CHAPTER 1 - INTRODUCTION 1.1. Backgrounds Poverty reduction, access to education, clean water, sanitary, health care, etc. are the top concerned among 17 Sustainable Development Goals - SDGs) which formerly was Millennium Development Goals (MGDs). They are the important issues and attract the attention of every country, especially the developing countries like Vietnam. During the past decades, Vietnam has obtained remarkable achievements in the socio-economic development and poverty reduction. Statistics show that the poverty rate has declined from 37.4 percent in 1998 to 5.8% in 2016 (Demombynes & Vu, 2015; GSO, 2016). The report also shows that the poverty rate in 2016 in rural areas (7.5%) is nearly four times higher than that in urban areas (2%) 1 . The statistics indicate that a large number of rural households still live in poverty under poor living standards and suffer from the lack of socio-economic opportunities. Income of the households in rural area is rather low. In particular, a report by GSO (2016) shows that per capita income per month of the rural households is, on average, 2,437 thousand VND. In the rural, per capita income per month of the bottom quintile (the poorest) is 676 thousand VND, the second bottom (the near-poor) 1,246 thousand VND and the top quintile (the richest) 5,669 thousand VND. Therefore, it indicates that income of the poorest is around 8.4 times lower than that of the richest, which is a great gap. Consumption of the rural households is quite low. In particular, a report by GSO (2014) shows that per capita expenditure per month of the rural households is, on average, 1,609 thousand VND. More specific, per capita expenditure per month of the bottom quintile (the poorest) is 834 thousand VND, the second bottom (the near-poor) 1,154 thousand VND and the top quintile (the richest) 2,576 thousand VND, which indicates a big gap between the poorest and the richest in terms of expenditure. Poverty reduction, income improvement and good health, especially in the rural area, are the most concerned issues among the 17 Sustainable Development Goals. In the world and in Vietnam, many programs and activities have been implemented to achieve these goals, for instance, training, agricultural extension, agricultural technology, finance, job creation, etc. Among them, credit is considered as the most important factors in income-generating activities since the rural households, especially the poor, normally face financial constraint. Without accessibility to formal credit support, poor farmers are unable to expand their production and improve their living conditions (Li et al., 2011). As above-mention, a large number of rural households in Vietnam are still living in poverty. The poor have high demand for credit; however, credit market in rural Vietnam normally faces the problem of demand excessing supply. Thenceforth, the poor have difficulty in accessing formal credit due to the lack of collateral. In rural Vietnam, formal credit is mainly provided by the Vietnam Bank for Agriculture and Rural Development and Vietnam Bank for Social Policies (Ho & Duc, 2015), and recently by microfinance institutions. Inability to obtain formal credit has inhibited farmers from improving their living conditions. Therefore, farmers may rely on informal credit sources to support their production and consumption even though they must pay a much higher interest rate, which may push them deeper into ‘vicious debt circle’ with less repayment capacity. The reasons why farmers still accept the high interest rate from informal sources are its collateral-free merit and quick borrowing procedure.
MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ***** Pham Tien Thanh MICROCREDIT AND WELFARE OF THE RURAL HOUSEHOLDS IN VIETNAM PHD DISSERTATION IN ECONOMICS HO CHI MINH CITY, 2018 iii TABLE OF CONTENTS COMMITMENTS i ACKNOWLEDGEMENT ii TABLE OF CONTENTS iii ABBREVIATIONS viii LIST OF TABLES ix LIST OF FIGURES xi CHAPTER - INTRODUCTION 1.1 Backgrounds 1.2 Research problems 1.2.1 Accessibility to microcredit 1.2.2 Microcredit and adoption of improved rice varieties 1.2.3 Impact of microcredit on households’ welfare 1.2.4 Microcredit and health shock 1.3 Research objectives 1.4 Scopes of research 1.5 Research data 10 1.6 Research methods 10 1.6.1 Quantitative methods 10 1.6.2 Qualitative methods 11 1.7 Contribution of the research 11 1.7.1 Theoretical contributions 11 1.7.2 Practical contributions 12 1.8 Organization of the research 13 CHAPTER – LITERATURE REVIEW 14 2.1 Overview of microcredit 14 2.1.1 Some definitions 14 2.2.2 Characteristics of microcredit 15 2.2 Theory 16 iv 2.2.1 Overview of rural credit market 16 2.2.2 Asymmetric information 19 2.2.3 Theories on accessibility to credit 21 2.2.3.1 Theory of Choice (Demand for Credit) .22 2.2.3.2 Theory of Credit Rationing 23 2.2.4 Theoretical framework of outreach of microcredit 26 2.2.5 Farm household model under credit constraint 27 2.2.5.1 Producer Problem .28 2.2.5.2 Consumer Problem 28 2.2.5.3 Worker Problem 29 2.2.5.4 Farm Household Model with Credit 30 2.3 Empirical studies 31 2.3.1 Determinants of rural households’ accessibility to microcredit 31 2.3.2 Impact of microcredit on adoption of the improved rice varieties 36 2.3.3 Impact of microcredit on living standard 38 2.3.1 Empirical studies in the world 39 2.3.2 Empirical studies in Vietnam 40 2.3.4 Impact of health shocks and role of microcredit 43 2.3.4.1 Impacts of health shocks 43 2.3.4.2 Strategies to cope with Health Shocks and Role of Microcredit .44 2.4 Definitions of welfare 47 2.5 Logical framework of impact evaluation of microcredit on welfare 48 CHAPTER – OVERVIEW OF MICROCREDIT 51 3.1 Microcredit in the world 51 3.2 Microcredit in rural Vietnam 53 3.2.1 Microcredit providers 53 3.2.2 Credit activities and clients 58 3.2.3 Poverty reduction role of microcredit 60 v CHAPTER – DETERMINANTS OF ACCESSIBILITY TO MICROCREDIT 61 4.1 Research method 61 4.1.1 Estimation strategy 62 4.1.2 Selection of variables 65 4.1.2.1 Dependent variable 65 4.1.2.2 Explanatory Variables 65 4.1.3 Research hypotheses 67 4.2 Research data 69 4.2.1 Data source 69 4.2.2 Research sample 70 4.2.3 Descriptive statistics 70 4.3 Results and discussions 73 CHAPTER – MICROCREDIT AND ADOPTION OF IMPROVED RICE VARIETIES 81 5.1 Research method 81 5.1.1 Estimation strategy 81 5.1.2 Selection of variables 85 5.1.2.1 Dependent variables 85 5.1.2.2 Independent variables .86 5.1.3 Research hypotheses 87 5.2 Research data 87 5.2.1 Data source 87 5.2.2 Research sample 87 5.2.3 Descriptive statistics 88 5.3 Results and discussions 90 CHAPTER – IMPACT EVALUATION OF MICROCREDIT ON WELFARE 102 6.1 Research method 102 6.1.1 Estimation strategy 102 6.1.1.1 Propensity Score Matching (PSM) 102 vi 6.1.1.2 Difference in Difference (DID) .103 6.1.1.3 PSM-DID 104 6.1.2 Selection of variables 105 6.1.2.1 Microcredit variable 105 6.1.2.2 Variables for calculation of propensity score 106 6.1.2.3 Welfare variables .106 6.1.3 Research hypotheses 107 6.2 Research data 108 6.2.1 Data source 108 6.2.2 Research sample 108 6.2.3 Descriptive statistics 109 6.3 Results and discussions 109 6.3.1 Propensity score and balancing test 109 6.3.2 Average impact of microcredit program 111 CHAPTER – ROLE OF MICROCREDIT IN MITIGATING THE EFFECTS OF HEALTH SHOCKS 118 7.1 Research method 118 7.1.1 Estimation strategy 118 7.1.2 Selection of variable 120 7.1.2.1 Dependent variables 120 7.1.2.2 Health shocks variables 120 7.1.2.3 Microcredit variable 121 7.1.2.4 Other control (explanatory) variables 122 7.1.3 Research hypotheses 123 7.2 Research data 123 7.2.1 Data source 123 7.2.2 Research sample 124 7.2.3 Descriptive statistics 124 7.3 Results and discussions 126 vii 7.3.1 Are health shocks unanticipated? 126 7.3.2 First stage results using instrumental variables 127 7.3.3 Illness/ Disease/ Injury of working-age members (HS1W) 130 7.3.4 Illness/ Disease/ Injury of any members (HS1A) 133 CHAPTER – CONCLUSIONS 135 8.1 Objective 1: Determinants of accessibility o microcredit 135 8.1.1 Summary 135 8.1.2 Policy implications 136 8.1.3 Limitations and further studies 138 8.2 Objective 2: Microcredit and adoption of improved varieties 139 8.1.1 Summary 139 8.2.2 Policy implications 140 8.2.3 Limitations and further studies 141 8.3 Objective 3: Impact evaluation of microcredit on welfare 142 8.3.1 Summary 142 8.3.2 Policy implications 143 8.3.3 Limitations and further studies 144 8.4 Objective 4: Role of microcredit in mitigating the effects of health shocks 145 8.4.1 Summary 145 8.4.2 Policy implications 146 8.4.3 Limitations and further studies 146 REFERENCE 147 Reference in the word 147 Reference in Vietnam 165 Websites 169 APPENDIX 171 viii ABBREVIATIONS Abbr Meanings MF Microfinance MFIs Microfinance Institutions PCFs People’s Credit Funds ROSCAs Rotating Savings Credit Associations VBSP Vietnam Bank for Social Policies VBARD Vietnam Bank for Agriculture and Rural Development VPSC Postal Savings Company ix LIST OF TABLES Table 2.1 - Welfare indicators 47 Table 3.1 - Microcredit trend in the world 52 Table 3.2 - Top 10 microcredit providers in the world .52 Table 3.3 - Microcredit providers in Vietnam 59 Table 3.4 - Living standards of clients before and after borrowing .60 Table 4.1 - Variables for analysis of determinants of accessibility to microcredit 67 Table 4.2 – Description of loans obtained 71 Table 4.3 - Characteristics of variables for analysis of determinants of accessibility to microcredit 72 Table 4.4 - Estimated results of determinants of accessibility to microcredit – Whole sample 75 Table 4.5 - Estimated results of determinants of accessibility to microcredit – Nonpoor sample .79 Table 4.6 - Estimated results of determinants of accessibility to microcredit – Poor sample 80 Table 5.1 - Variables used for analyzing impact of microcredit on adoption 86 Table 5.2 - Characteristics of adoption variables 88 Table 5.3 - Characteristics of variables that affect adopting decision 89 Table 5.4 - Microcredit and adoption of improved rice varieties - IV 2SLS using IVs .91 Table 5.5 - Microcredit and adoption of improved rice varieties - IV 2SLS using IV .91 Table 5.6 - Microcredit and adoption of improved rice varieties .93 Table 5.7 - Microcredit and adoption of improved rice varieties – Poor and nonpoor sample .101 Table 5.8 - Impact of microcredit on other investment activities 101 Table 6.1 - Definition of welfare variables .107 Table 6.2 - Probit estimations for calculation of propensity score 110 x Table 6.3 – Balancing test .111 Table 6.4 - Impact of microcredit on income and total output value 112 Table 6.5 - Impact of microcredit on food expenditure 116 Table 6.6 - Impact of microcredit on accumulation of durable assets 117 Table 7.1 - Types of health shock 121 Table 7.2 - Microcredit borrowed by households 122 Table 7.3 - Descriptive statistics of variables for used analysis of health shocks 125 Table 7.4 - Unanticipation of health shocks 127 Table 7.5 – First stage results using IV for HS1W 128 Table 7.6 – First stage results using IV for HS1A 128 Table 7.7 - Impact of health shocks on income and labor and the role of microcredit using VFE 129 Table 7.8 - Impact of health shocks on consumption and the role of microcredit using VFE 129 xi LIST OF FIGURES Figure 2.1 – Credit constraint and unconstraint 25 Figure 2.2 - Analytical framework of impact of microcredit on welfare 42 Figure 2.3 - Conceptual framework of impacts of health shock .44 Figure 2.4 - Logical framework on impact evaluation of credit on welfare .49 Figure 2.5 – Analytical framework on accessibility to microcredit and its impact on welfare .50 Figure 3.1 – Microfinance providers in Vietnam 53 ... Credit Funds ROSCAs Rotating Savings Credit Associations VBSP Vietnam Bank for Social Policies VBARD Vietnam Bank for Agriculture and Rural Development VPSC Postal Savings Company ix LIST OF TABLES... CHAPTER – OVERVIEW OF MICROCREDIT 51 3.1 Microcredit in the world 51 3.2 Microcredit in rural Vietnam 53 3.2.1 Microcredit providers 53 3.2.2 Credit activities and... world 52 Table 3.2 - Top 10 microcredit providers in the world .52 Table 3.3 - Microcredit providers in Vietnam 59 Table 3.4 - Living standards of clients before and after borrowing