26 w Model specification 26 n ~.2 lo ad CHAPTER 4: FINANCIAL SYSTEM AND ACCESS TO FORMAL CREDIT y th BY HOUSEHOLDS IN ME~ONG RIVER DELTA ju 4.1 Rural financial system in Vietnam 30 yi pl 4.1.1 Overview of rural financial supplier 30 ua al a The formal sector 30 n b The semi-formal sector 32 va n c The informal sector : 33 ll fu d Summary 34 oi m 4.1.2 Some weakness and challenges ofthe rural financial system 34 at nh a Weakness of the financial system 34 b Rural finance challenges 37 z z 4.2 Households in the Mekorig River Delta 39 vb jm ht 4.2.1 General picture of the Mekong River Delta 39 4.2.2 Rural financial system in the Mekong River Delta 41 k gm a Households characteristics 41 l.c b Production characteristics 43 om 4.2.3 Credit characteristics 44 an Lu a Credit sources 44 b Interest rates f Information problem of banks with respect to households 54 4.3 Summary 54 Pagev t re e Lending procedures and collateral requirement 52 n d Aim ofborrowing and uses of loan 50 va c Loan size 49 4.4 Determinants of credit accessibility of households in Mekong River Delta 55 4.5 Chapter conclusions 61 t to CHAPTER 5: CONCLUSION AND POLICY IMPLICATION ng 5.1 Conclusion 63 hi ep 5.2 Policy implication 64 5.3 Research limitation 66 w n References 67 lo ad Appendices 74 y th LIST OF TABLES ju Table 3.1: Table of independent variables 29 yi pl Table 4.1a: Household's size, householder's age and real expenditure per capital (with ua al VHLSS 2006) • 41 n Table 4.lb: Household's size, householder's age and real expenditure per capital (with va n VHLSS 2008) 42 fu ll Table 4.2a: Education level of household head (with VHLSS 2006) 42 m oi Table 4.2b: Education level of household head (with VHLSS 2008) 42 Table 4.3a - Typology of credit sectors and lending characteristics in MD (wi th at nh VHLSS 2006) 45 z z Table 4.3b - Typology of Credit sectors and lending characteristics in MD (with vb jm ht VHLSS 2008) 45 Table 4.4 a- Source of the rural credit in classifying poor or not poor (with VHLSS k gm 2006) : 46 om l.c Table 4.4 b- Source of the rural credit in classifying poor or not poor (with VHLSS a Lu 2008) ······························································································································· 46 Table 4.5a- Sources of the rural credit in interest rates (with VHLSS 2006) 48 n Table 4.5b- Source of the rural credit in interest rates (with VHLSS 2008) 48 Table 4.7b- Loan uses by wealth categories (with VHLSS 2008) 51 Table 4.8a: Collaterals require)llent in two sectors (with VHLSS 2006) 54 Page vi te re ,Table 4.7a- Loan uses by wealth categories (with VHLSS 2006) 50 n Table 4.6b- The average loan amount of the poor households (with VHLSS 2008) 49 va Table 4.6a- The average loan amount of the poor households (with VHLSS 2006) 49 Table 4.8b: Collaterals requirement in two sectors (with VHLSS 2008) 54 Table 4.10a: S~multaneous equat~on models w~th VHLSS 2006 56 t to table 4.10b: Simultaneous equatiOn models w1th VHLSS 2008 60 ng hi ep LIST OF FIGURES w n Figure 1: The vicious circle of capital formation 10 lo ad Figure 2: The commercial banks' lending procedure 52 ju y th yi pl ABBREVIATIONS al ua MFis: micro-finance institutions n NGOs: non-governmental organizations n va LUCs: Land Use Certificates fu ll VBARD: Vietnam Bank of Agriculture and Rural Development oi m VBP: Social policy Bank at nh GDP: Gross Domestic Product z MD: Mekong River Delta z k jm ht vb RD: Red River Delta om l.c gm an Lu n va re Page vii CHAPTER 1: INTRODUCTION Problem statement t to Vietnam is regarded as the rapid growing economy in the world The average ng hi growth rate of GDP in the period 2000-2008 is about 7.4%/year, in 2009 is 5.32% ep and in 2010 is 6.78% With 75% of the population live in the rural area, agricultural w production accounts for 22% of GDP, 30% of exports and 60% of employment n lo The Mekong River Delta (MD) is one of the two main agricultural production ad regions in Vietnam In the early months of the year 2011, MD has export 4.1 y th million tons of rice, account for 90% of rice export of all the country, value export ju yi of rice is above billion USD However, the rate of the poor ofthis region in 2010 pl is very high, accounts 18.85% the poor households of the country, the income is al USD/person/year, very low in compared to income 1,160 n ua about 975 va USD/person/year of the country n It is found that "limited access to available resource including financial capital, is fu ll among the main underlining causes of poverty in Vietnam Microfinance is a key m oi part of such resources from which the poor can choose and develop better nh at livelihood" (UNDP, 1996) Morduch and Haley (2002) also found that when the z poor get access to credit, they can "improve their productivity and management z ht vb skills; create jobs, smooth income flows and consumption costs; enlarge and k a better conditions on taking health care and education " jm diversify their businesses; and hence, their income can be increased and they have gm Since in 1997, the Vietnamese government has launched the Hunger eradication and om l.c Poverty Reduction concentrated on improving the poor's access to credit, especially in the rural areas The major institutions that mission are Vietnam Bank for a Lu Agriculture and Rural Development (VBARD), Vietnam Bank for the Poor (VBP) n institutions According to Stijn Claessens (2005, page 2), the main reason of this re sustainable and large extent access to credit to the poor and be sustainable credit n poor households at subsidized interest rates However, they have failed to provide va and People's Credit Funds (PCFs) Through credit programs, they provide loans to from dataset of VHLSS 2006 Except the variable PURPOSEOFLOAN, the sign of this variable is minus in the Equation Y2-Loan amount, that can be explained by the t to higher amount of loans the banks provide for the households are used for house ng hi purchase/repair and others uses With two variables SEX and AGE, although their ep sign are different with these variables in the Equation Y2-Loan (VHLSS 2006, but w they have no significant at 10%, so we not need to worry about them n lo 4.5 Chapter conclusion ad a Chapter summary y th ju In this chapter, we have seen that access to formal credit can be measured by two yi ways, the probability and the extent that household access to formal credit The pl ua al demand and supply factors are combined to measure the determinants of household's access to formal credit Two econometric methods, logistic and OLS n n va have been utilized by using two datasets of VHLSS 2006 and VHLSS 2008 The ll fu main conclusions have been drawn out as follows: oi m The models attempts to prove that household characteristics, loan characteristics and endowments of household determine the probability of household's access to nh at formal credit sector and loan amounts borrowed Empirical results show that the z z models we choose are acceptable because the Prob>F = 0.000 chi2 = 0.0000 Log likelihood= -341.30291 Pseudo R2 = 0.2456 w n lo ad ju y th Coef Std Err yi SOL2 z [95% Conf Interval] P>lzl 2545006 -2.55 0.011 -1.148327 2445863 7.01 0.000 1.23625 4009613 1.61 0.107 -.1397447 0000406 2.35 0.019 000016 070333 3.48 0.000 1072481 1964499 -0.13 0.896 -.4107026 0052029 2.46 0.014 002606 2.57 0.010 0197341 0322197 0.22 0.828 -.3787361 2173519 -.3175161 2075918 0.43 0.667 -.5284613 -6.37 0.000 0634552 2.78439 6361946 -2.42 0.016 n va ll fu oi m at nh -.0256679 I 0128034 I 0828837 I 0472659 I 0893563 I -.4040914 -1.537471 n ua I I -.6495144 I 1.71563 I 646125 I 0000957 I 2450982 al "~ pl -1 - poorhousehold purposeofloan houseown pcexp2rl hhsize sex age hhedu empwage empselfAg percentinterest cons -.1507023 2.195011 1.431995 0001753 3829483 3593669 0230008 1460332 4732679 4962287 -.2797216 -.2905527 z z * reg lnloanamount poorhousehold purposeofloan lnpcexp2rl hhsize sex age hhedu vb jm ht empwage empselfAg percentinterestrate lnhousevalue farmsize, robust Regression with robust standard errors om t P>ltl [95% Conf Interval] -1 - -2.12 3.40 4.94 4.64 -0.01 -0.85 2.62 -2.68 0.035 0.001 0.000 0.000 0.992 0.396 0.009 0.008 -.4651471 1144661 3172565 072354 -.1464263 -.0055287 0078585 -.3794754 -.0173483 4266899 7353576 1786977 1449674 0021915 0551279 -.0586436 te re I 1140238 0795021 064618 0270785 0741981 0019658 0120363 081694 n I -.2412477 270578 526307 1255259 -.0007295 -.0016686 0314932 -.2190595 va I I I n Poorhousehold Purposeofloan lnpcexp2rl hhsize sex age hhedu empwage a Lu , Robust Std Err l.c Coef - I gm I lnloanamount k Number of obs = 885 F( 12, 650) = 19.19 Prob > F = 0.0000 R-squared = 0.2892 Root MSE = 93604 74 I t I empselfAg percentinterest Lnhousevalue farm size t to - cons ng 1606397 094022 1.71 0.088 -.0227983 0126979 -1.80 0.073 1037811 0484629 2.14 0.033 0000246 4.69e-06 5.25 0.000 2.451985 9133811 2.68 0.007 -.0239838 3452632 -.0477322 0021357 0086184 1989438 0000154 0000339 6584518 4.245519 hi \ I I I I I ep * Regression results with VHLSS 2008 age empselfA w logit SOL2 poorornot07 pcexp2rl purposeofloan houseown hhedu hhsize sex > g phantramlaisuat n lo Iteration Iteration Iteration Iteration Iteration ad 0: 1: 2: 3: 4: y th log log log log log likelihood= likelihood= likelihood = likelihood = likelihood = -483.54367 -435.53874 -434.18642 -434.18057 -434.18057 Logistic regression ju Number of obs LR chi2(10) Prob > chi2 Pseudo R2 yi pl Log likelihood = -434.18057 z fu -0.45 1.34 53 1.29 4.32 3.57 -2.69 1.46 3.75 -5.36 -2.46 [95% Conf Interval] P>lzl ll oi m 0.653 0.180 0.125 0.196 0.000 0.000 0.007 0.144 0.000 0.000 0.014 -.5540455 -.000016 -.1057719 -.2915911 0748041 0955251 -1.028245 -.0034413 3326725 -.2539725 -3.038421 3470883 0000853 8632936 1.419808 1989791 3286306 -.1609182 0236465 1.060096 -.1180432 -.3463563 at nh 2298853 0000258 2472151 4365895 0316779 0594668 2212609 0069103 1855706 0346765 6867639 n -.1034786 0000347 3787609 5641086 1368916 2120779 -.5945815 0101026 6963842 -.1860078 -1.692389 va poorornot07 pcexp2rl purposeofl-n houseown hhedu hhsize sex age empselfAg phantramla-t _cons Std Err n coef ua • al I' SOL2 856 98.73 0.0000 0.1021 z reg lnloanamount poorornot07 lnpcexp2rl purposeofloan lnhousevalue hhedu hhsize sex a > ge empselfAg phantramlaisuat farmsize 856 Number of obs = MS df ss source F( 11, 844) = 45.43 Prob > F = 0.0000 11 46.0874729 506.962202 Model R-squared = 0.3719 844 1.01451687 856.25224 Residual Adj R-squared = 0.3637 = 1.0072 Root MSE 1363.21444 855 1.59440286 Total z ht vb k jm 060292 9336229 -.2559915 2644931 0543067 1911806 1777122 0078757 2520979 -.0029832 0000404 1.442559 re -.3509106 5614809 -.683766 1298789 00574 096285 -.1726638 -.003629 -.0622381 -.0578038 0000227 -1.681968 n 0.166 0.000 0.000 0.000 0.015 0.000 0.977 0.469 0.236 0.030 0.000 0.880 va -1.39 7.89 -4.31 5.75 2.43 5.95 0.03 0.72 1.19 -2.18 7.01 -0.15 n 1047501 0947998 1089716 0342917 0123719 0241738 0892551 0029307 0800742 013965 4.51e-06 7959447 [95% conf Interval] a Lu P>ltl om t l.c -.1453093 7475519 -.4698787 197186 0300233 1437328 0025242 0021233 0949299 -.0303935 0000316 -.1197046 Std Err poorornot07 lnpcexp2rl purposeofl-n lnhousevalue hhedu hhsize sex age empselfAg phantramla-t farmsize cons coef gm lnloanamount \ 75