Research Article Open Access

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

Le Trung Hieu1 and Pham Tien Thanh2
  • 1 Department of Finance and Banking, School of Economics and Law, Tra Vinh University, No. 126 Nguyen Thien Thanh Street, Ward 5, Tra Vinh City, Tra Vinh Province, Vietnam
  • 2 Department of Economics, Faculty of Business Administration, Ton Duc Thang University, No. 19 Nguyen Huu Tho, Tan Phong Ward, District 7, Hochiminh City, 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.

American Journal of Applied Sciences
Volume 14 No. 7, 2017, 718-725

DOI: https://doi.org/10.3844/ajassp.2017.718.725

Submitted On: 24 June 2017 Published On: 20 July 2017

How to Cite: Hieu, L. T. & Thanh, P. T. (2017). Formal Credit and its Impact on Income - Evidence from the Poor Households in Vietnam. American Journal of Applied Sciences, 14(7), 718-725. https://doi.org/10.3844/ajassp.2017.718.725

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Keywords

  • Formal Credit
  • Impact Evaluation
  • Income Source Diversification
  • PSM