Impact of formal credit on the living standards of poor households in mountainous northern Vietnam

01.09.2018
Poor households, especially ethnic minorities in mountainous areas typically face financial constraints. Access to formal credit sources, especially microfinance institutions (MFIs), can help reduce the constraints to investing in income-generating activities and/or smoothing consumption. Using cross-sectional data from a survey of poor households, this article aims at 1) examining the poor’s access to formal credit (probit and tobit models), and 2) evaluating the impact of formal credit on the poor’s living standards (propensity score matching). The estimated results show that access to formal credit and/or the amount granted were affected by age, education level, household size, labour-force ratio, main job, non-productive assets, and residential land. In terms of impact, borrowers were found to have significantly higher revenue from self-employment activities and to have significantly greater expenditures on non-food necessities and productive assets than non-borrowers. Hence, access to MFIs for microloans is an important tool for the ethnic minority poor in remote areas in poverty reduction programmes.