Access to Credit and Borrowing Behaviour of Rural Households in a Transition

This paper studies the household demand in the rural Vietnam credit market using data from 4,800 households during the period from 1993 to 1998. The focus is on:

• Identifying the separate channels of credit demand and credit supply;
• Highlighting characteristics and interactions of formal and informal sectors, characteristics of borrowers, and impacts on credit participation and credit amount obtained.

This empirical analysis uses the following to identify variation for credit supply:

• Credit amount per capita in the commune that the household resides in;
• The distance from that commune to the nearest bank branch.

The findings are that:

• There is uniform access to formal credit across rural communes in Vietnam, albeit with quantitative rationing;
• Estimation results imply that education, health condition, fixed assets holding and distance from household to formal bank branch are among the most important factors affecting household credit activities;
• The least and the most educated households borrow least;
• The problem of limited screening power and asymmetric information is revealed in the result that the further the distance from a commune to a bank branch, the less likely a formal bank will lend to residents of that commune;
• Prediction of formal credit demand is estimated reducing over the years suggesting lack of investment opportunity for rural households.

With regard to policy implications, the authors suggest that the government could expand programs like job creation or vocational training, and introduce a policy calling for more investment in far and distant rural areas.