Ebook Rural Credit in Vietnam
Vietnam has come a long way since the doi moi reform process was initiated in 1986, and the past 15 years have witnessed one of the best performances in the world in terms of both economic growth and poverty reduction. People’s living standards have improved significantly, and the country’s socio-economic achievements are impressive. Wide-ranging institutional reforms have been introduced, including greater reliance on market forces in the allocation of resources and the determination of prices. A shift can also be noted from an economy dominated by the state and cooperative sectors to a situation where the private sector and foreign investment account for a relatively high proportion of GDP. Important strides have been made over a relatively short time span to further the transition from a centrally planned to a socialist market economy.
Nevertheless, Vietnam remains a poor country. Some 70 percent of the population continues to live in rural areas, and they depend on agriculture for their livelihood. How the country can transform itself and its agricultural sector to a more modern society remains a critical policy challenge. Access to credit for smallholders is as elsewhere a key ingredient in the promotion of agricultural production and transformation, and it forms an essential element of any poverty oriented strategy for the future development of the financial system. Yet, little is known about the rural credit market, including both its degree of efficiency and the extent to which credit rationing impedes agricultural development. Appropriate development of market institutions based on well informed policies is a key prerequisite for success in Vietnam’s ongoing transformation from a command-type to a more market based economy.
In this paper we provide on this background a detailed review and an in-depth econometric analysis of how the rural credit market operates in four provinces of Vietnam, with a focus on basic characteristics and differences between the formal and informal credit markets. We use a new survey of 932 households designed to elicit the full credit history of households during 1997 to 2002. These data are combined with information from the 2002 Vietnam Household Living Standard Survey (VHLSS) in the econometric analysis, where the determinants of credit demand and credit rationing are identified more rigorously. We are able to account carefully for possible self selection, and inter alia ask whether any gender bias exists in credit rationing.
The paper is structured as follows. After describing the data in Section 2, we provide in Section 3 a detailed descriptive overview of the characteristics of the rural credit market with a focus on the division between formal and informal credit. The data set has a time dimension, so trends during the 1997-2002 years can be spelled out, including developments in overall interest rates. In Section 4, we apply the econometric framework to identify the determinants of credit demand, and proceed to analyse in Section 5 household characteristics, which potentially influence the probability of being credit rationed. Some key policy measures to further the allocation of rural credit in Vietnam and develop the credit market overall are discussed in the concluding Section 6.
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