Doan, Tinh and Gibson, John and Holmes, Mark (2010): What determines credit participation and credit constraints of the poor in peri-urban areas, Vietnam?
Download (740kB) | Preview
This paper uses a novel dataset collected by the first author from peri-urban areas of Ho Chi Minh City, Vietnam in 2008 to examine how the poor use their loans, and factors affecting their credit participation and credit constraints. The paper finds the presence of many commercial banks in the areas does not help the poor, but the poor rely heavily on informal credit. Loans in the peri-urban areas are mainly used for non-productive purposes, which stresses the importance of consumption smoothing motives. Further, households in more rural wards have a higher probability of borrowing than more urban households, thanks to better community relationships and higher interpersonal trust. Competition by borrowing neighbours adversely affects the opportunity for borrowing in urban wards where the poor households’ borrowings rely much more on subsidized credit funds. A closer look at specified microcredit sources reveals that household behaviours differ in each market segment. Furthermore, the poor are highly credit-constrained. Wealthier households, in terms of asset holdings and phone possession, among the poor group appear less credit-constrained. However, except in the most rural part of the study area, the likelihood of credit constraints increases with distance to the nearest banks, which suggests that supply-side intervention could help in overcoming credit constraints. Overall, the poor in urban wards are more credit-constrained because of exclusion by commercial banks and weak interpersonal trust.
|Item Type:||MPRA Paper|
|Original Title:||What determines credit participation and credit constraints of the poor in peri-urban areas, Vietnam?|
|English Title:||What determines credit participation and credit constraints of the poor in peri-urban areas, Vietnam?|
|Keywords:||Credit participation; credit constraints; the poor; peri-urban; Vietnam|
|Subjects:||R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R22 - Other Demand
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C24 - Truncated and Censored Models ; Switching Regression Models ; Threshold Regression Models
H - Public Economics > H8 - Miscellaneous Issues > H81 - Governmental Loans ; Loan Guarantees ; Credits ; Grants ; Bailouts
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities
|Depositing User:||Tinh, T. Doan|
|Date Deposited:||17. Dec 2010 22:56|
|Last Modified:||14. Feb 2013 15:29|
Allcott, H., Karlan, D., Möbius, M.M., Rosenblat, T.S., & Szeidl, A. (2007). Community size and network closure. The American Economic Review, 97(2), 80-85.
Amemiya, T. (1984). Tobit models: A survey. Journal of Econometrics. 24, 3-61.
Armendariz, A., & Morduch, J. (2005). The economics of microfinance. Cambridge, Massachusetts: The MIT Press.
Armendariz, A., & Morduch, J. (2010). The economics of microfinance (2nd eds). Cambridge, Massachusetts: The MIT Press.
Avai, Z., & Toth, I. (2001). Liquidity constraints and consumer impatience (Working Paper 2001/2). National Bank of Hungary.
Banerjee, A., & Duflo, E. (2007). The economic lives of the poor. Journal of Economic Perspectives, 21(1), 141-167.
Banerjee, A., & Duflo, E. (2010). Giving credit where it is due. Journal of Economic Perspectives, 24(3), 61-80.
Barslund, M., & Tarp, F. (2007). Formal and informal rural credit in four provinces of Vietnam. Journal of Development Studies, 44(4), 485-503.
Chen, K., & Chivakul, M. (2008). What drives household borrowing and credit constraints? Evidence from Bosnia and Herzegovina (IMF Working Paper WP/08/202). Washington, DC: International Monetary Fund.
Conning, J., & Udry, C. (2005). Rural Financial markets in developing countries (Discussion Paper No. 914). Yale University, Economic Growth Center.
Conning, J., & Udry, C. (2007). Rural financial markets in developing countries. Handbook of Agricultural Economics, 3, 2857-2908.
Crook, J. (2001). The demand for household debt in the USA: Evidence from the 1995 Survey of Consumer Finance. Applied Financial Economics, 11, 83-91.
Crook, J., & Hochguertel, S. (2005). Household debt and credit constraints: Evidence from OECD Countries (Working Paper Series No 05/02). University of Edinburgh, Credit Research Center.
Crook, J., & Hochguertel, S. (2007). US and European household debt and credit constraints (Tinbergen Institute Discussion Paper No. 2007-087/3). Retrieved from http://www.tinbergen.nl/discussionpapers/07087.pdf
Deaton, A. (1991). Saving and liquidity constraints. Econometrica, 59(5), 1221-1248. Debertin, D. (n.d). A comparison of social capital in rural and urban settings. Retrieved from University of Kentucky, Department of Agricultural Economics website: http://www.uky.edu/~deberti/socsaea.htm
Del-Rio, A., & Young, G. (2005). The determinants of uncensored borrowing: Evidence from the British Household Panel Survey (Working Paper No. 263). England: Bank of England.
Dercon, S., Krishnan, P., & Studiën, K. (2000). In sickness and in health: risk sharing within households in rural Ethiopia. Journal of Political Economy, 108(4), 688-727.
Diagne, A. (1999). Determinants of household access to and participation in formal and informal credit markets in Malawi (FCND Discussion Paper No.67). Washington, DC: International Food Policy Research Institute (IFPRI).
Diagne, A., Zeller, M., & Sharma, M. (2000). Empirical measurements of households’ access to credit and credit constraints in developing countries: Methodological issues and evidence. Retrieved from International Food Policy Research Institute (IFPRI) website: http://www.ifpri.org/sites/default/files/publications/fcnbr90.pdf
Duflo, E., & Udry, C. (2004). Intrahousehold resource allocation in Cote d'Ivoire: Social norms, separate accounts and consumption choices (NBER Working Paper No. w10498). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=552103
Fallon, P., & Lucas, R. (2002). The impact of financial crises on labor markets, household incomes and poverty: a review of evidence. The Work Bank Research Observers, 17(2), 21-45.
Friedman, M. (1957). A theory of the consumption function. Princeton: Princeton University Press.
Goldstein, M. (2004). Intrahousehold efficiency and individual insurance in Ghana (London School of Economics Working Paper no. DEDPS38). Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1127007
Hofferth, S.L., & Iceland, J. (1998). Social capital in rural and urban communities. Rural Sociology Society. December, 1998.
IFC. (2006). Vietnam financial sector diagnostic. World Bank group, International Financial Corporation.
Izumida, Y., & Pham, B.D. (2002). Rural development finance in Vietnam: An econometric analysis of household surveys. World Development, 30(2), 319-335.
Jappelli, T. (1990). Who is credit constrained in the US economy? The Quarterly Journal of Economics, 105(1).
Johnston, D., & Morduch, J. (2007). Microcredit vs. microsaving: Evidence from Indonesia. Retrieved from http://siteresources.worldbank.org/INTFR/Resources/Microcredit_versus_Microsaving_Evidence_from_Indonesia.pdf
Johnston, J., & Dinardo, J. (1997). Econometric methods. New York: The McGraw-Hill Companies, Inc.
Kedir, A., Ibrahim, G., & Torres, S. (2007). Household-level credit constraints in urban Ethiopia. Retrieved from http://economia.ucu.edu.uy/attachments/026_Credit%20Constraints%20JAE_2009t.pdf
Khandker, S (2001). Does Micro-finance really Benefit the poor: Evidence from Bangladesh. Retrieved from Asian Development Bank website: http://www.adb.org/poverty/forum/pdf/Khandker.pdf
Khandker, S. (2005). Microfinance and poverty: Evidence using panel data from Bangladesh. The World Bank Economic Review, 19(2), 263-286.
Kim, A. (2004). A market without the ‘right’property rights. Economics of Transition, 12(2), 275-305.
Kochar, A. (1995). Explaining household vulnerability to idiosyncratic income shocks. American Economic Review, 85(2), 159-1964.
Kochar, A. (1999). Smoothing consumption by smoothing income: hours-of-work responses to idiosyncratic agricultural shocks in rural India. Review of Economics and Statistics, 81(1), 50-61.
Kurosaki, T. (2006). Consumption vulnerability to risk in rural Pakistan. Journal of Development Studies, 42(1), 70-89.
Lim, Y., & Townsend, R. (1994). Currency, transaction patterns, and consumption smoothing: theory and measurement in ICRISAT villages. Chicago, IL: University of Chicago.
Margi, S. (2002). Italian households’ debt: Determinants of demand and supply (Economic Working Paper 454). Bank of Italy, Economic Research Department.
McKenzie, D. (2004). Aggregate shocks and urban labor market responses: evidence from Argentina's financial crisis. Economic Development and Cultural Change, 52(4), 719-758.
Morduch, J. (1990). Risk, production and saving: Theory and evidence from Indian households. Harvard University, Manuscript.
Morduch, J. (1995). Income smoothing and consumption smoothing. The Journal of Economic Perspectives, 9(3), 103-114.
Nguyen, V.C. (2007, May). Determinants of credit participation and its impact on household consumption: Evidence from rural Vietnam. Paper presented at the 3rd Leicester PhD Conference on Economics, England.
Paxson, C. (1992). Using weather variability to estimate the response of savings to transitory income in Thailand. American Economic Review, 82(1), 15-33.
Rashid, S. (2000). The urban poor in Dhaka City: their struggles and coping strategies during the floods of 1998. Disasters, 24(3), 240-253.
Schreiner, M., & Nagarajan, G. (1998). Predicting creditworthiness with publicly observable characteristics: Evidence from ASCRAs and RoSCAs in the Gambia. Savings and Development, 22(4), 399-414.
Skoufias, E. (2003). Economic crises and natural disasters: Coping strategies and policy implications. World Development, 31(7), 1087-1102.
StataCorp. (1997). Stata statistical software: Release 5.0. College Station, TX: A Stata Press Publication, StataCorp LP.
Swain, R. B. (2007). The demand and supply of credit for households. Applied Economics, 39, 2681-92.
Thaicharoen, Y., Ariyapruchya, K., & Chucherd, T. (2004). Rising Thai household debt: Assessing the risks and policy implications (Discussion Paper No. 04/2004). Bangkok, Thailand: Bank of Thailand.
Townsend, R. M. (1995). Consumption insurance: An evaluation of risk-bearing systems in low-income economies. Journal of Economic Perspectives, 9(3), 83-102.
Townsend, R.M. (1994). Risk and insurance in village India. Econometrica, 62(3), 539-591.
VDR. (2004). Vietnam Development Report 2004 (Joint Donor Report to the Vietnam consultative Group Meeting in December 2003). Hanoi, Vietnam.
Verbeek, M. (2004). A guide to modern econometrics. Southern Gate, Chichester, West Sussex, England Hoboken, NJ: John Wiley & Sons.
Zeller, M. (1994). Determinants of credit rationing: a study of informal lenders and formal credit groups in Madagascar. World Development, 22(12), 1895-1907.