Households access to informal rural credit- An analysis from VHLSS 2008

Abstract

It is said that credit is the essential source to finance production and consumption expenditures in rural provinces in Vietnam. It also plays a critical role in poverty alleviation, livelihood diversification and in reducing household vulnerability. Although credit contributes substantially to the rural development, household access to credit sources has not been given proper attention. The purpose of this paper is to examine household access to informal financial markets in Vietnamese rural areas. It applies the theoretical framework of asymmetric information to investigate the rural credit markets in Vietnam. This paper explores determinants that influence loan amounts borrowed by rural households from the informal sources using the Heckman two-step model and the data in the Vietnam Household Living Standard Survey which was carried out in the year 2008. It is found that household expenditure, household assets and number of working earners strongly and positively impacts on probability of credit access; gender of household head highly negatively influence credit accessibility. Notwithstanding, informal loan appears almost in household’s activities for both consumption and production purposes, they still mainly rely on relationship of friends and relatives rather than fully make use of informal credit institutions and other sources.