Formal Credit and its Impact on Income - Evidence from the Poor Households in Vietnam

Abstract

The poor households are normally financial constrained, which inhibits them from income-generating activities. Formal credit market in Vietnam has been more and more improved and thus the poor households can be more accessible to formal sources. Thenceforth, they can relax their financial constraint and then invest in on-farm or off-farm activities to generate income and escape poverty in longer run. This research is aimed at examining the impact of formal credit on income of the poor households in rural Tra Vinh, one of the poorest provinces in Vietnam. The research applies the data from a survey of 381 rural poor and Propensity Score Matching (PSM) method for quantitative analysis. The estimated results find that formal credit borrowers benefit from self-employment activity rather than other income-generating activities. In particular, borrowers from formal sources have significantly higher self-employment income than non-borrowers, but there is no significantly different among them in terms of income from agriculture and wage sources.