Economic effects of credits on rural households in Vietnam = Hiệu quả kinh tế của các khoản tín dụng vào các hộ gia đình nông thôn ở Việt Nam

NATIONAL ECONOMICS UNIVERSITY ERASMUS UNIVERSITY ROTTERDAM
INSTITUTE OF PUBLIC POLICY AND MANAGEMENT INSTITUTE OF SOCIAL STUDIES
VIETNAM-NETHERLANDS MASTER’S PROGRAM
IN DEVELOPMENT ECONOMICS
THESIS
ECONOMIC EFFECTS OF CREDITS
ON RURAL HOUSEHOLDS IN VIETNAM
Student : Nguyen The Manh
Class : MDE18
Supervisor : Dr. Nguyen Viet Cuong
Hanoi, 2014
i
ACKNOWLEDGEMENTS
I certify that this thesis contains no material that has been accepted for awards of
any other degrees or diplomas at any other academic institutions. To the best of
my knowledge and belief, it contains no material previously published or written
by other persons, except for those that have been listed in the reference.
ii
ACKNOWLEDGEMENTS
The completion of my Thesis could not have been accomplished without the
help of my Professors, Lectures, Friends and Family. In sincerely thank you all for
your kind support and encouragement.
Dr. Nguyen Viet Cuong, you have been a wonderful lecturer and mentor to me.
You have had a very positive and constructive impact on my writing. You introduced
me the data sources, operated and tested the model, and facilitated me with a valuable
reference list for my study. When I got confused and disappointed for the first model
running, you helped to point out the right way to orient me back on the track. Many
times your weekends were filled up with my visits, phone calls or emails. You have
spent your spare time after your highly tense working days to correct my thesis and
give me valuable advices.
Dr. Bui Anh Tuan, I have a deep and enormous respect of you. Your guidance,

wisdom and disciplines have not only influenced my thesis but also my characteristics
manner. I appreciate that you promptly provided me with informative reference
document for my thesis.
Dr. Giang Thanh Long, I would like to express my gratitude to you for what
you have done for me and all my classmate as well as MDE 18. Your impact is beyond
my study period with the Master in Development Economics Program, it will be with
me along life. You are always with your students, including me.
Many thanks to all my teachers, my lecturers and staff during the period of my
studying in Institute of Public Policy and Management.
To my classmates in the Intake 18 of the Master in Development Economics
Program, particularly to Nguyen Thi Thanh Loan, Nguyen Thu Hoai, Nguyen Thu
Huyen and Dinh Xuan Cuong, my thanks are due to you for your regular
encouragement and assistance.
Last but not least, I want to thank my family. My father has always encouraged
me in my study and completion of the thesis. To my dear wife, your love, help,
patience, and forbearance have been terrific! I thank you very much for supporting me
to go through this endeavor.
iii
TABLE OF CONTENTS
TABLE OF CONTENTS IV
LIST OF TABLES 1
CHAPTER 1: INTRODUCTION 4
1.1.Rationales 4
1.2.Research questions and objectives 5
1.3.Thesis structure 6
CHAPTER 2: LITERATURE REVIEW 7
CHAPTER 3: DATA AND METHODOLOGY 12
3.1.Methodology 12
3.2.Data set 14
CHAPTER 4: OVERVIEW OF THE CREDIT MARKET IN RURAL VIETNAM 16

4.1.Policy review 16
4.2.Current situation of credit market in rural areas 19
CHAPTER 5: ECONOMETRIC ANALYSIS 24
5.1.Descriptive analysis 24
5.2.Regression analysis 29
5.2.1.Model selection 29
5.2.2.Regression results 30
CHAPTER 6: CONCLUSIONS AND POLICY RECOMMENDATIONS 38
6.1. Conclusions 38
6.2.Recommendations 39
iv
6.3.Limitations and future work 40
REFERENCES 42
ANNEX 1. ECONOMETRICS LECTURE:
HECKMAN’S SAMPLE SELECTION MODEL 45
ANNEX 2. CPI STATISTICS 49
v
LIST OF TABLES
TABLE 1: SUMMARY OF SOME KEY VARIABLES 24
TABLE 2: CREDIT CHARACTERISTICS IN 2010 25
TABLE 3: STATED VS. ACTUAL PURPOSE IN 2010 26
TABLE 4: CREDIT CHARACTERISTICS IN 2012 27
TABLE 5: EFFECTS OF CREDIT ON TOTAL INCOME 32
TABLE 6: EFFECTS OF CREDIT ON INCOME FROM AGRICULTURE 34
TABLE 7: EFFECTS OF CREDIT ON INCOME FROM WAGE AND SALARY 35
TABLE 8: EFFECTS OF CREDIT ON NON-FARM NON-WAGE INCOME 36
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LIST OF FIGURES
FIGURE 1: CREDIT FOR AGRICULTURE AND RURAL DEVELOPMENT OVER

TIME 19
FIGURE 2: CREDIT FOR AGRICULTURE AND RURAL AREA BY SOURCES AS
OF 31/12/2011 (SOURCE SBV) 20
FIGURE 3: INCOME 2010 DECOMPOSITION (%) 29
FIGURE 4: INCOME 2012 DECOMPOSITION (%) 29
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Chapter 1: INTRODUCTION
1.1. Rationales
Although Vietnam has gained remarkable achievements in economic
growth in nearly three decades of innovation and development, its rural areas is
still the region where the majority of its population (70% of the total population)
is living and rural labor of about 35 million people accounts for more than 70%
of total employment of the country. Rural areas cover almost all large areas and
agricultural land makes up 75% of total natural land area.
The gap between rural and urban areas is large though income per capita
of rural residents has increased over time. Income per capital in rural areas
equals half of that in urban areas (VHLSS 2010). In rural areas, the share of
agricultural income over the total income tends to decrease but accounts for a
large proportion of over 30% while income from self-employment businesses
tends to increase.
In addition, the household savings are quite low and only about 10% of
total rural households have savings from their annual income. Savings are
approximately 5million/household/year, accounting for 6% of the total annual
income of the household (VARHS 2010).
Thus, it can be said that self-investment capacity of rural households is
constrained by both low income and low savings. Noticing this obstacle, the
government has tried to help the rural households to overcome by implementing
policies to attract private and foreign direct investment (FDI) and increasing
public investment in agriculture and rural areas. Total public investment for
agriculture, rural development and farmers in 2006 – 2008 was VND 146,575

billion, equivalent to a 45.24% of the total investment from the State Budget and
Government bonds. During 2009 - 2011, this number increased to VND
286,212billion which equals to 52.3% of total public investment. In addition,
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during the period 2006 - 2011, there was USD 3,833 billion out of USD 26,897
billion of foreign direct investment spurred into agriculture, irrigation system,
forestry and fisheries (GSO 2012).
Credits for agriculture, rural development and farmers have also increased
rapidly despite the credits for other sectors keep stable. They have increased by
20% annually since 2008 and by twice annually since 2010 thanks to the
issuance of credit policies for agricultural, rural development and farmers by the
government. As of 31/12/2012, credits amounted to VND 561,533 billion. In the
first 4 months of this year, they increased by 5%, comparing to only 2% of the
total credits of the country.
The increase in public investment for agriculture, rural development and
farmers in general or the increase in credits granted in particular has helped
much in solving the crucial problem of farmers of capital shortage. However, to
ensure the effectiveness of credit work, the availability is just a prerequisite, key
issues are the accessibility of farmers to and the proper use of credits.
Therefore, in this study, we will focus on analyzing the effectiveness of
credit in changing the economic welfare of rural households in terms of their
total income, total investment and total properties or land. Previously, it was
predicted that the thesis will also focus on the change in total land area, the
change in investment of rural households but due to the unavailability and
limited credibility of the data sets, these issues will leave for future studies.
1.2. Research questions and objectives
From the context and facts as mentioned above, the questions for this
study are as follows:
- What is the current situation of credits for rural households in
Vietnam? Specifically, it is necessary to describe the availability of

credits, credit supply sources, credit accessibility and different types of
credits being offered and their accompanied terms and conditions?
- What are impacts of credits on rural households? Particularly, whether
rural households use them efficiently, for the right purposes or in other
words, rural credits help rural households improve their income and
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livelihoods?
To answer the questions, the study needs to focus on achieving the
following objectives:
The overall objective of the thesis is to analyze the effectiveness of
credit in improving outcomes for households who borrow.
Specific objectives:
- Giving a review of researches on impacts on credits on households in
general and rural household in particular with special attention on poor
households or rural households in developing countries;
- Giving an overview of credit availability and usage at household level
in rural Vietnam;
- Providing an analysis of impacts of credit on households in terms of
incomes of rural households;
- Proposing some solutions to enhance the effectiveness of credit in
rural Vietnam.
1.3. Thesis structure
The study will be divided into 6 chapters as follows:
- Chapter 1: Introduction
- Chapter 2: Literature Review
- Chapter 3: Data and Methodology
- Chapter 4: Overview of the Credit Market in Rural Vietnam
- Chapter 5: Econometric Analysis
- Chapter 6: Conclusions and Policy Recommendations
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Chapter 2: LITERATURE REVIEW
There are several definitions of credit and the most popular one is that
credit is the trust which allows one party to provide resources to another party
where that second party does not reimburse the first party immediately (thereby
generating a debt), but instead arranges either to repay or return those resources
(or other materials of equal value) at a later date. The resources provided may be
financial (e.g. granting a loan), or they may consist of goods or services (e.g.
consumer credit). Credit encompasses any form of deferred payment (Sullivan et
al, 2003). Credit is extended by a creditor, also known as a lender, to a debtor,
also known as a borrower. Credit does not necessarily require money. The credit
concept can be applied in barter economies as well, based on the direct exchange
of goods and services. In this study, the term of credit is used with modern
definition which means that credit is usually denominated by a unit of account.
Unlike money, credit itself cannot act as a unit of account.
2.1. Review of international studies
Theoretically, it is clear that credits help solve problems of inputs
shortage for production; credits really should have a positive effect in improving
the incomes of rural households. Basing on their empirical studies, many
concluded that credit availability reduces poverty and improves well-being of
small borrowers, based on (Robinson, 2001; Morduch, 1998; Burgess and Pande,
2004).
This is especially true in developing countries where their economies
depend largely on agricultural production and almost of their population are
living in rural areas. Studies have shown micro credit improves capacity to cope
economic difficulties because there is a positive influence of microcredit on
well-being of borrowers (Hoque, 2008). The marginal contribution of credit
therefore brings input levels closer to the optimal levels, thereby increasing yield
and output (Feder et al. 1990). Some empirical literature found that in rural areas
of developing countries, credit constraints have significant adverse effects on
farm output (Feder et.al., 1990; Sial and Carter, 1996), farm investment (Carter

and Olinto, 2003), and farm profit (Carter, 1989).
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In China, there exist the negative effects of credit constraints on
agricultural productivity and rural household income (Fengxia Dong et al, 2010).
In rural areas in Pakistan the extent of credit use for agriculture inputs is high
and credit for consumption is 5% more than for agriculture inputs, which is
largely met through informal sources; and keep the poorer households at the
level of better-off households. Without credit the former would drop below
poverty line (Malik and Nazli, 1999).
There is a flourishing literature suggesting that the rural credit market
plays a major role in times of crisis (Udry 1994; Besley 1995). In theory and
practice, rural people use credit not only for livelihood investment but also for
weathering shocks such as natural disasters and family deaths and sickness, as
well as addressing consumption shortages due to reduced income. During the
crisis, credits were used by rural households not for food consumption but for
farm investment and debt repayment. In practice, households not only need to
ensure that their income covers daily consumption but must also allocate some of
their income for farm investment to secure future consumption. They also have
to use some income to repay debts. While credit allows households to cope with
crisis, severe indebtedness does have an implication for poverty.
The researches have not only paid attention to credits in general but
focused on credits of different sources either formal or informal as well. The
formal sector in developing countries covers a relatively small part of the
population, especially in rural areas. Those who are covered tend on the whole to
be wealthier and more politically influential while Informal credit institutions are
very important in LDCs (Besley, 1995). Research corroborates that in developing
countries big farmers could borrow large sum of cheap loan, which was in many
instances not repaid owing to weak enforcement of repayment rules primarily
due to their political influence (Adam, 1995; Penny, 1983; Robinson, 2001; Von
Pischke 1983). Availability of formal rural credit did preclude accessibility to

small farmers and non-farmers which comprised sizeable population in villages.
They borrowed from informal sources like middle-man (money lender), friends
and relatives to meet investment and consumption needs.
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Although many insist that credits are crucial to rural economy and rural
households and they help promote either income or productivity or land
accumulation and rural credit schemes have formed an essential part of the rural
development programs implemented in the developing countries over the past
few decades. However, in some special case such as Thailand, the lack of credit
facilities is not a fundamental impediment to rural development and due to a high
rate of loan repayment defaults; credit support should not continue
(Jayaprakashan et al, 1986). The other argument is that micro credit does not
create assets of poor and very poor borrowers, but only increases income to the
extent to meet daily expenditure. In certain situations, it reduces assets because
the demand for repayment of loan is so severe that borrowers are compelled to
sell assets to repay loan. At lower levels of income there is greater risk that
unlucky or improvident borrowers may be forced by their exposure to debt into
selling assets which will permanently lower their income possibilities (Mosely
and Hulme, 1998, p. 787). Morduch (1998) comparative study of Bangladesh
Rural Advancement Committee (BRAC) and Bangladesh Rural Development
Board (BRDB) with Grameen Bank suggests that there was no evidence in
increased consumption and school enrollment of Grameen borrowers.
2.2. Review of studies on credits in Vietnam
In Vietnam, there have been several researches on rural credits which
focus on different topics. Some focuses on the issue of analyzing the credit
market in Vietnam, both formal and informal while some tries to investigate
determinants factors that affect the decision of having loans at household level.
Takashi (2009) tried to understand the conditions of success in rural credit in
Vietnam and he found that Vietnamese rural credit has succeeded by depending
on rural community characteristics of Vietnam, but an effective monitoring

system must be created. Ho (2004) indicated that both loan terms and household
characteristics significantly affect borrower’s choice of which sector to borrow
from and lender’s choice of interest rates.
Regarding the credit effectiveness, findings by Quach (2005) confirm that
household credit contributes positively and significantly to the economic welfare
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of households in terms of per capita expenditure, per capita food expenditure and
per capita non-food expenditure. The positive effect of credit on household
economic welfare is regardless of whether they are poor or better-off households.
Ellertsson (2012) used Vietnamese household’s surveys from 2006 and
2008 to assess income inequality in Vietnam and households access to credit in
order to boost their income. By introducing three econometric models in order to
assess which factors affect income, household’s value and loan value, and
investigate important factors in order to obtain loans in theory. He found that the
Vietnamese financial market is still underdeveloped where households can
obtain loans through three different channels, formal market, informal market
and micro credit programs. The Vietnamese government has been working to
make credit more accessible to poor rural areas in order to encourage investment
and move them out of poverty, he also pointed out. He concluded that poor
households are receiving high loan amounts in 2006 resulting in a slight decrease
in income inequality between the selected years. There is however no
consistency between the years, along with that we see that there are many
different obligations that households need to fulfill in order to be applicable for
loans (both in the formal market and micro credit programs) indicating that there
is not equal access to credit for households.
In contrast to the above findings, results by Zeller (2012) do not show a
significant impact of the micro-credit program on welfare. By focusing on the
topic of “rural credit policy in Vietnam’s Northern Uplands: sustainability,
outreach and impact”, his study found a number of inefficiencies in the credit
policy that need to be addressed. From that, he proposed policy

recommendations likely to improve the financial sustainability, poverty outreach
and impact of state intervention.
Basing on the VARHS data sets, the University of Copenhagen have
investigated the impact of credit on economic welfare of the rural households
during 2006-2010 and findings are credit may be an effective means of
alleviating poverty and credit effectiveness depends much on the sources of
credits. Applying the same method, this study will continue to investigate the
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issue and compare findings to have more detailed policy implications for
enhancing the credit effectiveness in rural Vietnam. Despite using the same
method, the study by using the most updated data will bring a more updated
picture of rural credits particularly in the context of many changes occurring in
rural Vietnam since 2010 when the economic restructure in Vietnam began and
the industrialization and urbanization pushed up.
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Chapter 3: DATA AND METHODOLOGY
3.1. Methodology
In order to access the impacts of credits on rural households, the study
will use the regression model as follows:
Where Y is a function of X which is a set of explanatory variables and β, the
error term. Explanatory variables will be used to reflect not only the
characteristics of credits themselves (types, terms and conditions, volume,
sources. etc), but the characteristics of credit receivers, the rural households as
well to have a clear and full picture of determinants on impacts of income of
rural households, thus highlight the importance of credits if possible.
- Dependent variable is the change in economic welfare of rural
households. In this study, it is either the change in total income of the
households or the change in income from agricultural activities, from
wage and salary, and from non-farm non-wage work during the period
of 2010-2012. Change in income is measured in thousand VND and in

order to have a pure change in income, income amount is deflated by
annual CPI which has a base of 100 in 2005
1
.
- Independent/explanatory variables used include:
o The total credit amount obtained by the households in 2010
measured in thousand VND. It is expected that there will be a
positive relation between the amount of credit and the change in
total income of the household, meaning that credit can help
removing the severe constraint of the shortage of capital faced by
rural household especially poor ones, thus help to increase their
total income. To have a better understanding of credit impacts,
credit amount will be disaggregated by different sources or
purposes or both sources and purposes.
o Particularly, credit can come from either formal sources or
informal sources.
1
Please refer to annex 2 for CPI statistics
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 Formal sources include credit obtained from (1) Social Policy
Bank, (2) Bank for Agriculture and Rural Development, (3)
Other stated owned commercial bank, (4) Local authorities, (5)
Private Bank, (6) Farmers Union, (7) Veterans Union, (8)
Women’s Union, (9) People’s Credit Funds, and (10) other
credit associations.
 Informal sources are (1) Private traders, (2) Private money
lender, (3) Friends/Relatives, (4) Informal credit scheme
(including Roscas), (5) and others.
o By purposes, credits can be divided into 4 types:
 Credits for agricultural activities include those for rice

production, other crop production (including inputs), animal
husbandry, forestry and fishery.
 Credits for investment purposes comprise of credits for buy or
build houses, buy land, buy another asset and for paying
education expenses.
 Credits for consumption purposes are those for repay other
loan, paying wedding/funeral, health expenses and general
consumptions.
 And credit for purposes other than above listed.
Credit amount is also deflated by annual CPI which has a base of
100 in 2005
o The change in food expenditure quintile group is used to represent
for the change in welfare of the rural households. It is forecasted
that the higher quintile group they reach, the higher change in
income they might get.
o Shocks suffered by households in 2012 are considered because
households usually suffer from unexpected loss due to shocks, thus
result to a decrease in change in income. There are different types
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of shocks and are grouped as follows:
 Natural shocks are (1) floods, landslides, typhoons, storms,
droughts, (2) pest infestation and crop diseases, and (3) avian
flu.
 Economic shocks are (1) change in crop price, (2) change or
shortage in price of key inputs, services that households use, (3)
change in prices of food or other essential commodities
consumed.
 Idiosyncratic shocks include (1) unemployment, (2)
unsuccessful investment, (3) loss of land, (4) crime, (5) divorce,
abandonment, or internal or extended family disputes, (6)

serious illness, injury or death of a household member, and (7)
others.
o Dummy for provinces where household are locating.
Due to the fact that the factors that determine whether the household has access
to credit are not controlled for when considering the impact that credit has on
outcomes and selected households are those who have access to credit, the
standard Heckman sample selection model
2
will be used to control for the
selection bias.
3.2. Data set
Panel structure of the 2010 and 2012 Vietnamese Access to Resources
Household Survey (VARHS) is used to access how past loans affect changes in
later outcomes in terms of total income and some important income components
of rural households. A closer attention will be paid to the sources of the loans
obtained and their purposes.
The VARHS surveys are designed as collaborative research efforts with
the explicit objective of being complementary to the large and nationally
representative Vietnam Household Living Standards Survey (VHLSS) conducted
biennially by the General Statistics Office (GSO). Many households surveyed in
2
Please refer to the annex 1 for more information.
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the VARHS have also over the years been surveyed in the VHLSS. The VARHS
thus focuses on building the substantial database already being collected in the
VHLSS, with a specific focus on collecting data and gaining an understanding of
the access and interaction of rural Vietnamese households with the markets of
land, labor and credit.
VARHS surveys focus on some typical issues/concerns of the rural
households, thus it provides a very useful data set and information about rural

households that VHLSS did not cover. Such as the land characteristics and land
market in rural areas, the production inputs, credits and risk management.
VARHS surveys have been carried out in 5 phases (2002, 2006, 2008,
2010, 2012) with bigger samples and the most 2 recent samples include over
3000 rural households
3
.
3
The sampled provinces are, by region: Red River Delta: Ha Tay. North East: Lao Cai, Phu Tho. North
West: Lai Chau, Dien Bien. North Central Coast: Nghe Anh. South Central Coast: Quang Nam, Khanh
Hoa. Central Highlands: Dak Lak, Dak Nong, Lam Dong. Mekong River Delta: Long An.
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Chapter 4: OVERVIEW OF THE CREDIT MARKET IN RURAL
VIETNAM
4.1. Policy review
Credits for agriculture and rural areas have been regarded as one of useful
tools for the development of agriculture and rural areas in Vietnam for a long
time. Therefore, there have been many policies promulgated at all levels aiming
at promoting the development of credits for agriculture and rural areas, thus
ensure the sustainable development of the whole country. Two most important
policies should be mentioned include
The Decision no. 67/1999/QĐ-TTg dated 30 March 1999 by the Prime
Minister on credit policies targeting at agriculture and rural development is the
policy under which funds for rural credit are mobilized from both domestic
including from the national budget and mobilized by banks and foreign sources.
The decision clearly specifies the lending policies to suit different borrowers in
rural areas from rural households to cooperative sand enterprises. In addition,
due to the high risks of agricultural production, the legal document also provides
specific rules to meet credit demand in cases of natural disasters.
On 12 April 2010, the Government issued Decree No.41/2010/NĐ-CP on

the credit policy for the development of agriculture sector and rural areas,
replacing the Decision67/1999/QĐ-TTg with some major new features to fit the
new conditions in the rural economy and agricultural production, as follows:
- Expanding the participation of credit institutions in offering credits for
agriculture and rural areas: not only the Bank for Agriculture and
Rural Development of Vietnam (VBARD), but other credit institutions
which established and are operating under the Law the credit
institutions, small scale financial institutions, commercial banks, and
other financial institutions established by the Government to
implement some specific national credit policies as well can
participate in offering credits for agriculture production and rural
development.
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- Targeted audience of credits for agriculture and rural development is
also expanded to include rural households, farm owners, cooperatives,
companies and individuals who provide agriculture supporting
services for agricultural production and other economic entities
specialized in all types of industries other than agriculture but based on
rural areas.
- Offered credits can be used for various purposes including loans for
production costs, infrastructure development and upgrade in rural
areas, for non-farm businesses, for investment and for consumption
which contribute to improve living standards of rural citizens.
- The Decree creates better conditions for borrowers who have no
collateral and no certificates of land use rights. According to Clause 5,
Article 8, borrowers can use the certificate issued by commune-level
People's Committees as collateral to get loans if they do not possess
the land use rights certificate and there are no disputes on land use
rights. Borrowers are also free from registration fees for secured
transactions.

With revisions, the prevailing Decree No.41/2010/NĐ-CP serves as a
much better framework for providing credits for rural households in Vietnam and
with the active role of VBARD, many households in rural area have accessed
and utilized credits. In addition to this, there are others enacted by either the
government or the Prime Minister targeting at specific audiences such as:
- Decree 78/2002/NĐ-CP dated 04/10/2002 on preferential credit
program for poor households;
- The loan program to implement the national strategy for water supply
and sanitation in rural areas under the Decision no. 62/2004/QĐ-TTg
Decision dated 16 April 2004;
- The loan program for businesses which employ people of post-drug
rehabilitation under the Decision no. 212/2006/QĐ-TTg dated 20
September 2007;
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- The loan program for households in disadvantaged regions under the
Decision no. 31/2007/QĐ-TTg dated5 March 2007;
- The loan program for households of extremely poor ethnic minorities
under the Decision no. 32/2007/QĐ-TTg dated 5 March 2007;
- The loan program on supporting rehabilitation under the Decision
no.33/2007/QĐ-dated 5 March 2007;
- Loan program for pupils and students under the Decision
no.157/2007/QĐ-TTg dated 27 September 2007;
- The loan program to support housing for poor households under the
Decision no. 167/2008/QĐ-TTg dated 12 December 2008 and Joint-
CircularNo.08/2008/TTLT-BXD-BTC-BKHDT-BNN-SB;
- The loan program to assist in accessing land for housing and
agricultural production and jobs for poor ethnic minorities in Mekong
River Delta during 2008-2010 under the Decision no. 74/2008/QĐ-
TTg dated 9 June 2008;
- The loan program to support poor districts to promote labor exports

contributing to sustainable poverty reduction in 2009-2010 under
Decision71/2009/QĐ-TTg on 29 April 2009;
- The credit policy for traders operating in difficult areas under the
Decision no. 92/2009/QĐ-TTg dated 8 July 2009;
- Preferential credit program for 62 poor districts under the Resolution
No. 30a/2008/NQ-CP dated 27 December 2008 and the Circular no.
06/2009/TT-NHNN dated 9 April 2009;
- The loan program to assist in accessing land for housing and
agricultural production and water resources towards 2010 for poor
households of ethnic minorities under the Decision No.1592/QĐ- TTg
dated 12 October 2009;
- The loan program to assist in accessing land for housing in Mekong
River Delta and ethnic minorities in Central Highlands under the
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Decision no. 105/2002/QĐ-TTg dated 02 August 2002.
The above listed programs and policies cover a wide range of target audiences in
different regions, of different income levels which aim to contribute to poverty
reduction progress in rural area by granting funds. The policies and programs are
said to be actively help many rural households move out of poverty and have
sustainable income sources but not enough as below elaboration.
4.2. Current situation of credit market in rural areas
Credits for agriculture and rural areas have kept increasing for nearly 10
years. Comparing to the total credit amount in 1998 of VND 34,000 billion for
agriculture and rural areas, the figure in 2009 was 9 times higher. Especially
since the issuance of credit policy issue in 2010 as mentioned above, the credit
amount has been increasing rapidly and has doubled for the past few years.
However, the share over total credit has decreased from 30% in 1998 to about
20% recently despite significant increases in credit amount.
Figure 1: Credit for agriculture and rural development over time
Source: The State Bank of Vietnam (SBV)

Sources for agricultural and rural credit can be divided into 2main
categories. The first is the formal sources with the dominance of 2 state-owned
banks namely the VBARD and the Vietnam Bank for Social Policies (VBSP).
Others formal sources include the people's credit fund operating under the
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supervision of the SBV, other state-owned banks, commercial banks and other
credit institutions operating under the supervision of Women’s Union, Farmer’s
Union and Veterans’ Union. The other is the informal sources private traders,
private money lenders, friends/relatives or other informal credit scheme.
The discrimination between formal and informal credit sources and their
importance are concerned issues for many developing countries including
Vietnam. Informal sources exist due to their advantages of high flexibility,
convenience, availability and easier accessibility although informal credits are of
high interest rates, short duration and small size.
In Vietnam, like many other developing countries, there exists parallel
systems of both formal and informal sources but formal ones play a key role,
providing nearly80% of the total credit to agriculture and rural areas.
Figure 2: Credit for agriculture and rural area by sources as of
31/12/2011 (Source SBV).
VBARD was established in 1988 and officially operated in 1990. Since
then, it has developed rapidly and has become the largest bank in Viet Nam in
terms of capital, assets, workforce, operating network and customer base. As
of October 2012, it has 2,400 branches and transaction offices nationwide and
provided total outstanding loans of VND 469,000 billion
4
. VBARD plays a key
role in providing funds for agriculture and rural development. The bank also
coordinates with some mass associations such as the Women's Union and
4
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