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SFB 564: F2.1 - Rural finance and sustainable rural development in Northern Vietnam
Project
Project code: DFG SFB 564
Contract period: 01.01.2000
- 31.12.2003
Purpose of research: Basic research
This research will focus on analysing the conditions of effective financial market functioning in rural Vietnam serving rural economic development with particular emphasis on sustainable agricultural production systems. The sub-project (SP) will first analyse the factors that determine access to financial services by farm households. Secondly, it will assess the financial needs and access problems of the non-agricultural households and small and medium enterprises (SMEs). Access to credit poses particular challenges in Vietnam where the traditional form of securing credit through land as collateral is not feasible yet. Other forms of guaranteeing loans need to be identified. The research will focus on the demand side of financial market development because understanding the specific features of demand is essential for improving access. Rural financial market research, so far, has largely focused on the analysis of supply side constraints and weaknesses of financial intermediaries. This SP intends to shift the attention to identifying and analysing access constraints on the demand side of financial markets. While the focus is on demand analysis and its determining factors the supply of financial services needs also to be assessed to identify gaps between demand and supply. On that basis, policies that bring institutional services in line with demand can be formulated. The innovations expected to be identified and analysed in the sub-projects D, E, and F will require the financing of investments, operating costs and other expenditures for farms and SMEs. Access to financial services, therefore, is crucial. A particular challenge for developing a rural finance market in this environment is enabling poorer population groups’ access to credit and other financial services. Poor farm and non-farm households, notably those of ethnic minorities, often do not have legal land use certificates nor other assets to offer as collateral. Innovative approaches that are suited to overcome these constraints and at the same time allow to reduce the high transaction costs of small scale lending need to be developed. The hypothesis of this SP is that involving the local and regional civil society as well as the farm and non-farm households offers the key to new approaches in rural financial market development in these regions. While this SP will assess the institutional and macroeconomic environment, analysing in depth their interaction with village level access issues of finance will be the focus of the next phases of this SFB.
The rural population that is constrained in its access to the formal financial sector cannot, for various reasons, get their demands satisfied in the informal financial sector. It is this dilemma of unsatisfied demand for financial services and unsatisfactory financial service supply that needs improvement. Broad access to appropriate financial services is essential for improving productivity and income, protecting natural resources and developing rural areas.
Household surveys among the ethnic minorities in Northern Vietnam will be the basis for the analysis of financial demand. Methodologically, research will identify the determining factors econometrically. This will be complemented by qualitative analysis. Regression equations relating dependent variables representing output and income (among others) and resource conserving farming activities to explanatory variables such as ecological condition, human, real, financial capital, and institutional and infrastructural characteristics will be estimated. Depending on the character of the depending variable, OLS or Logit/Probit models will be applied. SP F2 is closely linked to research on farming systems (D3) which will identify the role of capital constraints in the existing farming systems and in adopting innovations. Joint questionnaires will be developed and applied and the surveys regionally co-ordinated. E3 (marketing) carries out research on non-farm income creating activities and similarly close co-operation and exchange of data will take place. Findings of land tenure and property rights (F1) are crucial for credit access researched in F2.
At this stage, two directions for future research in the succeeding phases of the proposed SFB are foreseen. First, an analysis of the interactions between the macro-financial sector policies, good-governance, and rural financial market development is planned. Second, research needs to be undertaken that focuses on the question how savings and credit services can be channeled more actively into investments in environmentally friendly or beneficial farming practices. It is important to integrate environmental concerns into financial market decisions so that capital flows support resource conserving measures rather than adversely affect the environment for a short-term financial benefit.
Section overview
Subjects
- Agroeconomics
Collaborative Project
Funding programme
Excutive institution
Institute of Agricultural Sciences in the Tropics (Hans-Ruthenberg-Institute) (490)
