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


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


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.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


ii

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


iii

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


iv

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


v

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 WELFARE 103
6.1. Research method ........................................................................................... 103
6.1.1. Estimation strategy.................................................................................. 103
6.1.1.1. Propensity Score Matching (PSM) ..................................................103


vi

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


vii

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


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


ix

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 - Nonpoor 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 nonpoor 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


x

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


xi

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


1

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%)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.


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., 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


3

interest rate from informal sources are its collateral-free merit and quick borrowing
procedure.
Since its birth, microcredit programs provide the poor with opportunities to
be more accessible to formal and semi-formal credit sources (Li et al., 2011). Some
merits of microcredit are collateral-free and to serve the poor. By definition,
microcredit is defined as a small loan granted to the poor so that they can run
production or do business to generate income and improve their well-being
(Microcredit Summit, 1997). Many researchers and practitioners consider
microcredit as an effective instrument to improve well-being of the poor. Therefore,
this research aims to examine accessibility to microcredit and its economic impacts
on welfare of rural households. Accordingly, relevant policies will be suggested to
support the poor with better access to microcredit sources and improve the
effectiveness of microcredit in investment, thereby increasing their living standard.
Therefore, to capture these primary research objectives, the following specific

objectives will be included and analyzed:

1.2. Research problems
1.2.1. Accessibility to microcredit
Morduch and Haley (2002) state that credits can help the poor to improve
their living standards or at least cover their living expenses. However, a research by
Brau and Woller (2004) find that the poor have difficulties in accessing to formal
credit sources; particularly, the poor in the developing countries have more
difficulties in accessing than those in the developed countries. In Vietnam, many
rural households normally have difficulties in accessing to credit, especially poor
households, households in remote areas, the ethnic minority groups, or households
operating in such fields with high risk as aquaculture, etc., These households always
have high demand for credit (Duong & Izumida, 2002) but they have some
difficulties in borrowing from formal and semi-formal credit sources such as banks
or financial institutions. As a result, many households have to borrow from informal


4

credit sources such as friends, relatives, money-lender, etc. The Government has
taken a lot of effort to support the rural households with accessing to formal and
semi-formal credit but the result is still rather limited. To increase efficiency of
financial services as well as better serve the poor, it is essential to understand the
factors that affect participation in microcredit of the rural households, thereby
implying appropriate policies. Therefore, this study is conducted to investigate the
factors that affect the accessibility to microcredit sources.
The objective of microcredit programs is to serve the poor. However, a
research by Nguyen (2008) finds that the number of poor households with access to
microcredit program is lower than that of the non-poor. Accordingly, this research
will investigate whether the poor households are better able to participate in

microcredit programs than the non-poor. In addition, one of the attributes of
microcredit programs is that the target clients are women. Therefore, this research
also investigates the role of gender in participation in microcredit. In particular, this
research examines whether the female household heads can have better accessibility
to microcredit sources than the male counterparts. This objective is conducted using
models for binary logistic model with panel data.
Since most of previous empirical studies examine accessibility to microcredit
or credit using cross-sectional data only, some contributions of this research
objectives include: (1) It applied binary logistics with longitudinal data, thereby
capturing the changing across time. (2) Various approaches such as Random Effect,
Fixed Effect and Pooled estimation are employed for robust check to capture the
best results. (3) Another contribution is that the whole sample is then decomposed
to the poor and non-poor sample for check for the heterogeneity to capture deeper
understanding. In terms of practical contribution, the findings from this objective
will imply relevant policies to enhance the accessibility to microcredit as well as the
outreach of microcredit programs.
Research question 1: What are determinants of accessibility to microcredit
of rural households? Do poverty status and gender matter?


5

1.2.2. Microcredit and adoption of improved rice varieties
Agriculture plays a crucial role in the economy of every country, especially
the developing countries. In Vietnam, agricultural sector contributes nearly 33
billion USD to gross domestic product (GDP) in 2015, around 17-percent share
(World bank, 2016). In addition, nearly half (46.8%) of the labor force in Vietnam
are employed in agriculture in 2013 (World bank, 2016). Agriculture contributes to
ensure food security and generate income for economic development (Datt &
Ravallion, 1996). Moreover, in the developing countries, agriculture is a major

income source of rural households that derives from domestic sales and export
(Singh et al., 1985). Therefore, the improvement of quantity and quality of
agricultural output is a focal point of the government in the developing countries
(Bonnin & Turner, 2012). However, the population in the world as well as in the
developing countries has increased more and more and the urbanization has been so
rapid, which results in less land resource for agricultural production. Accordingly,
productivity improvement via expanding land area is no longer appropriate.
Therefore, the most possible solution to enhance output is to adopt new high-yield
technologies, such as mechanization, modern inputs and production practices.
Rice is considered as one of the main staples in the world and developing
countries like Vietnam. In Vietnam, total area of rice farming is around 7,790
thousand hectares with total production output of 43,609 thousand ton in 2016
(GSO, 2016), which makes rice rank the first among annual crop. Rice is the
leading cultivar in terms of export volume with 4,835 thousand ton and rank second
in terms of export value with 2.1 billion USD (GSO, 2016). Rice production is an
important source of export earnings for rice economies like Vietnam. Therefore,
enhancing quantity, quality and value of rice is the urgent and important issue.
Literature documents that adoption of improved rice varieties is considered
as an effective way to enhance productivity due to their attributes of short duration,
high yield and climate-resistance (Sall et al., 2000). However, improved varieties


6

adoption may only become effective in enhancing productivity when being
combined with modern fertilizers and cultivation practices (Karanja et al., 2003).
In reality, adoption of new varieties normally incurs high initial cost and high
risk, which inhibit the farmers’ decision toward adoption, especially the farmers
with financial constraint. Several studies find that credit can facilitate the
households’ investment in agricultural innovation in general and improved varieties

in particular. This can be explained via two mechanisms (Eswaran & Kotwal, 1990;
Zeller et al., 1997; Diagne et al., 2000): (1) Credit relaxes financial constraint of the
farmers, and thereby they can invest in agriculture; (2) Credit plays a role as coping
strategies with shocks, including agricultural shocks (disaster, pestilent insect, etc.).
In fact, adoption of improved cultivar varieties may be affected by farmers’
perception, education, risk attitude, knowledge and management of agricultural
extension center, and soil conditions of the area. In addition, this adoption may
require complicated cultivation practice, more time, labor and capital than
traditional strategies since farmer need to pay more for new and certified
agricultural inputs such as seeds or fertilizers (Chi, 2008; Dung & Thanh, 2017).
The previous studies only investigate the determinants of adoption of new
varieties in general, but do not focus on the role of credit on adopting decision.
Moreover, most of the previous studies observe the behaviors of all farmers while
there are very few studies that investigate in detail the behaviors of farmers with
and without financial constraints or poor or non-poor status. In addition, most of
previous studies only investigate the determinants of whether to adopt the improved
varieties. There have been limited number of studies on the decision of farmers in
the two stages, including whether to adopt and intensity of adoption. In Vietnam,
there has been no empirical study investigating the relationship between microcredit
and adoption of improved rice varieties.
This study research objective aims to fill these gaps. Therefore, some
contributions of this objective include: (1) it examines the effect of microcredit on
farmers’ decision on adoption of improved rice varieties in two stages, including


7

whether to adopt and how much to adopt. Therefore, instead of a simple model, this
research employs two-stage models such as Double-Hurdle (DH) or Heckman to
clarify the farmers’ adoption decisions in two stages. For robustness check, such

models as Tobit are also applied for comparison. (2) It employs IV to treat for the
potential endogeneity of microcredit. (3) It investigates in detail the behaviors of
each specific group by categorizing sample to the poor and non-poor groups. In
terms of practical contribution, the findings from this objective will imply relevant
policies to foster the adoption of improved rice varieties via credit programs,
including microcredit.
Research question 2: Does microcredit enhance the farmers’ decision on
adoption of improved rice varieties in two stages, including whether to adopt and
how much to adopt?
1.2.3. Impact of microcredit on households’ welfare
Microcredit programs have been applied in many countries as a tool of
poverty reduction and hunger eradication. The impact of microcredit on living
standard of rural households has been studied by many scholars, practitioners and
policymakers. However, their findings are mixed and inconsistent.
Khandker (1998) and Yunus (2003) consider microcredit as a tool for the
goal of fighting poverty and improving welfare. Microcredit is also found to have
positive and significant effect on welfare of the rural households via improving their
consumption and/or consumption (Li et al., 2011b; Mahjabeen, 2008). It is also
proved that households with access to microcredit can improve their children’
health condition (Pitt et al., 2003) or education (You & Annim, 2014).
However, some researchers argue that microcredit has insignificant effect on
households’ living standard. Coleman (2006) finds no evidence for the impact of
microcredit on less wealthy households’ living standards, while Khandker and
Koolwal (2013) contrast that only smaller landholders benefit from microcredit via
increasing their agricultural income. Takahashi et al. (2010) conclude that


8

microcredit has no significant impact on various outcomes, except for sales from

self-employment for the non-poor and schooling expense for the poor, thereby
indicating that microcredit has no immediate impact on poverty reduction.
In Vietnam, there have been many studies about the impact of microcredit on
the welfare of the rural households. The empirical studies show that microcredit
improves households’ welfare via increasing income, expenditure, self-employment
profits or contributing to poverty reduction (Nguyen, 2008; Quach, 2017; Lensink
& Pham, 2011; Ho & Duc, 2015). In some cases, microcredit is found to have no
impact on income, but only consumption (Phan et al., 2014).
Literature shows that the impact of microcredit on welfare is still in
argument and the results are mixed among studies and depend on indicators used to
measure welfare. While there have been many studies about the role of microcredit
in Vietnam, neither of them investigates its impact on multi-dimensional aspects of
welfare. This study aims to fill these gaps.
Therefore, some contributions of this research objectives include: (1) It
examine the role of microcredit on various welfare indicators such as income, food
consumption, and accumulation of assets. (2) It is noteworthy that lack of empirical
studies in the world investigates the impact of microcredit on outcome from
common property resources (e.g. catching aquaculture from river, sea, or collecting
forestry resources). (3) For robustness check and to capture to better results, this
research applies various impact evaluation techniques such as standard Difference
in Difference (DID) and Propensity Score Matching (PSM) combined with DID. (4)
Another contribution is that it applies the most recent data (survey 2012 and 2014)
to capture the current situation of microcredit, as microcredit much changes across
time in terms of loan size. In terms of practical contribution, the findings from this
objective will imply relevant policies to enhance the effectiveness of microcredit.
Research question 3: Does microcredit improve rural households’ welfare,
measured by income, output value, food consumption and asset accumulation?


9

1.2.4. Microcredit and health shock
A research by Banerjee and Duflo (2012) finds that when health is improved,
people can study or work better, which thereby improves their future income. In the
developing countries, the social security system is not well-organized.
Consequently, when households face any health problem, they normally face big
trouble, especially the poor. Systematic review by Alam and Mahal (2014) reveals
that health problems may have impact on household via some channels. For
instance, when the workers in the family cannot work due to health problems, it will
lead to an increase in medical expense and a decrease in income. The same outcome
may happen when care-givers cannot work to give cares to other sick/disease
members. To alleviate such burden, the households with health problems will
normally use a certain coping/mitigating strategy. However, when the social
security system is less developed and the formal coping/mitigating strategies are not
available, the households may take advantage of informal coping strategies such as
reduced consumption, informal loan, or selling assets
Regarding the role of microcredit in coping with health shock, there have
been few studies (Gertler et al., 2009; Islam & Maitra, 2012). These studies state
that households with access to microfinance can smooth their consumption better
than those without any coping strategies.
In Vietnam, impact of health shock has been researched in the empirical
studies (Wagstaff & van Doorslaer, 2003; Wagstaff, 2007; Mitra et al., 2015;
Okonogi et al., 2015). However, neither of them investigates the role of microcredit
in mitigating the impact of health shocks, especially in relation with other
outcomes. Therefore, this research objective aims to fill these gaps and examines
two objectives. The first objective is to examine the impact of health shocks
welfare. The second and more important one is to investigate the role of microcredit
in mitigating the consequence of health shocks.
Some contributions of this objective are: (1) It uses on various welfare
indicators (income, consumption, and notably, mobility of child and elderly labor)

10

and (2) two types of health shocks to capture a deep understanding on the effects of
different health shocks and microcredit on different outcomes. (3) This study
employs regression without and with Village Fixed Effect (VFE) using the panel
data to make comparison and capture the best results. (4) The final contribution is
the use of IV 2SLS approach to treat the potential endogeneity of microcredit. In
terms of practical contribution, the findings from this objective will imply relevant
policies to enhance the effectiveness of microcredit.
Research question 4: Does microcredit mitigate the adverse effects of health
shocks on income, consumption and intra-household labor mobility?

1.3. Research objectives
The primary research objective is to investigate the accessibility to
microcredit programs and its impacts on welfare. However, it is important to
capture the impact mechanism of microcredit. Accordingly, following logical
framework in Section 2.5, this research includes the following specific objective:
(1) Investigate the determinants of accessibility to microcredit of the rural
households; in particular, whether microcredit serves the poor and women
borrowers. Further investigation is also conducted on the poor and non-poor sample.
(2) Examine the role of microcredit in enhancing farmers’ decision on
adoption of improved rice varieties in both stages, including whether to adopt and
how much to adopt. Research sample is also decomposed into the poor and nonpoor for further investigation.
(3) Evaluate the impact of microcredit on the rural households’ welfare,
measured by various indicators such as income, total production value, food
consumption, and asset accumulation.
(4) Examine the role of microcredit in mitigating the effects of health shocks
on income, consumption and intra-household (child and elderly) labor mobility.

11

1.4. Scopes of research
Microcredit is widely provided in urban and rural areas. Both banks and
Microfinance Institutions (MFIs) provide microcredit. In addition, many indicators
can be used to define microcredit, welfare and health shocks. Due to availability of
data, the research scopes are as follows:
• This research focuses on the households in the rural areas in Vietnam.
• Microcredit used for analysis is defined as collateral-free and small loan (less
than 100 million VND) granted by the formal credit providers.
• This research focuses on the microcredit used for production or doing business,
thus it can capture long-run and sustainable impact of microcredit on welfare.
• Welfare indicators used for analysis include total output value, revenue,
income, consumption, accumulation of assets, and non-working-age labor.
• Two types of health shocks are used for analysis, including illness/ disease/
injury of any members and working-age members.

1.5. Research data
Secondary data. This research applies two datasets for quantitative analysis,
including Vietnam Household Living Standards Survey (VHLSS) in 2010 and
2012, and Vietnam Access to Resources Household Survey (VARHS) in 2012 and
2014. VARHS is applied for the first three objectives while VHLSS for the fourth
objective. VARHS and VHLSS are complementary sources of information
Primary data. In-depth interview and focus group are conducted in rural
areas in Tra Vinh and Long An provinces to supplement the results from
econometric model and to imply policy.

1.6. Research methods

1.6.1. Quantitative methods
This research employs different methods for investigating each specific
research objectives. Probit model using panel data is applied to investigate the


12

determinants of accessibility to microcredit (Research objective 1). Double-Hurdle
(DH), Tobit and Heckman models with cross-sectional data are used to examine
how microcredit affects farmers’ decision toward adoption of improved rice
varieties (Research objective 2). Such impact evaluation techniques as Difference
in difference (DID) and PSM-DID with panel data are applied to assess the effects
of microcredit on living standard (Research objective 3). Regression with VillageFixed-Effect (VFE) with panel data is employed to analyze the role of microcredit
in mitigating the consequence of health shocks (Research objective 4).

1.6.2. Qualitative methods
According to Merriam (1998), Bogdan and Biklen (1992), and Creswell
(2003), qualitative research may be conducted using: observation, In-depth
Interview (Face to Face, Focus group, phone), Media (Photo, Recording). This
research employs in-depth interview and focus group to capture the deeper
understanding about the research problems. Qualitative research is conducted on the
subjects associated with microcredit programs, including: (1) Borrowers from
microcredit provided by VBSP, (2) village Officials, staff of Women Union, staff of
Farmer Union, etc. at some communes; (4) Specialists in the fields of rural finance.

1.7. Contribution of the research
1.7.1. Theoretical contributions
The dissertation is an empirical work, which mainly uses applied
econometrics and models from previous studies to testify for the case of Vietnam.
However, the dissertation still makes some contributions to literature, including:

• The dissertation modifies an analytical framework on mechanisms through
which microcredit can affect farmers’ decisions on adoption of improved
rice varieties or other investment choices, then impact households’ welfare,
and finally mitigate the adverse effect of health shocks.