Access to credit and borrowing behaviour of rural households in a transition economy
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Access to Credit and Borrowing Behaviour of Rural Households in a Transition Economy. Cuong H. Nguyen Centre for Economic Reform and Transformation (CERT) Heriot-Watt University Edinburgh, UK. Research Objectives. To understand

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Access to credit and borrowing behaviour of rural households in a transition economy

Access to Credit and Borrowing Behaviour of Rural Households in a Transition Economy

Cuong H. Nguyen

Centre for Economic Reform and Transformation (CERT)

Heriot-Watt University

Edinburgh, UK


Research objectives
Research Objectives in a Transition Economy

To understand

Determinants of credit access and credit sector choice of rural household

Determinants of credit amount household obtained


Access to credit and borrowing behaviour of rural households in a transition economy
Data in a Transition Economy

  • Vietnam Living Standard Survey 1992/93 & 1997/98

    • VLSS92/93: 4,800 households & 150 communes

    • VLSS97/98: 6,000 households & 194 communes


The model of partial observability
The Model of Partial Observability in a Transition Economy

  • Credit Demand equation (1)

  • Credit Supply equation (2)


The model of partial observability1
The Model of Partial Observability in a Transition Economy

  • Credit Participation (3)

  • Probability of being credit participant


Partial observability bivariate probit result
Partial Observability in a Transition EconomyBivariateProbit Result


Findings and discussion
Findings and Discussion in a Transition Economy

Uniform access to formal credit across communes

Inverse u-shape impacts of education, the least and the most educated household heads borrow least

Rapid expansion of formal sector

But demand for formal credit is estimated at low level


Determinants of loan size
Determinants of Loan Size in a Transition Economy

The Heckman Selection Model


Heckman two step estimation result
Heckman two-step estimation result in a Transition Economy


Findings and discussion1
Findings and Discussion in a Transition Economy

The further distance to bank branch, the less participation probability and the smaller loan amount

Land size, house ownership, domestic labour, and education significantly positively increase supply of credit

Impacts of health condition on choice of credit sector


Policy implications
Policy Implications in a Transition Economy

Expanding formal credit network via social organisations i.e. Woman Union, Youth Union, Postal System to increase the accessibility of formal credit

The low demand for formal credit implies lack of investment opportunities for poor rural households. Hence, government should introduce a policy calling for more investment in far and distant rural areas


Thank you
Thank you! in a Transition Economy