Luận văn thạc sĩ UEH microcredit and welfare of the rural households in vietnam

MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

*****

Pham Tien Thanh

MICROCREDIT AND WELFARE OF THE

RURAL HOUSEHOLDS IN VIETNAM

PHD DISSERTATION IN ECONOMICS

HO CHI MINH CITY, 2018

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MINISTRY OF EDUCATION AND TRAINING

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

*****

Pham Tien Thanh

MICROCREDIT AND WELFARE OF THE

RURAL HOUSEHOLDS IN VIETNAM

Major: Development Economics

Code: 9310105

PHD DISSERTATION IN ECONOMICS

ACADEMIC ADVISORS

1. Dr. PHAM KHANH NAM

2. Assoc. Prof. Dr. NGUYEN HUU DUNG

HO CHI MINH CITY, 2018

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COMMITMENTS

I hereby declare that this dissertation is my own work and it has not been

previously submitted for a degree elsewhere. While my work contains information

from works done by other authors, all these references have been explicitly cited.

To the best of my knowledge, I would like to certify that the above statements are

true.

The dissertation has been done under the supervision of Dr. Pham Khanh

Nam and Assoc.Prof.Dr. Nguyen Huu Dung, the University of Economics,

Hochiminh City. This work was also done under the advice of Assoc.Prof.Dr.

Katsuhiro Saito, the University of Tokyo during my fellowship period granted by

the World Bank Robert S. McNamara at the University of Tokyo, Japan.

Pham Tien Thanh

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ACKNOWLEDGEMENT

I am deeply indebted to my academic supervisors Dr. Pham Khanh Nam and

Assoc.Prof.Dr. Nguyen Huu Dung at the University of Economics. Dr. Nam and

Assoc.Prof.Dr. Dung have supported me a lot during my study. They have also

provided me with useful academic advice, valuable feedbacks, and encouragement.

I am also grateful to my academic advisor Assoc.Prof.Dr. Katsuhiro Saito,

who instructs me in applied econometrics, during my fellowship granted by the

World Bank Robert S. McNamara at the University of Tokyo.

I would also like to thank the academic committee at the University of

Economics and the two independent external reviewers who gave me a lot of useful

and precious comments, which thereby help me improve my dissertation.

I am also thankful to my lecturers who give me knowledge and advice on my

dissertation. I am particularly grateful to Assoc.Prof.Dr. Pham Bao Duong, my

academic supervisor of master thesis, who encourage as well as support me with

data and comments on my Ph.D. dissertation.

I would also like to say thank to Mr. Nguyen Khanh Duy at the University of

Economics for many of his advice on research methodology and encouragement.

Last but not least, I would like to express my deepest gratitude to my family,

colleagues, and friends for their encouragement and support during the time I

conduct my Ph.D. dissertation.

Pham Tien Thanh

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TABLE OF CONTENTS

COMMITMENTS........................................................................................................i

ACKNOWLEDGEMENT ..........................................................................................ii

TABLE OF CONTENTS.......................................................................................... iii

ABBREVIATIONS................................................................................................. viii

LIST OF TABLES .....................................................................................................ix

LIST OF FIGURES....................................................................................................xi

CHAPTER 1 - INTRODUCTION..............................................................................1

1.1. Backgrounds......................................................................................................1

1.2. Research problems............................................................................................3

1.2.1. Accessibility to microcredit ........................................................................3

1.2.2. Microcredit and adoption of improved rice varieties..................................5

1.2.3. Impact of microcredit on households’ welfare ...........................................7

1.2.4. Microcredit and health shock......................................................................9

1.3. Research objectives.........................................................................................10

1.4. Scopes of research...........................................................................................11

1.5. Research data ..................................................................................................11

1.6. Research methods ...........................................................................................11

1.6.1. Quantitative methods................................................................................11

1.6.2. Qualitative methods..................................................................................12

1.7. Contribution of the research............................................................................12

1.7.1. Theoretical contributions..........................................................................12

1.7.2. Practical contributions ..............................................................................13

1.8. Organization of the research ...........................................................................14

CHAPTER 2 – LITERATURE REVIEW ................................................................15

2.1. Overview of microcredit .................................................................................15

2.1.1. Some definitions .......................................................................................15

2.1.2. Characteristics of microcredit...................................................................16

2.2. Theory .............................................................................................................17

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2.2.1. Overview of rural credit market................................................................17

2.2.2. Asymmetric information...........................................................................20

2.2.3. Theories on accessibility to credit ............................................................23

2.2.3.1. Theory of choice (Demand for credit) ...............................................23

2.2.3.2. Theory of credit rationing ..................................................................24

2.2.4. Theoretical framework of outreach of microcredit...................................27

2.2.5. Farm household model under credit constraint.........................................29

2.2.5.1. Producer problem...............................................................................29

2.2.5.2. Consumer problem.............................................................................30

2.2.5.3. Worker problem.................................................................................30

2.2.5.4. Farm household model with credit ....................................................31

2.3. Empirical studies.............................................................................................32

2.3.1 Determinants of rural households’ accessibility to microcredit ................32

2.3.2. Impact of microcredit on adoption of the improved rice varieties ...........38

2.3.3. Impact of microcredit on living standard..................................................40

2.3.3.1. Empirical studies in the world ...........................................................40

2.3.3.2. Empirical studies in Vietnam.............................................................41

2.3.4. Impact of health shocks and role of microcredit.......................................44

2.3.4.1. Impacts of health shocks....................................................................44

2.3.4.2. Strategies to cope with health shocks and role of microcredit ..........46

2.4. Definitions of welfare .....................................................................................48

2.5. Logical framework of impact evaluation of microcredit on welfare ..............49

CHAPTER 3 – OVERVIEW OF MICROCREDIT .................................................52

3.1. Microcredit in the world .................................................................................52

3.2. Microcredit in rural Vietnam ..........................................................................54

3.2.1. Microcredit providers................................................................................54

3.2.2. Credit activities and clients.......................................................................59

3.2.3. Poverty reduction role of microcredit.......................................................61

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CHAPTER 4 – DETERMINANTS OF ACCESSIBILITY TO MICROCREDIT...62

4.1. Research method .............................................................................................62

4.1.1. Estimation strategy....................................................................................63

4.1.2. Selection of variables................................................................................65

4.1.2.1. Dependent variable ............................................................................65

4.1.2.2. Explanatory Variables........................................................................66

4.1.3. Research hypotheses.................................................................................68

4.2. Research data ..................................................................................................70

4.2.1. Data source................................................................................................70

4.2.2. Research sample........................................................................................71

4.2.3. Descriptive statistics .................................................................................71

4.3. Results and discussions...................................................................................74

CHAPTER 5 – MICROCREDIT AND ADOPTION OF IMPROVED RICE

VARIETIES ..............................................................................................................82

5.1. Research method .............................................................................................82

5.1.1. Estimation strategy....................................................................................82

5.1.2. Selection of variables................................................................................86

5.1.2.1. Dependent variables...........................................................................86

5.1.2.2. Independent variables ........................................................................87

5.1.3. Research hypotheses.................................................................................88

5.2. Research data ..................................................................................................88

5.2.1. Data source................................................................................................88

5.2.2. Research sample........................................................................................88

5.2.3. Descriptive statistics .................................................................................89

5.3. Results and discussions...................................................................................91

CHAPTER 6 – IMPACT EVALUATION OF MICROCREDIT ON WELFARE103

6.1. Research method ...........................................................................................103

6.1.1. Estimation strategy..................................................................................103

6.1.1.1. Propensity Score Matching (PSM) ..................................................103

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6.1.1.2. Difference in Difference (DID) .......................................................105

6.1.1.3. PSM-DID .........................................................................................105

6.1.2. Selection of variables..............................................................................107

6.1.2.1. Microcredit variable.........................................................................107

6.1.2.2. Variables for calculation of propensity score ..................................107

6.1.2.3. Welfare variables .............................................................................108

6.1.3. Research hypotheses...............................................................................108

6.2. Research data ................................................................................................109

6.2.1. Data source..............................................................................................109

6.2.2. Research sample......................................................................................110

6.2.3. Descriptive statistics ...............................................................................110

6.3. Results and discussions.................................................................................110

6.3.1. Propensity score and balancing test.......................................................110

6.3.2. Average impact of microcredit program.................................................113

CHAPTER 7 – ROLE OF MICROCREDIT IN MITIGATING THE EFFECTS OF

HEALTH SHOCKS................................................................................................121

7.1. Research method ...........................................................................................121

7.1.1. Estimation strategy..................................................................................121

7.1.2. Selection of variable ...............................................................................123

7.1.2.1. Dependent variables........................................................................123

7.1.2.2. Health shocks variables....................................................................123

7.1.2.3. Microcredit variable.........................................................................124

7.1.2.4. Other control (explanatory) variables..............................................125

7.1.3. Research hypotheses...............................................................................126

7.2. Research data ................................................................................................126

7.2.1. Data source..............................................................................................126

7.2.2. Research sample......................................................................................127

7.2.3. Descriptive statistics ...............................................................................127

7.3. Results and discussions.................................................................................129

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7.3.1. Are health shocks unanticipated? ...........................................................129

7.3.2. First stage results using instrumental variables ......................................130

7.3.3. Illness/ Disease/ Injury of working-age members (HS1W)....................133

7.3.4. Illness/ Disease/ Injury of any members (HS1A)...................................136

CHAPTER 8 – CONCLUSIONS ...........................................................................138

8.1. Objective 1: Determinants of accessibility to microcredit............................138

8.1.1. Summary .................................................................................................138

8.1.2. Policy implications..................................................................................139

8.1.3. Limitations and further studies...............................................................141

8.2. Objective 2: Microcredit and adoption of improved varieties......................142

8.2.1. Summary .................................................................................................142

8.2.2. Policy implications..................................................................................143

8.2.3. Limitations and further studies...............................................................144

8.3. Objective 3: Impact evaluation of microcredit on welfare ...........................145

8.3.1. Summary .................................................................................................145

8.3.2. Policy implications..................................................................................146

8.3.3. Limitations and further studies...............................................................147

8.4. Objective 4: Role of microcredit in mitigating the effects of health shocks 148

8.4.1. Summary .................................................................................................148

8.4.2. Policy implications..................................................................................149

8.4.3. Limitations and further studies...............................................................149

REFERENCE..........................................................................................................150

Reference in the world .........................................................................................150

Reference in Vietnam...........................................................................................167

Websites...............................................................................................................171

APPENDICES.........................................................................................................172

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ABBREVIATIONS

Abbr Meanings

MF Microfinance

MFIs Microfinance Institutions

PCFs People’s Credit Funds

ROSCAs Rotating Savings Credit Associations

VBSP Vietnam Bank for Social Policies

VBARD Vietnam Bank for Agriculture and Rural Development

VPSC Postal Savings Company

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LIST OF TABLES

Table 2.1 - Welfare indicators...................................................................................48

Table 3.1 - Microcredit trend in the world................................................................53

Table 3.2 - Top 10 microcredit providers in the world.............................................53

Table 3.3 - Microcredit providers in Vietnam ..........................................................60

Table 3.4 - Living standards of clients before and after borrowing..........................61

Table 4.1 - Variables for analysis of determinants of accessibility to microcredit...67

Table 4.2 – Description of loans obtained ................................................................72

Table 4.3 - Characteristics of variables for analysis of determinants of accessibility

to microcredit ............................................................................................................73

Table 4.4 - Estimated results of determinants of accessibility to microcredit - Whole

sample........................................................................................................................79

Table 4.5 - Estimated results of determinants of accessibility to microcredit - Non￾poor sample ...............................................................................................................80

Table 4.6 - Estimated results of determinants of accessibility to microcredit - Poor

sample........................................................................................................................81

Table 5.1 - Variables used for analyzing impact of microcredit on adoption...........87

Table 5.2 - Characteristics of adoption variables......................................................89

Table 5.3 - Characteristics of variables that affect adopting decision ......................90

Table 5.4 - Microcredit and adoption of improved rice varieties - IV 2SLS using 3

IVs.............................................................................................................................92

Table 5.5 - Microcredit and adoption of improved rice varieties - IV 2SLS using 1

IV...............................................................................................................................92

Table 5.6 - Microcredit and adoption of improved rice varieties.............................94

Table 5.7 - Microcredit and adoption of improved rice varieties – Poor and non￾poor sample .............................................................................................................102

Table 5.8 - Impact of microcredit on other investment activities...........................102

Table 6.1 - Definition of welfare variables.............................................................108

Table 6.2 - Probit estimations for calculation of propensity score .........................112

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Table 6.3 - Balancing test........................................................................................113

Table 6.4 - Impact of microcredit on income and total output value......................114

Table 6.5 - Impact of microcredit on food expenditure ..........................................118

Table 6.6 - Impact of microcredit on accumulation of durable assets....................119

Table 7.1 - Types of health shock ...........................................................................124

Table 7.2 - Microcredit borrowed by households...................................................125

Table 7.3 - Descriptive statistics of variables for used analysis of health shocks..128

Table 7.4 - Unanticipation of health shocks ...........................................................129

Table 7.5 – First stage results using IV for HS1W.................................................131

Table 7.6 – First stage results using IV for HS1A..................................................131

Table 7.7 - Impact of health shocks on income and labor and the role of microcredit

using VFE................................................................................................................132

Table 7.8 - Impact of health shocks on consumption and the role of microcredit

using VFE................................................................................................................132

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LIST OF FIGURES

Figure 2.1 – Credit constraint and unconstraint........................................................26

Figure 2.2 - Analytical framework of impact of microcredit on welfare..................43

Figure 2.3 - Conceptual framework of impacts of health shock...............................45

Figure 2.4 - Logical framework on impact evaluation of credit on welfare .............50

Figure 2.5 – Analytical framework on accessibility to microcredit and its impact on

welfare.......................................................................................................................51

Figure 3.1 – Microfinance providers in Vietnam......................................................54

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CHAPTER 1 - INTRODUCTION

This chapter includes eight sections. Section 1.1 presents the background on

socio-economic situation in Vietnam, particularly in the rural areas, and thereby

explains the significance and necessity of this research. Sections 1.2-1.3 present the

research problems and objectives.

Sections 1.4-1.6 discuss the research scope, data and methods used for

qualitative and quantitative analysis. Section 1.7 presents the contribution of the

research in terms of theory and practice. The final section presents the organization

of the research.

1.1. Backgrounds

Poverty reduction, access to education, clean water, sanitary, health care, etc.

are the top concerned among 17 Sustainable Development Goals - SDGs) which

formerly was Millennium Development Goals (MGDs). They are the important

issues and attract the attention of every country, especially the developing countries

like Vietnam. During the past decades, Vietnam has obtained remarkable

achievements in the socio-economic development and poverty reduction.

Statistics show that the poverty rate has declined from 37.4 percent in 1998

to 5.8% in 2016 (Demombynes & Vu, 2015; GSO, 2016). The report also shows

that the poverty rate in 2016 in rural areas (7.5%) is nearly four times higher than

that in urban areas (2%)

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. The statistics indicate that a large number of rural

households still live in poverty under poor living standards and suffer from the lack

of socio-economic opportunities. Household income in rural area is rather low. In

particular, a report by GSO (2016) shows that per capita income per month of the

rural households is, on average, 2,437 thousand VND. In the rural, per capita

income per month of the bottom quintile (the poorest) is 676 thousand VND, the

second bottom (the near-poor) 1,246 thousand VND and the top quintile (the

1 New poverty line (Measured by income per capita per month) in 2016 is 630 and 780 thousand

VND in rural and urban areas, respectively.

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richest) 5,669 thousand VND. Therefore, it indicates that income of the poorest is

around 8.4 times lower than that of the richest, which is a great gap. Consumption

of the rural households is quite low. In particular, a report by GSO (2014) shows

that per capita expenditure per month of the rural households is, on average, 1,609

thousand VND. More specifically, per capita expenditure per month of the bottom

quintile (the poorest) is 834 thousand VND, the second bottom (the near-poor)

1,154 thousand VND and the top quintile (the richest) 2,576 thousand VND, which

indicates a big gap between the poorest and the richest in terms of expenditure.

Poverty reduction, income improvement and good health, especially in the

rural area, are the most concerned issues among the 17 SDGs. In the world and in

Vietnam, many programs and activities have been implemented to achieve these

goals, for instance, training, agricultural extension, agricultural technology, finance,

job creation, etc. Among them, credit is considered as the most important factor in

income-generating activities since the rural households, especially the poor,

normally face financial constraint. Without accessibility to formal credit support,

poor farmers are unable to expand their production and improve their living

conditions (Duong & Izumida, 2002; Li et al., 2011).

As above-mentioned, a large number of rural households in Vietnam are still

living in poverty. The poor have high demand for credit; however, credit market in

rural Vietnam normally faces the problem of demand excessing supply. As a result,

the poor have difficulty in accessing formal credit due to the lack of collateral. In

rural Vietnam, formal credit is mainly provided by the Vietnam Bank for

Agriculture and Rural Development and Vietnam Bank for Social Policies (Ho &

Duc, 2015), and recently by microfinance institutions.

Inability to obtain formal credit has inhibited farmers from investment and

then improving their living conditions. Therefore, farmers may rely on informal

credit sources to support their production and consumption even though they must

pay a much higher interest rate, which may push them deeper into ‘vicious debt

circle’ due to less repayment capacity. The reasons why farmers still accept the high

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