Luận văn thạc sĩ UEH impact evaluation of micro credit on welfare and poverty on the vietnam rural

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACT EVALUATION OF MICROCREDIT ON

WELFARE OF THE VIETNAM RURAL

HOUSEHOLD

BY

PHAM TIEN THANH

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, OCTOBER 2012

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UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY THE HAGUE

VIETNAM THE NETHERLANDS

VIETNAM - NETHERLANDS

PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

IMPACT EVALUATION OF MICROCREDIT ON

WELFARE OF THE VIETNAM RURAL

HOUSEHOLD

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By

PHAM TIEN THANH

Academic Supervisor:

DR. PHAM BAO DUONG

HO CHI MINH CITY, OCTOBER 2012

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i

DECLARATION

I certify that the contents of thesis have been carried out and written by me to the

best of my knowledge and with the support in preparing this paper from many

different sources.

I certify that this thesis has not been submitted to any other programs or journals.

HCMC, October 15th , 2012

PHAM TIEN THANH

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ii

ACKOWLEDGEMENTS

This thesis is impossible to be achieved without the support and assistance of the

following people:

Firstly, I would like to express my greatest gratitude to Dr. Pham Bao Duong, my

academic supervisor, who advised and instructed and supported me during the

process of this thesis. His expertise and his suggestions have provided a good basis

for the improvement of my research. His enthusiasm and encouraging is also a

motivation for me to achieve me thesis.

I would like to give my special thanks to Prof.Dr. Nguyen Trong Hoai, Dean of

Vietnam–The Netherlands Programme and Dr. Pham Khanh Nam, Academic

Director of Vietnam –The Netherlands Programme. Their knowledge and

enthusiasm has supported me a lot during my thesis writing process.

This is also a good opportunity to express my appreciation to all the lecturers who

equipped me with valuable knowledge during my study at Vietnam –The

Netherlands Programme.

I would also like to appreciate Mr. Nguyen Khanh Duy, Lecturer at the Faculty of

Development Economics, University of Economics, Ho Chi Minh City. His support

with data as well as using econometrics software is a great contribution to the

completion of my thesis.

Lastly, I am grateful to my beloved parents who gave moral support and encouraged

me to finish my thesis during writing process.

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ABSTRACT

This research evaluates the impact of microcredit on the welfare of

households living in the Vietnam rural areas, especially the poor. The research is

analyzed based on a data of the Vietnam household living standard survey

(VHLSS) in the year 2008. The difference of the research in comparison with the

previous studied about the relationship between microcredit and welfare is the

employment of propensity score matching (PSM) method, thus it reflects the impact

of microcredit on rural households’ living standard better and more precisely. The

result shows that microcredit will result in better welfare of rural households via a

greater increase in the income and consumption per capita per month of the

participating households. However, the result about the poor rural households

showed that microcredit does not result in a higher increase in income of the

participants than that of the nonparticipants, but contributes to a greater rise in the

consumption.

The research also showed the determinants on the accessibility to microcredit

programs of the households living in rural regions.

The results found out that the probability of accessing the microcredit

sources of the rural households in Vietnam is still low. Moreover, the proportionate

of accessibility to microcredit of the poor household is even less that of the non￾poor households, which means microcredit programs mistarget the poor households.

From those results, the research gives policy recommendations to improve

microcredit programs in rural areas as well as to support more poor households to

access to microcredit sources.

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TABLE OF CONTENT

DECLARATION................................................................................................................ i

ACKNOWLEDMENTS ................................................................................................... ii

ABSTRACT ..................................................................................................................... iii

TABLE OF CONTENT .................................................................................................. iv

LIST OF ABBRIVIATIONS .......................................................................................... vi

LIST OF TABLES AND FIGURES ............................................................................. vii

CHAPTER I .......................................................................................................................1

INTRODUCTION..............................................................................................................1

1.1. Problem Statement .......................................................................................................1

1.2. Objectives of the study .................................................................................................4

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

1.4. Organization of the research ........................................................................................5

CHAPTER II .....................................................................................................................6

LITERARTURE REVIEW ..............................................................................................6

2.1. Overview of Poverty ....................................................................................................6

2.1.1. Definition ..................................................................................................................6

2.1.2. Method of defining poverty ......................................................................................7

2.2. Overview of Microcredit...............................................................................................8

2.2.1. Some definitions ........................................................................................................8

2.2.2. Characteristics of Microcredit ...................................................................................9

2.2.3. Overview of rural credit market in Vietnam ..........................................................11

2.2.4. Overview of microcredit program in Vietnam .......................................................12

2.3. Empirical Study ..........................................................................................................17

2.3.1. Impact of micro credit on welfare/ living standard of the rural households ...........17

2.3.2. Determinants of the accessibility to microcredit programs ...................................24

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CHAPTER III ..................................................................................................................30

RESEARCH METHODOLOGY AND DATA DESCRIPTION ...............................30

3.1. Model of determinants of access to credit .................................................................30

3.2.Impact Evaluation techniques .....................................................................................34

3.2.1. Some Definition ......................................................................................................34

3.2.2. Impact evaluation using PSM technique .................................................................34

3.2.3. Impact evaluation using DID technique...................................................................38

3.3. Data Description .........................................................................................................41

3.3.1. Survey area ..............................................................................................................41

3.3.2. Data sources ............................................................................................................41

3.3.3. Sample selection ......................................................................................................41

CHAPTER IV ..................................................................................................................44

RESULT ...........................................................................................................................44

4.1. Descriptive Statistics ..................................................................................................44

4.2. Determinants on microcredit participation ...............................................................46

4.3. Impact of microcredit on welfare of rural households using PSM .............................51

4.4. Impact of microcredit on welfare of the rural poor using PSM..................................52

4.5. Impact of microcredit on welfare of rural households using DID with fixed

effect...................................................................................................................................55

4.6. Comparison between the results of PSM and DID method ........................................56

4.7. Comparison with previous studies .............................................................................57

CHAPTER V ...................................................................................................................59

CONCLUSION, POLICY RECOMMENDATION AND LIMITATION ................59

5.1. Conclusion ..................................................................................................................59

5.2. Policy Recommendation ............................................................................................62

5.3. Limitation ...................................................................................................................64

REFERENCES.................................................................................................................65

APPENDIX .......................................................................................................................63

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LIST OF ABBREVIATIONS

GSO General Statistics Office

MOLISA Ministry of Labor, Invalids and Social Affairs

DOLISA Department of Labor, Invalids and Social Affairs

MFIs Micro Finance Institutions

VBA Vietnam Bank for Agriculture and Rural Development

VBSP The Vietnam Bank for Social Policies

WB World Bank

UN The United Nations

PSM Propensity Score Matching

VHLSS Vietnam household living standard survey

NN Nearest neighbor

PSM Propensity Score Matching

DD or DID Difference in Difference or Double Difference

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vii

LIST OF TABLES AND FIGURES

List of Tables

Table 2.1: Poverty Rate in Vietnam ...................................................................................7

Table 2.2: Characteristics of Microcredit Programs in Vietnam from 2005 to 2011 .........12

Table 2.3: Main Characteristics of the MFIs in 2011 .......................................................14

Table 2.4: Characteristics of Microcredit Programs by VBSP from 2005

to 2011 ............................................................................................................16

Table 2.5: Summary of Some Main Findings about the Impact of Microcredit

Programs on Welfare/ Living Standards ..........................................................20

Table 3.1: Descriptions of the Determinants on Accessibility to Microcredit ...................31

Table 3.2: Variables in the Analysis of the Impact of Microcredit using DID...................40

Table 3.3: Characteristics of Comparison Groups in 2008 ...............................................43

Table 4.1: Impact of Microcredit on Income/Consumption of Rural Households

using Independent Sample T-Test Methods......................................................44

Table 4.2: Impact of Microcredit on Income/Consumption of the Rural Poor

using Independent Sample T-Test Methods......................................................44

Table 4.3: Distribution of Eligibility with respect to Treatment Households ...................45

Table 4.4: Credit Access with respect to Eligible Households .........................................45

Table 4.5: Probit Estimations of Determinants on Accessibility to Microcredit ...............47

Table 4.6: Probit Estimation of Model 3 with Marginal Effect ........................................48

Table 4.7: Impact of Microcredit on Income of Rural Households using PSM..................51

Table 4.8: Impact of Microcredit on Consumption of Rural Households using PSM .......52

Table 4.9: Impact of Microcredit on Income of the Rural Poor using PSM.....................53

Table 4.10: Sector of Production and Business on Which the Loan was Spent ...................53

Table 4.11: Reasons of Unchanged or Worse Living Condition..........................................54

Table 4.12: Impact of Microcredit on Consumption of the Rural Poor using PSM ............54

Table 4.13: Impact of Microcredit on Welfare of Rural households using

DID with fixed effect .......................................................................................55

Table 4.14: Result Comparison between PSM and DID Method ........................................56

Table 4.15: Results from the Previous Studies....................................................................57

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List of Figures

Figure 2.1 : Gross Loan Portfolio of microcredit in Vietnam from 2005 to 2011 ...............13

Figure 2.2 : Characteristics of Microcredit Programs by VBSP from 2005 to 2011 ............15

Figure 2.3 : Determinants on Accessibility to Microcredit and Welfare Indicators..............29

Figure 3.1 : Illustration of Impact Evaluation Using DID Method ......................................39

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