Luận văn thạc sĩ UEH determinants of accessibility to microcredit in term of formal sector and

UNIVERSITY OF ECONOMICS, HO CHI MINH CITY

VIET NAM – NETHERLANDS PROGRAMME FOR M.A. PROGRAM IN

DEVELOPMENT ECONOMICS

DETERMINANTS OF ACCESSIBILITY TO

MICROCREDIT IN TERMS OF

FORMAL SECTOR AND INFORMAL SECTOR

----------o0o---------

TRAN THI NGOC ANH MAI

Academic Supervisor:

DR. CAO HAO THI

Dec – 2014

LUAN VAN CHAT LUONG download : add [email protected]

ABSTRACT

Microcredit is an emerging concept helping the poor out of poverty situation. This

dissertation attempts to investigate the determinants affecting the probability of

participation in different types of credit sectors in terms of formal sector and

informal sector. Using a sample size of 1,522 households participate in credit

market from The Vietnam Access to Resources Household Survey (VARHS) 2012,

bivariate probit model is employed to explore the determinants of household credit

demand due to the binary nature of the dependent variables. Various explanatory

variables include age, gender, marital_stt, edu, hhsize, income, savingamount,

landsize, agriculture_act, network and location that influence probability of

accessibility to different sectors of credit. Furthermore, relationship between

dependent variables is accounted in this research. Results reveal that factors

affecting formal credit participation are different from factors affecting informal

credit participation. Additionally, the result indicates that there is negative

correlation across two sectors of credit.

LUAN VAN CHAT LUONG download : add [email protected]

ACKNOWLEDGEMENT

I would like to express my deepest thankfulness to my advisor, Dr. Cao Hao Thi

who spent lots of his precious time to support and guide me throughout this

research and continuously led me to the right way.

I would also like to extend my appreciation to the teachers working on Vietnam

Netherlands programme who gave great lectures and invaluable knowledge for us

to complete the course.

I am grateful to my parents and my siblings that always encourage and support me

in my study and in every aspect of life.

I also want to express my gratitude to my friends for sharing with me the

difficulties and giving me the ideas, knowledge and materials for the study and for

all the time we were at Master in Development Economics 19.

LUAN VAN CHAT LUONG download : add [email protected]

LIST OF FIGURES

Figure 2.1 Probability of success and expected returns to borrowers ................... 9

Figure 2.2 Return to the bank............................................................................... 11

Figure 3.1 Microfinance Systems in Vietnam ..................................................... 22

Figure 4.1 Process of research ............................................................................ 30

Figure 4.2 Participation in credit sector............................................................... 33

LIST OF TABLES

Table 2.1 Definition of Variables......................................................................... 18

Table 3.1 Microfinance Institutions in Vietnam .................................................. 20

Table 3.2 Comparison between formal and informal lenders.............................. 28

Table 4.1 Summary of Participation in different credit sectors........................... 32

Table 4.2 Conditional and Unconditional Credit Participation Probabilities...... 33

Table 4.3 Summary statistics ............................................................................... 34

Table 5.1 Determinants of accessibility to formal and informal credit sector..... 38

Table 5.2 Marginal effects for conditional probability of

formal sector participation .................................................................. 44

Table 5.3 Marginal effects for conditional probability of

informal sector participation .............................................................. 46

LUAN VAN CHAT LUONG download : add [email protected]

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION................................................................................. 1

1.1. Problem statement ................................................................................................. 1

1.2. Research objective................................................................................................. 3

1.3. Research questions ................................................................................................ 4

1.4. Research Structure................................................................................................. 4

CHAPTER 2: LITERATURE REVIEW..................................................................... 5

2.1. Concept of credit ................................................................................................... 5

2.2. Theory of demand for credit.................................................................................. 6

2.3. Credit rationing theory .......................................................................................... 7

2.4. Determinants of participation in microcredit programs ...................................... 11

CHAPTER 3: OVERVIEW OF MICROFINANCE SYSTEM............................... 19

3. 1. The history of Microfinance............................................................................... 19

3.2. The role of government in microfinance:............................................................ 21

3.3. Overview of credit market in Vietnam................................................................ 22

3.3.1. The formal credit market............................................................................... 23

3.3.2. The semi-formal credit market: .................................................................... 26

3.3.3. The informal credit market ........................................................................... 26

CHAPTER 4: RESEARCH METHODOLOGY ...................................................... 30

4.1. Research process ................................................................................................. 30

4.2. The data ............................................................................................................... 31

4.3 Data Analysis Method .......................................................................................... 35

CHAPTER 5: RESULTS AND DISCUSSION ......................................................... 38

5.1. Estimation of determinants of microcredit participation..................................... 38

5.2. Estimation of conditional marginal effects.......................................................... 44

CHAPTER 6: CONCLUSION.................................................................................... 48

6.1. Research Findings ............................................................................................... 48

6.2. Policy implications.............................................................................................. 49

6.3. Limitations........................................................................................................... 50

REFERENCES............................................................................................................. 52

APPENDIX................................................................................................................... 57

LUAN VAN CHAT LUONG download : add [email protected]

1

CHAPTER 1: INTRODUCTION

1.1. Problem statement

There are about 1.22 billion people (21 percent of population) in the world living on

less than $1.25 a day in 2010 (World Bank). Focusing towards poverty reduction

and finding ways to improve living condition have taken a lot of attention of public

policies in the world. The rate of poverty in Vietnam decreases remarkably in recent

years. According to annual report shown by GSO, the poverty rate declined from

15.5 percent in 2006, to 13.4 percent in 2008, to 10.7 percent in 2010. In a report of

GSO in 2010, it also revealed that poverty level in rural area (13.2 percent) is much

higher compared to that in urban area (5.1 percent). How to distribute the benefits

of economics growth, especially to rural area is one of the challenges remained.

Therefore, rural economy deserves more attention and support to reduce inequality

between rural and urban area.

According to McCarty (2001) and Pham & Lensink (2002), lack of ability to obtain

the fund for the purpose of working capital and investment is one of the reasons

among other things that lead to poverty in developing countries. Providing a

channel to ease the credit constraints for the poor rural household is the primary

object in poverty alleviation strategy of developing countries, including Vietnam.

Farmers need an instrument such as credit to enhance productivity and promote

standard of standard of living because of their seasonal activities and uncertainty

they are facing (Ololade & Ologunju, 2013). Accessing to microcredit is recognized

as a potentially effective tool out of under poverty line situation and improve living

standards (ADB, 2000a; Morduch and Haley, 2002; Khandker, 2003). Agricultural

credit plays an important role in sustainable achievement in any country in the

world Microfinance industry has been known in many decades in developing

countries, and its role was further attended with rapid growth worldwide when

Mohammad Yunus who pioneered the principle of microfinance and microcredit

LUAN VAN CHAT LUONG download : add [email protected]