An Analysis on Borrowing Behavior of Rural Households in Vientiane Municipality: Case Study of Four Villages

Abstract

Since the late 1990s the savings groups have been introduced in the villages of Laos. This movement has offered new borrowing opportunities for the rural people. Based on household survey using a structured questionnaire in four study villages (N=684) in Vientiane Municipality during 2007–08 we analyzed the role and performance of the savings group in rural financial markets, especially focusing on who borrows, from which sources, and for what purposes by comparing the savings group with informal and formal lenders. Two major findings are as follows. First, three types of lenders (savings groups, formal and informal lenders) have their own particular features, and thereby loan purposes differ significantly. Formal banks offer loans exclusively for production purposes, while informal lenders do for coping with emergencies. Savings groups fall between them. Second, though poor households are reluctant to be a savings group member, once they participate in they actively obtain loans from it. In contrast, though rich households actively participate in the group, they obtain loans less from it. Group members claim that the primary purpose of joining the savings group is to cope with emergencies. When the members obtain loans from the savings group, however, nearly 40% of the loans are used for production purposes, mainly in agriculture. There exists a change between saving purposes and borrowing ones. It is assumed that in villages with the higher loan credit for production purposes, the savings groups show favorable performance, and thus a rapid growth.