Filling the voids left by the formal sector: informal borrowings by poor households in northern mountainous Vietnam
ISSN: 0002-1466
Article publication date: 30 June 2020
Issue publication date: 21 January 2021
Abstract
Purpose
This study aims to examine the accessibility, loan purposes and effects of informal credits on poor households in Northern mountainous Vietnam.
Design/methodology/approach
This study used primary data collected directly from surveying 402 poor households in Thai Nguyen province using a well-designed questionnaire. The probit model is employed to specify which factors affect access to informal credit, the tobit model is used to estimate the borrowing functions specified. In addition, descriptive statistical analysis is also used to describe the accessibility, purposes and effects of informal credit on poor households.
Findings
The results show that there is a considerably high proportion of informal borrowings from relatives, neighboring villagers, professional moneylenders, rotating saving and credit groups, trade credits and mortgages. Labor force ratio, social capital and residential land areas are the key determinants of poor households' informal borrowings. The purposes of borrowing are diverse. The informal loans also have certain significant effects on poverty reduction and the welfare of poor households.
Research limitations/implications
The effects of the informal loans on house welfare should be quantitatively evaluated.
Practical implications
The findings from these analyses allow us to draw relevant policy implications for the development of rural finance in other low-income, developing countries.
Originality/value
This research contributes to the body of published literature in several ways. Firstly, it provides understanding of the performance of the informal financial subsector. Secondly, the informal subsector of rural finance is evaluated in close relation to the formal subsector.
Keywords
Acknowledgements
We are grateful to anonymous referees and especially to the Editor of this Journal for incredibly valuable comments and suggestions on an earlier draft of the article. We greatly appreciate the helps from Professor Koichi Fujita from Kyoto University and Professor Takao Yurugi from the University of Tokyo. Comments from participants at the international seminar on “Rural Finance & Economy in Southeast Asia and Land Tenancy Development in South Asia,” to be held at Bangkok Liaison Office of the Center for Southeast Asian Studies (CSEAS), Kyoto University, on November 3, 2019, where the earlier draft of this paper was presented are highly appreciated. The usual caveats apply.
Citation
Huu Thu, N., Bao Duong, P. and Huu Tho, N. (2021), "Filling the voids left by the formal sector: informal borrowings by poor households in northern mountainous Vietnam", Agricultural Finance Review, Vol. 81 No. 1, pp. 94-113. https://doi.org/10.1108/AFR-12-2019-0134
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited