Microcredit and welfare of the rural households in VietNam

Abstract

Research objectives: (1) investigate determinants of accessibility to microcredit off rural households; (2) examine the role of microcredit in enhancing farmer's adoption of improved rice, including wherether to adopt and how to adopt; (3) evaluate the impact of microcredit on the rural households' living standards, measured by various indicators; investigate role off microcredit in mitigating the effect of health shocks. Research data: This research applies Vietnam Household Living Standards Survey (VHLSS) and Vietnam Access to Resources Household Survey (VARHS) in 2012 and 2014; in-depth interview and focus group are conducted in rural areas to supplement the results from econometric model and to imply policies. Research methods: this research employs different methods for investigating each specific research objectives, including (1) Probit model for first objective; (2) Double-Hurdle (DH), Tobit and Heckman, and IV 2SLS for second objective; (3) Difference in difference (DID) and PSM-DID for third objective; and (4) Regression with Village-Fixed-Effect (VFE) and IV 2SLS for fourth objective; employs in-depth interview and focus group to capture the deeper understanding about the research problems. Results: Quantitative analysis shows that some variables are found to have significant effect on households’ accessibility to microcredit, including Age, Saving and non-microcredit, Household size, Social Capital, Poverty status, Poor commmune, Distance, Agricultural land. Based on in-depth interview, other factors are found affect accessibility to credit: (1) households’ production or business plan; (2) Their credit history; (3) Their seriousness and devotion to work/life; (4) Complication of loan application procedure. The finding shows that micro-credit is found to have no significant impact on farmer’s decisions at both stages. However, it is found that microcredit plays a significant role in fostering farmers’ decision on non-farm business and livestock.Total output value: Microcredit increases output value from all earned sources and self-employment, reduces output value from common property resources, and has no effect on output value of other sources. Income: Microcredit increases income from self-employment, reduce income from crop production, and has no effect on income from other sources. Food consumption and Asset accumulation: Microcredit significantly increases expenditure for processed food and accumulation of production assets, but has no impact on expenditure for agricultural food and accumulation of non-productive assets. The estimated results show that the economic impact of health shocks and the mitigating role of microcredit vary greatly, depending upon the specific shock and the outcomes used for analysis. Notably, microcredit is found to reduce the mobility of non-working-age members when working-age members in households face health shocks. Meanwhile, its impacts on income and consumption are negligible when households face health shocks.