Abstract
<p class="a"><span lang="EN-US">Access to credit has been thought to be a key factor in rural development and poverty reduction. In Vietnam, the Vietnam Bank for Agriculture and Rural Development (Agribank) emerged from the mono-tier banking system in 1988 and performs as a profit-oriented commercial bank sustaining the development of rural areas. During the last two decades, the bank has clearly expanded its share of credit outstanding in total rural credit market volume and this process is in line with the trending development of the national economy. The aim of this study is to examine whether Agribank credit improves household income in the Northern Mountains of Vietnam, where the poor and ethnic minorities are overrepresented in the population. In order to create robust estimates, a joint consideration of all four matching algorithms (</span><span lang="EN-US">nearest-neighbor matching, radius matching, Kernel matching and stratification matching) </span><span lang="EN-US">is applied to the Propensity Score Matching. The study found that access to extension services, ethnicity, and total savings emerged as reliable predictors of credit access among household endowments. Loan volumes increase with total value of household assets. In addition, the impact of credit lies in the range increase of 14.56% to 43.78% of total income, 12.09% to 51.83% of per capita income and 43.64% to 111.60% of nonfarm income of household with credit access. The agricultural bank credit has contributed in improving household income in the Northern Mountains of Vietnam. Results in this study provide further support for the hypothesis that the remarkable progress in poverty reduction in the last two decades in Vietnam is partly attributed to the development of Agribank credit. Experiences of the Agribank in lending to rural areas could be worthwhile for intermediary financial institutions to support rural development in Vietnam.</span></p>
Highlights
Access to credit is believed to benefit rural households in several ways
The aim of this study is to examine whether Agribank credit improves household income in the Northern Mountains of Vietnam, where the poor and ethnic minorities are overrepresented in the population
Results in this study provide further support for the hypothesis that the remarkable progress in poverty reduction in the last two decades in Vietnam is partly attributed to the development of Agribank credit
Summary
Access to credit is believed to benefit rural households in several ways. Numerous studies have shown that credit helps farmers adopt new technology and improve nutritional health and education of children (Jacoby & Skoufias, 1997; Morduch, 1999; Pitt & Khandker, 1998). Access to production credit greatly increases household willingness to invest in higher value crops and livestock. Credit is significant for farmers to buy necessary inputs such as fertilizer, seed, crop varieties, pesticides, animal feed and so on to improve farming productivity (Zeller et al, 1998). One study by Hazarika and Alwang (2003) found that credit helps farmers shift their labor-intensive technologies to capital-intensive technology via investments in machinery and new varieties. Credit can complement agricultural extension services to make farming production more efficient
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