or water conservation technologies, such as agroforestry or terracing, require longterm investments and/or incur substantial costs in the first year, neither of which
farmers may necessarily be able to cope with, requiring them to obtain a loan.
Second, many decisions regarding resource use are intertemporal in nature, such
that farmers decide how to use resources based on those available today and those
that will be left tomorrow given the impact of today’s actions. Access to credit,
saving or insurance facilities enhances farmers’ ability to plan in advance and to
cope with these risks.
However, in rural areas, considerable transaction costs due to geographic
remoteness, costly information and the covariant nature of risks lead to financial
market imperfections. The poor, lacking adequate collateral, access to information
and a reputation, often remain excluded from formal credit institutions and then
have to pay much higher interest rates for loans from informal lenders. Added to
this, external intervention is often needed to enhance the efficiency and equity
outcomes of the market. Given these market failures, governments have regularly
intervened in rural credit markets within developing countries, albeit with mixed
success (Zeller et al. 1997). In Vietnam, the government has established two banks
with the objective of increasing the formal credit supply and increasing credit
access for the poor. One such bank, the Vietnam Bank for Agriculture and Rural
Development (VBARD), was created in 1990, and now acts as a commercial bank
which supports the development of the rural sector through loans to agricultural and
non-agricultural enterprises. The second is the Vietnam Bank for Social Policies
(VBSP), termed a “policy bank”, which is subsidized by the government and seeks
to provide micro loans to poor households at low interest rates using political
village organizations. The subsidies enable it to charge very low interest rates of
around 6.6 % per annum, even though the inflation rate in 2007 was above 12 % per
annum. Only these two banks supply formal credit in most rural areas, as an
independent micro-finance sector has not yet emerged (Dufhues 2007).
Based on data collected in Yen Chau district in 2007, we found that wealthier
households have better access to formal credit, take out larger loans and pay lower
interest rates, while poorer households borrow smaller amounts from semi-formal
and informal lenders at higher rates (Saint-Macary and Zeller 2011). Informal
lenders include friends, relatives and neighbors, but also socially distant persons
such as shopkeepers and employers. Semi-formal lenders include mainly villagelevel mass organizations, such as the Farmers’ Union. Table 5.1 provides descriptive statistics of the farmers’ access to different sources of credit, differentiated by
their poverty status (using an absolute index based on expenditures) and by wealth
terciles. The average credit limit shown measures the maximum amount a household would be able to borrow from a given lender (Diagne and Zeller 2001; Diagne
et al. 2000). Table 5.1 shows that the poor have a significantly lower level of access
to credit than the wealthier groups (using both the absolute and relative
classifications), a finding which holds true for all lender types present in the area,
whether formal, informal or semi-formal. Moreover, one of the declared goals of
the policy bank is to substitute informal credit with lower-cost formal credit;
however, this has only partly been achieved and has largely failed for poor
182
C. Saint-Macary et al.
farmers may necessarily be able to cope with, requiring them to obtain a loan.
Second, many decisions regarding resource use are intertemporal in nature, such
that farmers decide how to use resources based on those available today and those
that will be left tomorrow given the impact of today’s actions. Access to credit,
saving or insurance facilities enhances farmers’ ability to plan in advance and to
cope with these risks.
However, in rural areas, considerable transaction costs due to geographic
remoteness, costly information and the covariant nature of risks lead to financial
market imperfections. The poor, lacking adequate collateral, access to information
and a reputation, often remain excluded from formal credit institutions and then
have to pay much higher interest rates for loans from informal lenders. Added to
this, external intervention is often needed to enhance the efficiency and equity
outcomes of the market. Given these market failures, governments have regularly
intervened in rural credit markets within developing countries, albeit with mixed
success (Zeller et al. 1997). In Vietnam, the government has established two banks
with the objective of increasing the formal credit supply and increasing credit
access for the poor. One such bank, the Vietnam Bank for Agriculture and Rural
Development (VBARD), was created in 1990, and now acts as a commercial bank
which supports the development of the rural sector through loans to agricultural and
non-agricultural enterprises. The second is the Vietnam Bank for Social Policies
(VBSP), termed a “policy bank”, which is subsidized by the government and seeks
to provide micro loans to poor households at low interest rates using political
village organizations. The subsidies enable it to charge very low interest rates of
around 6.6 % per annum, even though the inflation rate in 2007 was above 12 % per
annum. Only these two banks supply formal credit in most rural areas, as an
independent micro-finance sector has not yet emerged (Dufhues 2007).
Based on data collected in Yen Chau district in 2007, we found that wealthier
households have better access to formal credit, take out larger loans and pay lower
interest rates, while poorer households borrow smaller amounts from semi-formal
and informal lenders at higher rates (Saint-Macary and Zeller 2011). Informal
lenders include friends, relatives and neighbors, but also socially distant persons
such as shopkeepers and employers. Semi-formal lenders include mainly villagelevel mass organizations, such as the Farmers’ Union. Table 5.1 provides descriptive statistics of the farmers’ access to different sources of credit, differentiated by
their poverty status (using an absolute index based on expenditures) and by wealth
terciles. The average credit limit shown measures the maximum amount a household would be able to borrow from a given lender (Diagne and Zeller 2001; Diagne
et al. 2000). Table 5.1 shows that the poor have a significantly lower level of access
to credit than the wealthier groups (using both the absolute and relative
classifications), a finding which holds true for all lender types present in the area,
whether formal, informal or semi-formal. Moreover, one of the declared goals of
the policy bank is to substitute informal credit with lower-cost formal credit;
however, this has only partly been achieved and has largely failed for poor
182
C. Saint-Macary et al.