Access to Credit and Household Income in the Northern Mountains of Vietnam

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JUSTUS-LIEBIG UNIVERSITÄT GIESSEN Fachbereich 09: Agrarwissenschaften, Ökotrophologie und Umweltmanagement Access to Credit and Household Income in the Northern Mountains of Vietnam Inaugural-Dissertation zur Erlangung des Doktorgrades (Dr Agr.) Fachbereich Agrarwissenschaften, Ökotrophologie und Umweltmanagement Institut für Betriebslehre der Agrar - und Ernährungswirtschaft Professur für Projekt – und Regionalplanung Eingereicht von: Do Xuan Luan (MSc.) Erstgutachter: Prof Dr Siegfried Bauer Zweitgutachter: Prof Dr Rainer Kühl Giessen – November, 2015 Số hóa Trung tâm Học liệu – ĐHTN PREFACE This volume provides a comprehensive analysis on the issues of rural credit conducted in the Northern Mountainous Region of Vietnam The study has been carried out within the ―Agricultural Economics and Related Sciences‖ program at the University of Giessen, Germany A crucial advantage of this study is that it combined various econometrics tools using data collected from the national household surveys to examine the extent to which credit serves the poor, with regard to access constraints and income impacts The empirical findings reveal that the poor, especially the poorest households are still underserved by overall rural credit The Agribank credit tends to provide to wealthier households and informal credit serves households that are closer to and above the relative poverty line Subsidized credit successfully targeted the poor, implying that governmental subsidies are necessary to reach the poor Credit accessibility analysis has highlighted the importance of social capital and agricultural extension services in determining credit accessibility by rural households Whereas a significant increase in household income can be achieved through accessing commercial and informal loans, there is no significant increase in all income components for associated recipients of subsidized credit Based on the findings of the study, a set of policy implications aimed at improving poverty targeting and credit access can increase the impact of credit on reducing poverty in a sustainable manner For the editors: Siegfried Bauer, University of Giessen, Germany ACKNOWLEDGEMENTS First and foremost, I am deeply indebted to my first supervisor Prof Dr Siegfried Bauer for his continuous guidance, moral support and encouragement throughout this process I am also thankful to my second supervisor Prof Dr Rainer Kühl for his constructive suggestions Guidance and understanding from both supervisors proved crucial to the successful completion of this work My thanks also go to the members of the examination committee, Prof Dr Ingrid-Ute Leonhäuser, Prof Dr Joachim Aurbacher and Prof Dr Michael Schmitz The administrative support and cooperation of Mrs Schlocker, Dr Evelina and Dr Tarig is also worth mentioning I would also like to express my appreciation to Heinz Lakos for his technical support, to Mr Danner McCulloh for his English correction of the text, to Mr.Max and Dr Aaron for their correction of the German summary I also acknowledge the Vietnamese Ministry of Education and Training for the doctoral scholarship My sincere thanks go to the faculty of economics and rural development at Thai Nguyen University of Agriculture and Forestry I would like to thank the Central Institute for Economic Management (CIEM) of Vietnam for providing the data and Dr Kieu Thi Thu Huong for supporting me in my application for the doctoral program I would like to take this opportunity to thank Mr Nguyen Thanh Vu and international colleagues for their support The inspiration and support of my father Do Xuan Luong, mother Vu Thi Sau, my brothers and sisters were my main source of strength My heartfelt appreciation goes to them My deepest thanks go to my son Do Anh Duc, my daughter Do Khanh Linh and my wife Duong Thi Thu Hang for their inspiration, support and sacrifice Số hóa Trung tâm Học liệu – ĐHTN i TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS i LIST OF TABLES viii LIST OF FIGURES x LIST OF ACRONYMS AND ABBREVIATIONS xi INTRODUCTION 1.1 Background of the study 1.2 Statement of the problem 1.3 Objectives 1.4 Hypotheses of the study 1.5 Scope and limitations of the study 1.6 Contribution of the study 1.7 Structure of the study AN OVERVIEW OF ECONOMY, POVERTY AND RURAL CREDIT SYSTEM IN VIETNAM 2.1 Geography 2.2 Macroeconomic performance 2.2.1 Key development indicators 2.2.2 GDP, credit and inflation in Vietnam 2.2.3 Economy‘s structure share in Vietnam 2.3 Agriculture and Poverty 2.3.1 Agricultural performance 2.3.2 Rural labors 11 2.3.3 Fragmentation of agricultural land 11 2.3.4 Poverty in Vietnam 12 2.3.5 Agricultural insurance in Vietnam 13 2.4 Rural credit in Vietnam 14 2.4.1 Brief history of rural credit policy in Vietnam 14 Credit cooperatives before 1986 14 Số hóa Trung tâm Học liệu – ĐHTN ii TABLE OF CONTENTS Replacement of the mono-tier banking system after 1986 15 The separation between preferential and commercial lending 16 Incorporation of microfinance institutions in the financial system 17 Priorities for lending agricultural and rural sector 18 2.4.2 Rural credit demand 18 2.4.3 Supply side of rural credit in Vietnam 20 Formal, semiformal and informal credit 20 Market share and financial sustainability 22 2.5 Summary of the chapter 24 THEORETICAL AND EMPIRICAL FOUNDATIONS OF THE STUDY 25 3.1 Concept of credit and general issues 25 3.1.1 The credit concept 25 3.1.2 Types of credit 26 3.1.3 The triangle of credit 27 3.1.4 Challenges for the provision of credit to rural households 28 Principle of marginal return to capital 28 Information asymmetry 29 Characteristics of farming activities 30 Principal – agent problem in rural credit market 31 Transaction cost and borrowers‘ risk management 32 3.2 Poverty outreach of credit 33 3.2.1 Depth of outreach concept and measurement 33 Concept 33 Measurement 33 3.2.2 Empirical evidence on poverty outreach of credit 35 The extent to which credit serves the poor 35 Reasons explaining the credit exclusion of the poor 35 3.2.3 Credit subsidy 37 3.2.4 Summary 37 3.3 Access to credit 38 3.3.1 Concepts and approaches of analyzing credit accessibility 38 iii TABLE OF CONTENTS 3.3.2 Empirical determinants of credit access at household level 40 3.3.3 Summary 41 3.4 Credit repayment 42 3.4.1 Role of credit repayment 42 3.4.2 Measurement for repayment performance 42 3.5 Welfare impact of credit 44 3.5.1 How credit affect households 44 3.5.2 A foundation for impact estimation 46 3.5.3 Empirical evidence on impact of credit 47 Significantly positive impact of credit 47 Limited impact of credit and reasons 49 Mixed impacts of credit under certain conditions 50 3.5.4 Summary 50 3.6 International experiences in rural credit development 51 3.6.1 Germany 51 3.6.2 Bangladesh 52 3.6.3 Philippines 54 3.6.4 Indonesia 55 3.6.5 Thailand 56 3.6.6 Lessons to be learnt 57 3.7 Conceptual framework 58 RESEARCH AREA AND ANALYSIS OF SAMPLED HOUSEHOLD CHARACTERISTICS 60 4.1 Overview of the Northern Mountainous Region of Vietnam 60 4.1.1 Overall socio-economic conditions 60 4.1.2 Overview of the selected communes 62 4.2 Data source 63 4.3 Composition of selected households by sources of loans 66 4.3.1 Loan characteristics 68 Loan amount, duration and interest rate 68 Collateral security 69 Số hóa Trung tâm Học liệu – ĐHTN iv TABLE OF CONTENTS Mode of repayment 70 Credit use purposes 70 4.4 Demographic characteristics of selected households 72 4.5 Main agricultural activities 74 4.5.1 Crop production 74 4.5.2 Livestock production 75 4.5.3 Land size and land use certificate 76 4.6 Access to extension services 78 4.6.1 Receives of extension services categorized by sources of loans 78 4.6.2 Feedback of household to extension services 79 4.6.3 Extension and credit access 81 4.6.4 Extension and household income 82 4.6.5 Extension and other household endowments 84 4.7 Shocks and economic losses 86 4.7.1 Type of shocks and distribution of shock affected households by loan sources and provinces 86 4.7.2 Economic losses due to shocks 88 4.7.3 Household endowments categorized by shock affected 89 Income difference 89 Differences in selected variables between shock-affected and shock non- affected households 91 4.7.4 Household responses to shocks 93 4.8 Household savings 94 4.8.1 Savings and credit access 94 4.8.2 Motives for savings 96 4.8.3 Savings and household endowments 98 Savings and income 98 Savings and other household endowments based on loan sources 99 4.9 Ethnicity and credit access 101 4.9.1 Credit recipients categorized by ethnicity group 101 4.9.2 Ethnicity and credit volumes 102 v TABLE OF CONTENTS 4.9.3 Ethnicity and household endowments 103 4.10 Summary of the chapter 106 POVERTY OUTREACH OF RURAL CREDIT 108 5.1 Introduction 108 5.2 The methodology for evaluating poverty outreach 108 5.2.1 Principal Component Analysis: main ideas 108 5.2.2 Selection of variables for Principal Component Analysis 110 Point-Biserial Correlation 111 A description of selected variables 112 5.3 Empirical results and discussion 114 5.3.1 Results of Principal Component Analysis 114 5.3.2 Poverty outreach of rural credit 116 Depth of outreach based on relative poverty 116 The association between poverty scores and loan amount 118 Depth of outreach based on categories of credit exclusion 119 5.3.3 Summary of the chapter 120 DETERMINANTS OF CREDIT ACCESSIBILITY BY RURAL HOUSEHOLDS 121 6.1 Introduction 121 6.2 Methodology 121 6.2.1 Choice of explanatory variables 121 Social capital 121 Human capital 123 Financial capital 124 Physical capital 125 6.2.2 Bayesian Model Average applied to the Heckman Selection Model126 Credit access model 127 Credit Amount Model 129 6.3 Results and discussions 131 6.3.1 Endowment difference between household groups 131 6.3.2 Result of Bayesian Model Averaging (BMA) 134 Số hóa Trung tâm Học liệu – ĐHTN vi TABLE OF CONTENTS 6.3.3 Determinants of credit access 135 Determinants of accessing overall credit 136 Determinants of accessing subsidized credit 140 Determinants of accessing Agribank credit 141 Determinants of accessing informal credit 144 6.4 Summary of the chapter 146 INCOME IMPACT OF CREDIT ON RECIPIENTS 147 7.1 Introduction 147 7.2 Impact Estimation by Using Propensity Score Matching 147 7.2.1 Reasons for choosing Propensity Score Matching 147 7.2.2 Main ideas of Propensity Score Matching 148 7.2.3 Assumptions of Propensity Score Matching 150 7.2.4 Choice of matching algorithm 151 Nearest neighbor matching and radius matching 151 Kernel matching 153 Stratification matching 153 7.2.5 Assessment of the matching quality 154 7.2.6 Bootstrapping with Propensity Score Matching 155 7.3 Estimation Results 156 7.3.1 Income Impact of Credit without Using Matching Techniques 156 7.3.2 Income Impact of Credit by Using Matching Techniques 159 Income impact of overall rural credit 160 Income impact of subsidized credit 162 Income impact of commercial credit by the Agribank (VBARD) 166 Income impact of informal credit 169 Income impact per VND million of credit 171 7.4 Summary of the chapter 172 SUMMARY OF THE STUDY: RATIONALE, MAIN FINDINGS, CONCLUSIONs AND POLICY RECOMMENDATIONS 173 8.1 Introduction 173 8.2 Rationale of the study 173 TABLE OF CONTENTS vii 8.3 Methodological approaches 174 8.4 Main findings 174 8.4.1 Household characteristics 174 8.4.2 Poverty outreach of credit 176 8.4.3 Determinants of credit access 176 8.4.4 Income impact of credit 177 8.5 Conclusions 177 8.5.1 The extent to which credit reaches the poor 177 8.5.2 Factors influencing credit access 178 8.5.3 Income impact of rural credit 178 8.6 Policy implications 179 8.6.1 Improve the extent to which credit reaches the poor 179 8.6.2 Credit schemes should be adaptable to the farming seasonality and the cash flow of households 179 8.6.3 Development of risk copping measures for the poor 180 8.6.4 Encouraging the provision of commercial loans 180 8.6.5 Informal credit still retain as a necessity for the poor 181 8.6.6 Facilitating access to extension services 181 8.6.7 Mobilization of rural savings as the important source of credit 182 8.7 Limitations and suggestions for further studies 182 ZUSAMMENFASSUNG 183 REFERENCES 188 APPENDIX 200 Số hóa Trung tâm Học liệu – ĐHTN APPENDIX 208 5B Working in agriculture, aquaculture and/or forestry (own household production excluding common property ressource work) RESPONDENT ID: Ask all household members born before January 2006, who answered "yes" in Q1B in section 5A HH member ID For how many days, or day equivalents, in the last 12 months was [NAME] involved in the following activities? a b Rice cultivation Maize cultivation DAYS DAYS c Total all other crops DAYS d e f Livestock Aquaculture Forestry DAYS DAYS DAYS 209 APPENDIX 5C Non farm - non wage economic activities 5C1 Non farm - non wage economic activities: General information Enterprise No During the last 12 months, has your household's pursued any non-farm, nonwage, non-forestry, non-acquaculture businesses? LIST ALL SELFEMPLO YMENT/ BUSINE SS ACTIVIT IES OF THE HOUSE HOLD DESCRI PTION Which industry / branch is the activity? Does this activity have a business license? Yes, enterpris e Yes, private trading No INDUST RY CODE CODE Who is the mana ger/co ntrolle r of this activit y? ID CODE Where is most of the activity taken place? At home Another location in the village Another village in the commune Another commune in the district Another district in the province Another province Outside Vietnam CODE Whe n did the hous ehold start this activi ty? For how many months was this activity in operation for the last 12 months? YEA R MONTH S Số hóa Trung tâm Học liệu – ĐHTN YES NO >> Section 5D During Did these the month house s, on hold avera need ge, to how make many any days initial per invest month ments was in this order activit to y in start operat doing ion? this activit y? Yes No >> Q11 DAYS COD E RESPONDENT ID: How much did the househol d need to invest? 10 How was this investme nt financed ? All selffinanced Selffinanced and borrowed All borrowed 000VND CODE 11 What is the averag e numbe r of labour ers doing this activity during the last 12 month s? (includi ng laborer as memb er of house hold) 12 How man y labo urers are paid ? NUMB ER NUM BER APPENDIX Enterprise No 210 13 For the months the business was under operation for past 12 months, what was the total revenue of this activity? 000 VND 14 During the past 12 months, how much was spent on raw materials and small nondurable tools? 000 VND 15 During the past 12 months, how much was spent on utilities (electricit y, water, gasoline, oil, petrol, and other fuels)? 16 During the past 12 months, how much was the labour cost (wages, insurance s, trade union fees, etc)? 000 VND 000 VND 17 During the past 12 months, how much was spent on rent of land, workshop s, transporta tion (rent and fees), loan interest, taxes and fees, water and solid sewage disposal, and other expenditur es? 18 Over the past 12 months, have you exchanged goods and services produced by this activity for other goods and services? 000 VND CODE 19 What is the value of exchang e goods and services for the past 12 months? 20 Has your househol d consume d any goods and services for the past 12 months? 21 What is the value of goods and services consumed by your household for the past 12 months? Yes No >>22 Yes No >>20 000 VND CODE 22 Has your househol d consume d or sold byproducts produced by this business for the past 12 months? 23 What is the value of byproducts consume ed or sold by your househol d for the past 12 months? 24 How many house holds includi ng yours own this busine ss? 25 What is the percent age of income from this busines s received by your househo ld? Yes No >>24 000 VND CODE 000 VND NUMB ER % 211 APPENDIX 5C2 Working on Non-farm - non wage activities Ask all household members born before January 2006, who answered "yes" in Q1C in section HH member ID For how many days, or day equivalents, in the past 12 months was [NAME] involved in the following non-farm - non wage economic activities? a b c d Enterprise No (From section 5C1) Enterprise No (From section 5C1) Enterprise No (From section 5C1) All other enterprises (From section 5C1) DAYS DAYS DAYS DAYS Số hóa Trung tâm Học liệu – ĐHTN APPENDIX 212 5G Total Income of household in last 12 months RESPONDENT ID: During the last 12 months, approximately how much was your household's net income from the following sources - including cash and in-kind payments? '000 VND Wage/salary Agricultural activities Common property resources Non-farm non wage economic activities Rental income A: Land/ real estate B: Other assets Sales of assets Private transfers Public transfers Other 10 Total 213 APPENDIX ACCESS TO EXTENSION SERVICES MOST PREFERRED RESPONDENT: PERSON MOST KNOWLEDGEABLE ABOUT AGRICULTURE QUESTION Over the last 12 months, has anyone in your household visited an agricultural extension agent or attended a meeting to seek advice or obtain assistance on growing crops or raising domestic animals? How often did members of your household go to such meetings in the last 12 months? How many times did extension staff visit your household in the last 12 months? Did your household obtain assistance or information on the following topics in the last 12 months? GET ANSWER FOR ALL CATEGORIES OF INFORMATION CATEGORIES ANSWER Yes No ==> q3 NUMBER OF TIMES NUMBER OF TIMES No Yes, from extension agent or meeting Yes, from suppliers or buyers Yes, from neighbours/friends/family Yes, from commune authorities Yes, from radio, television, or newspaper a New seeds, varieties or breeds b Use of fertilizer c Irrigation d Pest infestation, blight problems e Animal livestock disease f Information about where to sell or about prices g Getting a loan h Climate change impacts How much has this information affected your crop production decisions? CHOOSE ONE How much has this information affected your decisions on raising livestock? CHOOSE ONE Very much Moderately No effect Very much Moderately No effect Moderately No effect Số hóa Trung tâm Học liệu – ĐHTN APPENDIX 214 7B Savings RESPONDENT ID: Does your household have savings in any of the following forms? Yes No IF RESPONDENT ANSWERS 'NO' GO NEXT ROW What is the money value of this saving/asset today? ' 000 VND Formal Postal savings VBSP VBARD Other State owned commercial bank Private Bank Credit organisation Other Informal ROSCAS Cash/gold/jewelry at home Private moneylender Other What was the money value of this saving/asset 12 months ago ? [Leave blank if no savings 12 months ago] ' 000 VND How much did your household contribute to these savings/assets over the past 12 months ? ' 000 VND Which are the main reasons for saving through [type]? LIST TWO MOST IMPORTANT SEE CODES BELOW CODE1 CODE2 215 APPENDIX SECTION CREDIT (FORMAL AND INFORMAL) Loans obtained since July 2010 Has your household borrowed money or goods (including seeds or fertilizer) from any source since July 2010? Yes = No = >> q21 [INTERVIEWER]: List most important loan first In what year did your household obtain the loan? Which member(s) of the household applied for the loan? How much did this person apply for? How much did this person receive (cash or cash equivalent) ? GET ID-CODE FROM SECTION 1A Year (4-digit) Month ID CODE ID CODE '000 VND '000 VND What is the interest rate? TIME UNIT: DAILY WEEKLY MONTHLY YEARLY '000 VND Most important loan 2nd most important loan 3rd most important loan Số hóa Trung tâm Học liệu – ĐHTN TIME UNIT APPENDIX 216 How much is owed today? What is/was the duration of the loan from inceptio n (in months or fractions of a month)? (If indefinit e use code 999) '000 VND Most important loan 2nd most important loan 3rd most important loan Months From which institution or individual was the loan obtained? Social Policy Bank Bank for Agriculture and Rural Development Other State-owned commercial Bank Local Authorities Private Bank Farmers Union Veterans Union Women's Union People's Credit Funds 10 Other credit associations 11 Private Trader 12 Private Money Lender 13 Friends/Relatives 14 Informal credit scheme (including Roscas) 15 Other (please specify) Code 10 How far did the person who applied for the loan have to travel to get the loan? Km 11 What was the stated purpose of the loan? Rice Other crop production (including inputs) Animal husbandry Forestry Fishery Non-farm activity Repay other loan Build/buy house Buy land 10 Buy another asset Code 217 APPENDIX Loans obtained since July 2010 (cont.) RESPONDENT ID: 13 Did your household have to offer assets as collateral for this loan Yes No >> q16 Code 14 What kind of asset did your household have to offer as collateral? 15 What was the total value of the assets offered as collateral? Land + house with red book Land + house without red book Furnitures, etc >> Q16 Savings book >> Q16 Paddy >> Q16 Animals >> Q16 Other >> Q16 Code 16 If there was a guarantor, what is the relationship of the guarantor to the member of the household borrowing money? RELATIVE FRIEND COMMUNE PEOPLE COMMITTEE MASS ORG./ASSOCIATION EMPLOYER OTHER '000 VND Most important loan 2nd most important loan 3rd most important loan Số hóa Trung tâm Học liệu – ĐHTN Code APPENDIX 218 Loans obtained since July 2010 (cont.) 17 How often you have to make payments? 18 19 How large is each payment? How many times, if any, has the person responsible for this loan failed to make a due payment in full ? Daily Weekly Monthly Quarterly Half yearly Yearly Once Other Code Most important loan 2nd most important loan 3rd most important loan If never >> Q21 '000 VND Number 20 What was the most important reason for not paying in full or at all ? Failed to collect debt owed by others Could not sell product/crop Natural Disaster Animal died/stolen Delay on purpose Illness Unexpected expenditure Other Code 219 APPENDIX 21 How many times, since July 2008 have you had a loan rejected? IF 0>>SECTION 22 What were the three main reasons for this? Not enough collateral No guarantor Business plan not good enough Lack of funds for lending Bad credit history Stated purpose of loan did not match objective of credit source Commune authorities did not approve No reason given Other NUMBER CODE FIRST REASON SECOND REASON THIRD REASON Số hóa Trung tâm Học liệu – ĐHTN APPENDIX 220 9B RISK RESPONSE Q6 - 7: ONLY ASK IF YES TO 1a, 1b OR 1c IN Q1 Since July 2010, did the household suffer from an unexpected loss from any of the following shocks? Please list the date (month and year) of the three most important shocks, in order of importance Please list how much you lost due to this event YES NO IF "NO" TO ALL TYPES OF SHOCKS >> Section 10A SHOCK NR 1a 1b 1c Natural and Biological Shocks Floods Droughts Typhoons and other natural disasters Pest infestation and crop diseases What did you to cope with the shock? LIST TWO MOST IMPORT ANT MEASUR ES SHOCK NR MONTH YEAR 000 VND CODE To what extent have you recovered from the shock? Completely Partly recovered Still suffering badly CODE If household experienced flood, land slide, typhoon, or storm, did the shock result in illness/injury of household member? YES NO If household experienced flood, land slide, typhoon, or storm, did the shock result in death of household member? YES NO CODE CODE 221 APPENDIX CODE q4: Avian flu Nothing Reduced consumption Sold land Sold livestock Sold other assets Got assistance from relatives or friends Got assistance from Government Got assistance from NGO Borrowed money from bank 10 Borrowed from others 11 Got insurance payment 12 Postponed payment of loans 13 Work more 14 Took children out of school/Sent children to work 15 Use savings 16 Other 4a 4b 10 11 8a Economic Shocks Change in crop price Shortage or changes in price of key inputs/services you use 8b Has the weather in general been favourable for agriculture during the last 12 months YES NO CODE During the last three years, the weather for agriculture has been in general BETTER THAN NORMAL NORMAL WORSE THAN NORMAL CODE Change in prices of food or other essential commodities consumed Unemployment Unsucessful investment Loss of land Crime (robbery, theft) Shocks to household members Divorce, abandonment, or internal or extended family disputes Serious illness, injury or death of a household member Số hóa Trung tâm Học liệu – ĐHTN APPENDIX 222 PERSON If you were in need of money in case of an emergency who outside of your household could you turn to who would be willing to provide this assistance? What is [NAME]'s gender? MALE FEMALE Does [NAME] have the same occupation like yours? YES NO Is [NAME] of same ethnicity like you are? Does [NAME] live in this village? YES YES NO NO ASK Q1-12 FOR UP TO THREE PERSONS, THEN ASK Q13 CODE CODE How often you see [NAME]? 10 For what other matters would you seek [NAME]'s support? LIST UP TO TWO VERY OFTEN SOMETIMES RARELY WHEN IN NEED OF A JOB 11 Do many other people in this village also rely on [NAME] for this type of information? NAME CODE CODE PERSON How long have you known [NAME]? YEARS CODE FOR HEALTH PROBLEMS FOR FAMILY MATTERS BUSINESS ADVICE OTHER CODE CODE 12 Would [NAME] come to you for advice on any of these matters as well? YES NO DON'T KNOW 13 How many people you know whom you could ask for help with this? YES NO CODE CODE NUMBER [...]... world Vietnam covers the length of the Indochinese peninsula, bordering the sea in the East, Laos and China in the North, and Cambodia in the West The geographic position of Vietnam is within a major transport connection between the Indian Ocean and Pacific Ocean The country is divided into 6 main geographical regions, including the Red River Delta, the Northern Mountainous Region, the North Central and. .. ranges from $500 to $1,500, then the first three quintiles of the population are close to the income target range for microfinance products reflecting the relevance of the demographics to the microfinance model In addition, Vietnam has a high proportion of labor forces living in rural areas and engaging in farming activities The vast majority of the households have low income This segment of the population... OVERVIEW OF ECONOMY, POVERTY AND RURAL CREDIT SYSTEM IN VIETNAM 19 The top quintile representing 20% of total population have per capital income of $3,093 and the bottom quintile representing 20% of total population in Vietnam have per capita income of $499 (GENERAL STATISTICS OFFICE OF VIETNAM, 2012) If the target customers of credit, especially small loans, are people whose average annual income ranges... also indicates that poverty rate was substantially higher in in the Northern Mountains and Central Highlands In contrast, better-off households were represented in the Red River Delta and the Southwest region The higher density of poverty in the Northern Mountainous Region might indicate a lack of access to supportive agricultural services including credit, agricultural extension, and market information... 2010, the bank has disbursed loans to all districts and 98% of all communes in the country (TAM, 2013) Incorporation of microfinance institutions in the financial system In 2005, the government introduced Decree 28, which regulates the organization and operation of microfinance institutions According to the legal framework, microfinance institutions (MFIs) in Vietnam are regarded as credit institutions,... also the place, where most of ethnic minorities in the country live and draw their primary income from agriculture The poverty rate in the region is 114.41% higher than the average rate of the whole country, and households in this area also have fewer opportunities to access credit schemes According to the national statistics, only 9.86% of the national loan outstanding is allocated to the Northern. .. resources and that is why they are poor Improving access of the poor to financial services has therefore long been a question of great interest In the history of rural development, credit has been thought of as a key factor in creating employment for farmers, helping them expand production and increase welfare To this point, a number of studies have emphasized the importance of a broad access to appropriate... another example of a company failing to provide insurance to farmers in Vietnam The company has had more than 100 years of experience working in the field of agricultural insurance In Vietnam, it started to insure agriculture and fisheries in 2001 However, the company decided to stop its operation in 2004 due to low revenue and huge compensation of losses (CONG THANG, 2014) 2.4 Rural credit in Vietnam. .. Mountainous Region, compared to 49% of the Southeast Region and the Mekong River Delta (GENERAL STATISTICS OFFICE OF VIETNAM, 2012) Although Vietnam can look back at an impressive record in reducing poverty during the last two decades, disparities are still emerging Poverty intensity is still substantially higher in in the Northern Mountains The amount of literature recognizing the importance of rural credit. .. following hypotheses: Hypothesis 1: Credit targets the poor households as part of its contribution to national rural development and poverty reduction Hypothesis 2: Rural households, especially poor ones, continue to experience constrained access to credit Hypothesis 3: There seem to be various reasons explaining the poverty reduction in Vietnam in the last two decades One of these argues that the decrease
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