Impact evaluation of micro credit on welfare and poverty on the vietnam rural household

INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM 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 th HCMC, October 15 , 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 INTRODUCTION 1.1 Problem Statement 1.2 Objectives of the study 1.3 Research questions 1.4 Organization of the research CHAPTER II LITERARTURE REVIEW 2.1 Overview of Poverty 2.1.1 Definition 2.1.2 Method of defining poverty 2.2 Overview of Microcredit 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 GSO MOLISA DOLISA MFIs VBA VBSP WB UN PSM VHLSS NN PSM DD or DID 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 201116 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 1.2.4 Marginal Effect of Probit Model Marginal effects after probit y = Pr(credit) (predict) = 09857761 -(*) dy/dx is for discrete change of dummy variable from to 76 variable | -+ hgender*| age | age2 | hedu | hmar*| ost*| ethnic*| hhsize | drate | lpc | hval | distance | geof1*| geof2*| geo2*| rbs*| ca2*| po*| The impact of microcredit program on welfare of rural households using PSM 2.1 Estimation of propensity score **************************************************** Algorithm to estimate the propensity score **************************************************** The treatment is credit Estimation of the propensity score (sum of wgt is 5.3093e+06) Iteration 0: log pseudolikelihood = -833.18428 Iteration 1: log pseudolikelihood = -769.26135 Iteration 2: Iteration 3: Iteration 4: log pseudolikelihood = -765.64634 Probit regression Log pseudolikelihood = -765.64634 Note: the common support option has been selected The region of common support is [.012981, 47304715] 77 Description of the estimated propensity score in region of common support Estimated propensity score 1% 5% 10% 25% 50% 75% 90% 95% 99% ****************************************************** Step 1: Identification of the optimal number of blocks Use option detail if you want more detailed output ****************************************************** The final number of blocks is This number of blocks ensures that the mean propensity score is not different for treated and controls in each block ********************************************************** Step 2: Test of balancing property of the propensity score Use option detail if you want more detailed output ********************************************************** The balancing property is satisfied This table shows the inferior bound, the number of treated and the number of controls for each block of pscore - Note: the common support option has been selected ******************************************* End of the algorithm to estimate the pscore ******************************************* 78 2.2 Impact evaluation of microcredit on welfare 2.2 Impact on log of average income per capita 2.2 1.Nearest Neighbor Matching method Analytical standard errors - n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches Bootstrapped standard errors n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches 2.2 Radius Matching method Analytical standard errors n treat n contr - 170 ATT Std Err t 362 0.090 0.038 2.361 Note: the numbers of treated and controls refer to actual matches within radius Bootstrapped standard errors Note: the numbers of treated and controls refer to actual matches within radius 2.2 Stratification method Analytical standard errors n treat n contr ATT 290 1994 0.092 - Std Err 0.028 t 3.325 Bootstrapped standard errors n treat n contr ATT 290 1994 0.092 - Std Err 0.028 79 t 3.343 290 2.2 Impact on average income per capita 2.2 1.Nearest Neighbor Matching method Analytical standard errors - n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches 290 Bootstrapped standard errors n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches 2.2 2 Radius Matching method Analytical standard errors Note: the numbers of treated and controls refer to actual matches within radius Bootstrapped standard errors n treat n contr ATT Std Err t 170 362 91.762 38.510 2.383 Note: the numbers of treated and controls refer to actual matches within radius 2.2 Stratification method Analytical standard errors n treat n contr ATT 290 1994 93.915 - Std Err 20.941 t 4.485 Bootstrapped standard errors n treat n contr ATT 290 1994 93.915 - Std Err 22.841 80 t 4.112 290 2.2 Impact on log of average consumption per capita 2.2 Stratification method Analytical standard errors Note: the numbers of treated and controls refer to actual nearest neighbour matches Bootstrapped standard errors n treat 290 Note: the numbers of treated and controls refer to actual 2.2 Stratification method Analytical standard errors n treat 170 Note: the numbers of treated and controls refer to actual Bootstrapped standard errors n treat 170 Note: the numbers of treated and controls refer to actual 2.2 3 Stratification method ATT estimation with the Stratification method Analytical standard errors n treat n contr ATT 290 1994 0.124 - Std Err 0.025 t 5.054 Bootstrapped standard errors n treat n contr ATT 290 1994 0.124 - Std Err 0.020 81 t 6.299 2.2 Impact on consumption per capita 2.2 1.Nearest Neighbor Matching method Analytical standard errors - n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches 290 Bootstrapped standard errors n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches 2.2 Radius Matching method Analytical standard errors n treat n contr ATT Std Err t - 170 362 86.793 21.982 3.948 Note: the numbers of treated and controls refer to actual matches within radius Bootstrapped standard errors Note: the numbers of treated and controls refer to actual matches within radius 2.2 Stratification method Analytical standard errors n treat n contr ATT 290 1994 77.714 - Std Err 14.780 t 5.258 Bootstrapped standard errors n treat n contr ATT 290 1994 77.714 - Std Err 12.318 82 t 6.309 290 The impact of microcredit program on welfare of the rural poor using PSM 3.1 Estimation of propensity score **************************************************** Algorithm to estimate the propensity score **************************************************** The treatment is credit Estimation of the propensity score (sum of wgt is Iteration 0: log pseudolikelihood = -203.13416 Iteration 1: log pseudolikelihood = -167.80027 Iteration 2: log pseudolikelihood = -165.87674 Iteration 3: log pseudolikelihood = -165.85165 Iteration 4: Probit regression Log pseudolikelihood = -165.85164 Note: the common support option has been selected The region of common support is [.01778183, 90920033] 83 Description of the estimated propensity score in region of common support Estimated propensity score 1% 5% 10% 25% 50% 75% 90% 95% 99% ****************************************************** Step 1: Identification of the optimal number of blocks Use option detail if you want more detailed output ****************************************************** The final number of blocks is This number of blocks ensures that the mean propensity score is not different for treated and controls in each block ********************************************************** Step 2: Test of balancing property of the propensity score Use option detail if you want more detailed output ********************************************************** The balancing property is satisfied This table shows the inferior bound, the number of treated and the number of controls for each block of pscore - Note: the common support option has been selected ******************************************* End of the algorithm to estimate the pscore ******************************************* 84 3.2 Impact evaluation of microcredit on welfare using PSM 3.2 Impact on log of average income per capita 3.2 1.Nearest Neighbor Matching method Analytical standard errors - Note: the numbers of treated and controls refer to actualnearest neighbour matches Bootstrapped standard errors n treat n contr ATT Std Err t 99 62 0.082 0.054 1.526 Note: the numbers of treated and controls refer to actual nearest neighbour matches 3.2 Radius Matching method Analytical standard errors Note: the numbers of treated and controls refer to actual matches within radius Bootstrapped standard errors n treat n contr - 51 ATT Std Err t 76 0.136 0.085 1.598 Note: the numbers of treated and controls refer to actual matches within radius 3.2 Stratification method ATT estimation with the Stratification method Analytical standard errors n treat n contr ATT 99 231 0.079 - Std Err t Bootstrapped standard errors n treat n contr ATT 99 231 0.079 - Std Err 0.057 85 t 1.394 3.2 Impact on average income per capita 3.2 1.Nearest Neighbor Matching method Analytical standard errors - n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches 99 Bootstrapped standard errors n treat Note: the numbers of treated and controls refer to actual nearest neighbour matches 3.2 2.Near Radius Matching method Analytical standard errors Note: the numbers of treated and controls refer to actual matches within radius Bootstrapped standard errors Note: the numbers of treated and controls refer to actual matches within radius 3.2 3.Near Radius Matching method ATT estimation with the Stratification method Analytical standard errors n treat n contr ATT 99 231 47.168 - Std Err t Bootstrapped standard errors n treat n contr ATT 99 231 47.168 - Std Err 31.438 86 t 1.500 99 3.2 Impact on log of average consumption per capita 3.2 Stratification method Analytical standard errors Note: the numbers of treated and controls refer to actual nearest neighbour matches Bootstrapped standard errors n treat n contr ATT Std Err t 99 62 0.129 0.057 2.266 Note: the numbers of treated and controls refer to actual nearest neighbour matches 3.2 Radius Matching method Analytical standard errors Note: the numbers of treated and controls refer to actualmatches within radius Bootstrapped standard errors Note: the numbers of treated and controls refer to actual matches within radius 3.2 Stratification method Analytical standard errors n treat n contr ATT 99 231 0.141 - Std Err t Bootstrapped standard errors n treat n contr ATT 99 231 0.141 - Std Err 0.051 87 t 2.754 3.2 Impact on consumption per capita 3.2 1.Nearest Neighbor Matching method Analytical standard errors - Note: the numbers of treated and controls refer to actual nearest neighbour matches Bootstrapped standard errors Note: the numbers of treated and controls refer to actual nearest neighbour matches 3.2.4.2 Radius Matching method Analytical standard errors Note: the numbers of treated and controls refer to actual matches within radius Bootstrapped standard errors Note: the numbers of treated and controls refer to actual matches within radius 3.2 Stratification method ATT estimation with the Stratification method Analytical standard errors n treat n contr ATT 99 231 71.720 - Std Err t Bootstrapped standard errors n treat n contr ATT 99 231 71.720 - Std Err 20.512 88 t 3.496 Impact evaluation of microcredit on welfare using DID with Fixed Effect Impact on average income per capita Note: credit08 omitted because of collinearity (*) Fixed-effects (within) regression Group variable: hhid R-sq: within corr(u_i, Xb) -F test that all u_i=0: F(178, 177) = 1.88 Prob > F = 0.0000 4.2 Impact on log of average income per capita Note: credit08 omitted because of collinearity (*) Fixed-effects (within) regression Group variable: hhid R-sq: within between overall = corr(u_i, Xb) -F test that all u_i=0: F(178, 177) = 3.09 89 Prob > F = 0.0000 4.3 Impact on average consumption per capita Note: credit08 omitted because of collinearity (*) Fixed-effects (within) regression Group variable: hhid R-sq: within between overall = corr(u_i, Xb) -F test that all u_i=0: F(178, 177) = 1.76 Prob > F = 0.0001 4.4 Impact on log of average consumption per capita Note: credit08 omitted because of collinearity (*) Fixed-effects (within) regression Group variable: hhid R-sq: within between overall = corr(u_i, Xb) -F test that all u_i=0: F(178, 177) = 3.77 ( Prob > F = 0.0000 Note: The credit08 variable (the participation in the program) is omitted because of its perfect correlattion with the other dummy variables (the dummy variable of households generated from using fixed effect model) Therefore, when using DID with fixed-effect regression, we should only consider the pre and post program impact over time (which means the coefficient of timecredit variable) 90 ... 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... 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. .. microcredit market in Vietnam rural areas and the operation of microcredit program in Vietnam, especially the case of VBSP The last part discusses the impact of microcredit on welfare of housholds, as