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 TIEU LUAN MOI download : skknchat@gmail.com 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. PHAM KHANH NAM 2. NGUYEN HUU DUNG HO CHI MINH CITY, 2018 TIEU LUAN MOI download : skknchat@gmail.com i 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. Nguyen Huu Dung, the University of Economics, Hochiminh City.
This work was also done under the advice of Assoc. 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 TIEU LUAN MOI download : skknchat@gmail.com ii ACKNOWLEDGEMENT I am deeply indebted to my academic supervisors Dr.
Pham Khanh Nam and Assoc. Nguyen Huu Dung at the University of Economics. Nam and Assoc. 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. 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. Pham Bao Duong, my academic supervisor of master thesis, who encourage as well as support me with data and comments on my Ph.
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. Pham Tien Thanh TIEU LUAN MOI download : skknchat@gmail.com iii TABLE OF CONTENTS COMMITMENTS .ii TABLE OF CONTENTS.
viii LIST OF TABLES .ix LIST OF FIGURES.xi CHAPTER 1 - INTRODUCTION. Accessibility to microcredit. Microcredit and adoption of improved rice varieties. Impact of microcredit on households’ welfare.
Microcredit and health shock. Scopes of research. Contribution of the research. Organization of the research.
14 CHAPTER 2 – LITERATURE REVIEW. Overview of microcredit. Characteristics of microcredit. 17 TIEU LUAN MOI download : skknchat@gmail.
Overview of rural credit market. Theories on accessibility to credit. Theory of choice (Demand for credit). Theory of credit rationing.
Theoretical framework of outreach of microcredit. Farm household model under credit constraint. Farm household model with credit .1 Determinants of rural households’ accessibility to microcredit. Impact of microcredit on adoption of the improved rice varieties.
Impact of microcredit on living standard. Empirical studies in the world. Empirical studies in Vietnam. Impact of health shocks and role of microcredit.
Impacts of health shocks. Strategies to cope with health shocks and role of microcredit. Definitions of welfare. Logical framework of impact evaluation of microcredit on welfare.
49 CHAPTER 3 – OVERVIEW OF MICROCREDIT. Microcredit in the world. Microcredit in rural Vietnam. Credit activities and clients.
Poverty reduction role of microcredit. 61 TIEU LUAN MOI download : skknchat@gmail.com v CHAPTER 4 – DETERMINANTS OF ACCESSIBILITY TO MICROCREDIT. Selection of variables. Results and discussions.
74 CHAPTER 5 – MICROCREDIT AND ADOPTION OF IMPROVED RICE VARIETIES. Selection of variables. Results and discussions. 91 CHAPTER 6 – IMPACT EVALUATION OF MICROCREDIT ON WELFARE 103 6.
Propensity Score Matching (PSM) .103 TIEU LUAN MOI download : skknchat@gmail. Difference in Difference (DID). Selection of variables. Variables for calculation of propensity score.
Results and discussions. Propensity score and balancing test. Average impact of microcredit program. 113 CHAPTER 7 – ROLE OF MICROCREDIT IN MITIGATING THE EFFECTS OF HEALTH SHOCKS.
Selection of variable. Health shocks variables. Other control (explanatory) variables. Results and discussions.
129 TIEU LUAN MOI download : skknchat@gmail. Are health shocks unanticipated?. First stage results using instrumental variables. Illness/ Disease/ Injury of working-age members (HS1W).
Illness/ Disease/ Injury of any members (HS1A). Objective 1: Determinants of accessibility to microcredit. Limitations and further studies. Objective 2: Microcredit and adoption of improved varieties.
Limitations and further studies. Objective 3: Impact evaluation of microcredit on welfare. Limitations and further studies. Objective 4: Role of microcredit in mitigating the effects of health shocks 148 8.
Limitations and further studies. 150 Reference in the world. 150 Reference in Vietnam. 172 TIEU LUAN MOI download : skknchat@gmail.com viii 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 TIEU LUAN MOI download : skknchat@gmail.com ix LIST OF TABLES Table 2.1 - Microcredit trend in the world .2 - Top 10 microcredit providers in the world .3 - Microcredit providers in Vietnam .4 - Living standards of clients before and after borrowing.1 - Variables for analysis of determinants of accessibility to microcredit.2 – Description of loans obtained .3 - Characteristics of variables for analysis of determinants of accessibility to microcredit .4 - Estimated results of determinants of accessibility to microcredit - Whole sample.5 - Estimated results of determinants of accessibility to microcredit - Non- poor sample .6 - Estimated results of determinants of accessibility to microcredit - Poor sample.1 - Variables used for analyzing impact of microcredit on adoption.2 - Characteristics of adoption variables .3 - Characteristics of variables that affect adopting decision .4 - Microcredit and adoption of improved rice varieties - IV 2SLS using 3 IVs .5 - Microcredit and adoption of improved rice varieties - IV 2SLS using 1 IV .6 - Microcredit and adoption of improved rice varieties .7 - Microcredit and adoption of improved rice varieties – Poor and non- poor sample .8 - Impact of microcredit on other investment activities .1 - Definition of welfare variables .2 - Probit estimations for calculation of propensity score .112 TIEU LUAN MOI download : skknchat@gmail.4 - Impact of microcredit on income and total output value .5 - Impact of microcredit on food expenditure .6 - Impact of microcredit on accumulation of durable assets .1 - Types of health shock .2 - Microcredit borrowed by households .3 - Descriptive statistics of variables for used analysis of health shocks .4 - Unanticipation of health shocks .5 – First stage results using IV for HS1W .6 – First stage results using IV for HS1A .7 - Impact of health shocks on income and labor and the role of microcredit using VFE.8 - Impact of health shocks on consumption and the role of microcredit using VFE.132 TIEU LUAN MOI download : skknchat@gmail.com xi LIST OF FIGURES Figure 2.1 – Credit constraint and unconstraint .2 - Analytical framework of impact of microcredit on welfare.3 - Conceptual framework of impacts of health shock .4 - Logical framework on impact evaluation of credit on welfare .5 – Analytical framework on accessibility to microcredit and its impact on welfare .1 – Microfinance providers in Vietnam .54 TIEU LUAN MOI download : skknchat@gmail.com 1 CHAPTER 1 - INTRODUCTION This chapter includes eight sections.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.3 present the research problems and objectives.6 discuss the research scope, data and methods used for qualitative and quantitative analysis.7 presents the contribution of the research in terms of theory and practice.
The final section presents the organization of the research. 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. 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%)1. 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. TIEU LUAN MOI download : skknchat@gmail.com 2 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.
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.
