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Most policy and research interest regarding rural credit markets revolves around the perception that poor households in developing countries lack access to credit, which is believed to have negative consequences for household welfare. An important feature of the rural credit market is that access to credit is easier for some groups than for others. The Vietnamese government supplied credit on preferential terms, particularly to rural households, through state-owned financial intermediaries. The share of the informal sector was thus considerably reduced from 78% (1992/93) of all outstanding loans to 54% (1997/98) in favor of the formal sector. However, there is evidence from other developing countries that credit constraints persist despite the expansion of rural finance. Hulme and Mosley (1996) state that there is increasing evidence that the poorest 20% of the population are excluded from rural credit programs. Thus, even in Vietnam the question remains: did the Vietnamese government succeed in reaching the poor, or do groups of people exist who are still access-constrained? Quantitative (N=260) and qualitative data collection took place between March 2000 and 2001. The quantitative data comprise cross-sectional household-level data from two different districts in Northern Vietnam. The poverty outreach of formal rural lenders was analyzed using Principal Component Analysis, while access to formal credit was investigated using a binary logit analysis. The poverty outreach of the formal lenders is quite satisfactory since about 50% of all predominantly poor rural households have access to formal credit. However, the poorest households are seldom clients of formal lenders. Yet, it is not their extreme general poverty that determines their access to formal credit. The results indicate that only certain aspects of poverty, e.g. low quality of housing, have an important influence on access to formal credit in Vietnam. The poorest households simply have much less demand for formal credit. Offering new credit products would only slightly improve the credit coverage of poorer households. More promising would be a specialized pro-poor extension service to widen the scope of their investment ideas and possibilities, combined with general improvement of the infrastructure. All in all, the most appropriate tool to incorporate poorer households into the formal financial system would be mobilization of savings. Nevertheless, the number of access-constrained households is surprisingly low. One reason for the low number is the weakening or eradication of former access constraints. Some access barriers do still exist, e.g. towards ethnic minorities or female-led households. To reduce these access barriers, the actions to be taken should be catering to the specific needs and the circumstances of those households that lack access.


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