Is microfinance an important instrument for poverty alleviation? The impact of microcredit programs on self- employment profits in Vietnam Robert Lensink (co-authored with Thi Thu Tra Pham) Department of Finance Faculty of Economics and Business University of Groningen, the Netherlands
15
Embed
Is microfinance an important instrument for poverty alleviation? The impact of microcredit programs on self-employment profits in Vietnam Robert Lensink.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Is microfinance an important instrument for poverty alleviation?The impact of microcredit programs on self-employment profits in Vietnam
Robert Lensink (co-authored with Thi Thu Tra Pham)
Department of FinanceFaculty of Economics and Business University of Groningen, the Netherlands
Microfinance and poverty reduction: rational› Channels by which microfinance may reduce poverty:
• Access to credit contributes to increase in income, accumulation of assets, diversification of income sources, better education and health etc.
› Empirical studies are ambiguous• Strong evidence: Dunford (2006), Littlefield et al.
› How to measure the contribution of microfinance?• Which mechanisms?• Which income indicators?• Which impact evaluation methods
| 2
This paper: Credit impact on rural household self-employment profits› Why rural? › Why profits?
• Coleman (1999): lack of access to productive capital is a main cause of poverty
• McKernan (2002): profits is a function of capital assets, human capital, land, input, output prices => credit affects profits by providing an additional capital asset
› Methods: • Impact of having access to microcredit: Compare
profits of eligible households and ineligible households
• Impact of using credit: credit is instrumented under both cross-section and panel framework
| 3
Data
› Vietnam Household Living Standard Surveys 2004 and 2006 with information on household and commune characteristics
› VHLSS 2004 covers 9,189 households, 2,868 households use credit.
› VHLSS 2006 covers 9,189 households, 2,962 households use credit
› Our sample: rural households, and formal credit only
› Panel structure: 3,308 rural households, the same 575 households borrow both years
| 4
› Two types of microcredit:• Microcredit I: from Vietnam Bank for Social Policy
(VBSP) – the governmental and major microcredit provider
• Microcredit II: credit from VBSP, from Bank for Agriculture and Rural Development (VBARD) with size below 20 mln VND and credit from other NGOs
› Other formal credit: non-microcredit loans from VBARD sized above 20 mln VND, loans from commercial state-owned and private banks, and credit unions.
Impact of credit participation C: amount of credit receivedηij: unobserved fixed household
attributesμj: unobserved fixed commune
attributes› Fixed-effects estimation without instrument: endogeneity controlled by unobserved fixed household and commune effects
› IV (2SLS) within fixed-effects (Khandker, 2005): endogeneity also controlled by unobserved time-variant variables • Same instruments as in pooled analysis
(3) ''ln ijt ijt ijt ijt ij j ijtY X E C
| 9
Impact estimation method (4): general issues and tests› Outcome variable: log of household profits› Control variables:
• Household characteristics: size, total land owned, share of farming labour, household head demographic (age, gender, marital status, education, ethnic minority)
• Commune characteristics: access to road, access to transport, access to market, access to post office, electricity
• Year dummy› Test for IV method
• Sargan-Hansen J test for no correlation between the instruments for credit and the error term of the profit equation
• Endogeneity test (difference-in-Sargan) for exogeneity of credit
› Microcredit programs: NO impact on household self-employment profits
› Other formal credit: a positive significant impact› What can explain the result?› Khandker (2005): Microcredit recipients - rural poor
have less profitable investment opportunities => less likely to benefit from credit
› Garson (1999): two categories of the poor: entrepreneurial and non-entrepreneurial poor • Non-entrepreneurial poor cannot make use of credit• Entrepreneurial poor may run into cash flow
problems once financed with credit› Coleman (1999): Loan size
| 14
Implications and conclusions
› Effectiveness of microcredit is at doubt› Microcredit may be more beneficial due to
other reasons than the credit as such› Future research:• Compare with informal financing• Select valid instruments• Attrition bias