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The impact of microcredit on rural

households in the Mekong River Delta
of Vietnam
a b b
Dinh Khoi Phan , Christopher Gan , Gilbert V. Nartea & David A.
c
Cohen
a
Department of Finance and Banking, Can Tho University, Can
Tho, Vietnam
b
Department of Accounting, Economics and Finance, Faculty of
Commerce, Lincoln University, Canterbury, New Zealand
c
Department of Business Management, Law, and Marketing,
Click for updates Faculty of Commerce, Lincoln University, Canterbury, New
Zealand
Published online: 30 May 2014.
To cite this article: Dinh Khoi Phan, Christopher Gan, Gilbert V. Nartea & David A. Cohen (2014)
The impact of microcredit on rural households in the Mekong River Delta of Vietnam, Journal of the
Asia Pacific Economy, 19:4, 558-578, DOI: 10.1080/13547860.2014.920591
To link to this article: http://dx.doi.org/10.1080/13547860.2014.920591
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Journal of the Asia Pacific Economy, 2014
Vol. 19, No. 4, 558578, http://dx.doi.org/10.1080/13547860.2014.920591
The impact of microcredit on rural households in the Mekong River

Delta of Vietnam
Dinh Khoi Phana, Christopher Ganb*, Gilbert V. Narteab and David A. Cohenc
a
Department of Finance and Banking, Can Tho University, Can Tho, Vietnam; bDepartment of
Accounting, Economics and Finance, Faculty of Commerce, Lincoln University, Canterbury,
New Zealand; cDepartment of Business Management, Law, and Marketing, Faculty of Commerce,
Lincoln University, Canterbury, New Zealand
This paper evaluates how microcredit affects rural households in the Mekong River
Delta of Vietnam using the propensity score matching methods. The results show that
the Vietnam Bank for Social Policies (VBSP) microcredit program has a significant
positive impact on household consumption but no significant impact on household
income. In addition, the findings show greater consumption and income impact for the
true poor when only the poor group is included in the analysis. This implies that this
group benefits more from participating in the microcredit program than low-income
households.
Keywords: microcredit; rural households; Mekong River Delta; Vietnam
JEL Classifications: G21, O17, Q14
1. Introduction
Despite the establishment of numerous microcredit policies targeting the rural credit mar-
ket over the past two decades, Vietnam is still home to over 12 million people (14.2% of
the population) living in poverty1 (World Bank 2008). Currently, the majority of house-
holds in rural areas tolerate a variety of difficult circumstances. These include temporary
housing, lack of fixed assets, and low, unstable incomes. Accessibility to credit has
remained one of the main problems of the countrys poverty reduction and rural develop-
ment strategy programs. Pham and Izumida (2002) show that as much as 30% of farm
households were unable to borrow from formal lenders. Improving access to microcredit
is therefore one of the main objectives of many microcredit programs targeting rural
households and the poor. This is because credit is believed to improve rural households
livelihood by improving productivity, and smoothing consumption and income irregulari-
ties. However, improving microcredit access for the poor incurs costs that raise the
costbenefit question of how much these microcredit programs impact the target group.
Most microcredit programs in Vietnam are managed by the Vietnam Bank for Social
Policies (VBSP). Since its official establishment in 2003, studies evaluating the impact of
the VBSP microcredit program on target households have been sporadically done at
national, regional, and local levels. Few studies have focused on the evaluating the impact
of the program on the Mekong River Delta (MRD). This study was designed to examine
the impact of the microcredit program impact on the MRD and to enrich the field of
microcredit program impact evaluation.
*Corresponding author. Email: Christopher.Gan@lincoln.ac.nz
2014 Taylor & Francis

Journal of the Asia Pacific Economy 559
Accessibility to microcredit programs undeniably has desired impacts on the poor. How-
ever, interpretations of the impact of these programs have proven to be controversial.
Impact evaluation inferences are sensitive to their evaluation methods and assumptions;
different impact evaluation methods will depend on their specific assumptions to resolve
the missing data problem. This also implies that different methods of data collection will
encounter different missing data problems, such that a chosen econometric evaluation
method may thereby perform better than others for program impact assessment. More-
over, evaluation of the impact of a microcredit program should address informal credit as
an alternative source of credit relative to the formal microcredit program. This is because
informal credit is prevalent in the rural markets in developing countries. In Vietnam, it is
particularly the case where the formal and informal credit sectors coexist to serve clients
(Khoi et al. 2013). Failure to control for complementarity and substitutability between
the formal and informal credit sectors when evaluating the impact of formal microcredit
programs tends to overestimate the positive impact of these programs.

This paper examines the impact of microcredit programs on the incomes and con-
sumption patterns of rural households in the Mekong River Delta, Vietnam while control-
ling for the exogenous effect of informal credit. In order to do so, we present an overview
of the rural credit programs that target the rural credit market. We then evaluate these pro-
grams using estimation techniques that control for the exogenous contribution of informal
credit to income and consumption patterns of this group in rural Vietnam.
2. Background of microcredit programs targeting poverty reduction in rural Vietnam

The Vietnamese rural credit market is described as fragmented, heavily subsidized,
having a high degree of government intervention, and with many credit sectors
coexisting to serve borrowers (McCarty 2001). The market is dominated by state-owned
banks, which includes the Vietnam Bank for Agriculture and Rural Development
(VBARD), the Vietnam Bank for the Poor (VBP) and the Peoples Credit Funds (PCFs),
which together control as much as 70% of the total credit granted in rural areas (World
Bank 2002). VBARD has branches at the district level and only to a limited extent at the
commune level; therefore, outreach to the poorest in remote and rural communes is lim-
ited. Biases in risk assessment and complicated procedures for assessing need and grant-
ing credit have also contributed to the underdevelopment of VBARDs operation
(Putzeys 2002).
To overcome the VBARDs operational weaknesses, the VBP and the PCFs were
established to address the credit needs of the rural poor. The primary objective of PCFs is
to restore public confidence in the formal rural finance system by a strategy of mobilizing
savings from its members. However, since PCFs offices are predominantly located in
areas that are economically better-off and thus have better developed infrastructure, the
PCFs plays a limited role in microcredit provision to the rural poor.
Information about the informal credit sector in Vietnam is primarily based on anec-
dotal reports, but its importance as a credit supplier in the rural credit market has been
documented in Putzeys (2002), Pham and Izumida (2002), and Pham and Lensink (2007)
studies. Traditionally, this sector includes relatives, friends and neighbors, Rotating Sav-
ings Credit Associations, and private moneylenders. A new form of private moneylenders
who are local traders or input suppliers has emerged as the agricultural product market
has become more developed. This form of credit became an important source of informal
credit. In 1998, more than 51% of credit provided to farm households was through these
informal channels (Putzeys 2002).
560 C. Gan et al.
A semiformal credit sector has recently been established through microcredit efforts
managed by international programs and non-government organizations (NGOs) in part-
nership with local provincial organizations. This sector offers microfinance services to
rural borrowers that were excluded from the formal credit sector. In Le (2011), the semi-
formal credit sector has a smaller role in the provision of microcredit in Vietnam as many
semiformal microcredit programs have operated without a legal framework. Until 2010,
the Law on Credit Institutions (CIL) did not incorporate semiformal microfinance institu-
tions into the formal financial system. Before 2010 CIL, most microfinance activities
were involved with projects implemented at the local, provincial level. Unfortunately, the
lack of information about the semiformal credit market and an unavailability of reliable
and valid data relevant to its analysis have resulted in the exclusion of the sector from
this study.
The VBP microcredit program had been designed to target those who have poor liv-
ing conditions and limited access to financial services. Created in 1995, the VBP began
official operation in 1996, providing credit at low interest rates to the rural poor who did
not qualify for individual loans because of their limited collateral. In 2003, the VBP was
renamed the VBSP. The VBSP works closely with local organizations such as Commune
Peoples Committees to identify poor and socially disadvantaged groups. Nevertheless,
other social mass organizations in villages such as the Vietnam Womens Union and the
Vietnam Farmers Association help the VBSP bank monitor loans. Collateral is not
required; however, the social mass organizations role includes providing a guarantee
for such loans. If the borrowers default, the VBSP bank will take a portion of the
guaranteed loan amount from the social mass organizations funds. To ensure repayment,
the social mass organizations organize borrowers into credit groups. Joint-liability
groups were also formed in the initial stage of microcredit lending efforts. However,
this practice has been replaced by flexible group lending practices (Bhole and Ogden
2010), where the individual is liable only for her or his loan but not for those of other
group members.
Since its official establishment in 2003, the VBSP has provided the poor with prefer-
ential microcredit through a group-based lending scheme. To borrow from the VBSP, a
household must join a credit group in its locality. A credit group consists of 5 to 50 mem-
bers residing in the same village. If the number of members is fewer than five, they must
join a credit group in another village. Each credit group sets up a management board,
which is responsible for the borrowing and credit use of its members. According to the
VBSPs lending policies, to become a member of a credit group a household should meet
the following criteria: (1) the household has a long-term residence permit at the locality
in which the credit group is located, (2) the household has someone who is able to work,
(3) the household is classified as poor by a commune authority, and (4) the household has
a demand for credit. The credit is to be used in production or for subsistence consumption.
The new VBSP lending policy allows households to borrow up to 30 million VND.
Households can borrow many times, but outstanding loans may not exceed 30 million
VND in total.
Group-based lending has been popular in making loans to rural poor households
since the start of the VBSP microcredit programs. However, this lending practice does
not strictly follow the joint-liability principle. Borrowers are required to form a group,
including a number of certified poor members and a group leader, but no joint liability is
specified. The group leaders tasks are as follows: (1) to provide information about group
members to credit officers, (2) to collect loan applications from group members and dis-
burse the loans, and (3) to convince members to repay their loans. In the case of a default,
the responsibility for dealing with the borrower lies with the credit officer; the group
leader helps persuade the defaulter to repay.
At the commune and microcredit institution levels, the process of lending and moni-
toring VBSP credit is rather stringent (Nguyen 2008). To ensure high repayment rates in
the system, the VBSP monitors overdue outstanding loans from its local branches. It com-
pares the value of overdue outstanding loans with fund allocations every year and reduces
subsequent allocations to VBSP branches with large overdue loans. In addition to the
credit groups, the Peoples Committee is also administratively responsible for the repay-
ments of the loans to credit group members in their commune. Often, when the applicants
list is ratified, the Peoples Committee tends to exclude very poor households who might
not be able to repay loans but non-poor or better-off households are able to obtain loans
(Dufhues et al. 2001). Therefore, the poverty targeting performance of the VBSP program
largely remains questionable.
Nguyen (2008) employed the World BankViet Nam Statistic Office poverty line
figure to investigate how well the program reached impoverished households. Analysis
revealed that in 2004, only 12% of the poor households with a favorable credit record
obtained loans from the microcredit programs provided by VBSP. The evidence strikingly
indicates that the lending rate of microcredit programs was very low. In addition, the poor
usually received smaller amounts of credit than the non-poor. The mean loan size per
poor borrowing household was 3.174 million VND, compared to the 3.715 million VND
that a non-poor household was able to borrow.
There are two factors that help explain why microcredit programs did not reach the
targeted poor households. First, lending organizations were likely to have had difficulty
in identifying the real poor. In Vietnam, definitions of poverty are not consistent between
the GSO-WB2 and local authorities (Nguyen 2008). At the commune level, a household
is classified as poor if it is thought to be lacking in food or is living in a damaged house
and its income lies below the poverty line defined by the Ministry of Labour and Invalid
Social Affairs (MOLISA). However, criteria are set up by each commune and they can
differ from one commune to another. Because of the inconsistent definition of poverty,
the only way to differentiate the poor from the non-poor is principally through the subjec-
tive judgment of local officers who often have an inaccurate understanding of the poverty
line limit set by the government. Thus, it is difficult to monitor the delivery of the subsi-
dized loans to ensure that the loans actually reach the poor.
The second factor contributing to the failure of these programs has been termed non-
targeting, meaning that institutions avoided awarding loans to those most in need. This
resulted in the situation where much of the benefit from the subsidized microcredit pro-
gram was enjoyed by the non-poor rather than the poor. Nguyen (2008) showed that the
VBSP programs coverage rate for middle and high income groups was 7.3% and 2.3%,
respectively. The non-targeting issue in Vietnam was similar to that affecting Chinas
subsidized loan programs in the early 1990s. Rozelle, Zhang, and Huang (2000) revealed
that over 90% of loans in China in the early 1990s were invested in industrial production
instead of agricultural production. Bias in loan allocation and the concern for profit are
the main explanations offered for banks failing to deliver subsidized loans to the poor
from microcredit programs (Li 2010).
Although some question the impact of microfinance on the well-being of communi-
ties, recent studies have shown evidence of a positive influence. For example, Collins
et al. (2009) conducted interviews with 250 impoverished villagers and slum dwellers in
Bangladesh, India, and South Africa. They focused on those living on less than two dol-
lars a day per person over a one year period. The study examined every financial
562 C. Gan et al.
transaction made by households and how the individuals comprising them managed their
money. Analysis demonstrated that most poor households in the sample did not live
hand-to-mouth existences, spending all they earn just to survive. Instead, they considered
savings essential. Their efforts to save took several forms. Many worked to establish close
relationships with creditors. Whenever possible, many joined savings clubs, bought funer-
als pre-need, and resorted to microfinance wherever available. Microfinance is not, how-
ever, a panacea. Roodman (2012) provides a detailed review of the history, business
logic, and impacts of microcredit, microsavings, and microinsurance programs. He argues
that microfinance does not live up to its popular image and though it is unlikely to end
poverty, it does provide a wide range of financial services to the poor. It thereby can be
considered a successful approach to some of the problems associated with poverty. In par-
ticular, the principle challenge going forward is to help microfinance play to its strengths
in delivering a range of useful services while guarding against the dangers of over-
abundant credit. Thus, the provision of microfinance goes beyond furnishing small scale
financial services such as microcredit, microsavings and microinsurance to the poor.
3. Research method
3.1. Conceptual framework and empirical model
To evaluate the economic impact of the VBSP microcredit program on households, this
study uses two common measures: household income and expenditure. An improvement
in household income is considered to be an indicator of a more appropriate distribution of
funds from the microcredit program. Changes in income thus result from contributions
made through the lending program. Additionally, the income function allows for an inves-
tigation of the impact of microcredit on the income generating activities of households.
However, although income captures all possible sources of household economic activity
such as income from farming, non-farm activities, and wages, using changes in the house-
holds income as a measure of welfare may be misleading due to possible measurement
error in the income data (Coudouel, Hentschel, and Wodon 2002). Alternatively, house-
hold expenditure can be used as a more robust indicator, as it directly reflects the con-
sumption function, which is theoretically derived from the utility function in the
household consumption and growth model. Therefore, using expenditure as an indicator
of a programs outcome is more reasonable than relying on an income indicator. Further-
more, consumption takes place in response to the daily needs of households and better
reflects the standard of living. In this study, consumption is thus used as the first indicator
of the outcome variable.
This study evaluates the impact of microcredit, utilizing a program evaluation frame-
work similar to that used in analyzing participation in a job training program (Heckman
and George 1980) and a health care program (Ahn and Schmidt 1995). Here, the individual
household is treated dichotomously, corresponding to participation or non-participation in a
microcredit program. Thus, P 1 if a household is a program participant and P 0 other-
wise. Let Yi1 denote the potential outcome for participants and Yi0 denote the potential out-
come for non-participants. SinceYi1 and Yi0 are mutually exclusive, only participation
receives a value and hence only one outcome is observed. The other, called counterfactual,
is not. The estimated impact of the program on the outcome of the ith household in a sample
can be defined as follows:
di Yi1 Yi0 : 1
The actual observed outcome for an individual, subject to the mutually exclusive
nature of the counterfactual and independently distributed assumption (Heckman and
Vytlacil 2005; Rubin 1990), can be described as follows:
Yi Pi Yi1 C 1 Pi Yi0
or
Yi Yi0 Yi1 Yi0 Pi Yi0 dPi : 2
The major obstacle in assessing the impacts of microcredit programs is the difficulty
in determining the counterfactual (Baker 2000; Hulme 2000; Islam 2007). This problem
results in bias arising in the process of the impact evaluation framework. In particular,
there are concerns about the ability of the method used to identify the target group as the
treated group and defining a control group as a comparison group. This step is crucial
in impact evaluation because different strategies used to construct the control group lead
to different evaluation methods, different data requirements and their potential biases.
For example, if a microcredit program is expressly designed for poor and low-income
households, there is little interest in the effect of that program on high-income and rich
households. This is because the policy interest is in the effect of the program on the tar-
geted participants and not for those that the program was not intended to serve (Heckman
1997). On the other hand, if the treated group is correctly selected but the control group is
mis-selected for comparison, then the result of such an impact evaluation will also be
biased (Hulme 2000; Islam 2007).
The main interest, how observed impacts are attributed to microcredit or what might
have happened in the absence of microcredit, is at the core of impact evaluation (Aghion
and Morduch 2005; Mosley 1997). Islam (2007) argues that impacts following a project
intervention by a microcredit program, in fact, may have been affected by other factors
that are irrelevant to the project being evaluated. This argument makes it more difficult
for the attribution of an observed impact on the project. For example, the impact of micro-
credit on household income might not be assessed if the loan is not used for income gen-
erating activities but for gambling, e.g. buying a lottery ticket. Including a lottery winner
in the target group shifts the impact upward, but this is not the desired impact of the
microcredit program.
The selection of the control group such that it resembles the counterfactual group pro-
vides no assurance that the selected non-participants represent the counterfactual group.
Therefore, potential selection bias emerges because participants and non-participants are
selected with different outcomes, even in the absence of the program. Sources of selection
bias might arise from observable factors such as age or skill differences. For an example
of this problem, consider the mean outcome of a program group that consists of unskilled
individuals in the microcredit group compared against the mean outcome of a group of
skilled individuals. Given these different skill levels, we would expect different out-
comes, even in the absence of the microcredit program. Additionally, selection bias in a
program evaluation exercise arises when unobservable factors such as motivation or
entrepreneurship might also play a role in determining the participation decision. If highly
motivated individuals are more likely to participate and are more likely to have a higher
outcome without treatment, we would then again have selection bias (Baker 2000).
To minimize the bias from unobserved factors due to self-selection, we follow Lee
(2005), who suggests the use of data on pre-treatment variables of interest in a
564 C. Gan et al.
cross-sectional survey. To overcome the incomplete information problem, different meth-

ods have been developed in order to minimize bias in impact evaluation and to derive the
intended impact of a program. Hulme (2000) suggests that impact studies should adopt
pluralistic approaches in order to avoid the weaknesses of individual methods. This study
does so by applying propensity score matching (PSM) to compare the microcredit partici-
pants with non-participants based on their observed characteristics.
3.2. Data
The data were collected in the MRD in 2010. The survey specifically targeted rural house-
holds that are considered to be in the low-income bracket, which included poor families
targeted by microcredit programs. Special consideration was given in data collection to
ensuring that the treated group and control group of households displayed characteristics
that could be used in the matching methods. The treated group was the target group, with
their selection strictly based on the borrowing status under credit constraint conditions.
The control group included non-borrowers who might or might not face credit constraints,
but we excluded the group of credit unconstrained households in the sample. This allows
the control group to be more comparable with the treatment group in terms of demand for
credit because credit unconstrained households might not borrow in a defined period but
the credit constrained might borrow later. Defining the control group as those who did not
participate in the microcredit program in the survey period but would have participated in
the microcredit program later under a time invariant condition provides a better assess-
ment for the impact estimator (Sianesi 2004). Following this, a comparison is made
between the borrowers and the non-borrowers who would have borrowed credit in the
next period. Thus, our sample excludes the credit unconstrained households to help rede-
fine the control group for matching purposes, given the time invariant households
characteristics.
The households sampled were selected from 15 villages in 13 districts and were clas-
sified into two groups based on their formal loan borrowing status. The group of rural
households that had borrowed from microcredit programs is referred to as the
borrowers, with the other group referred to as the non-borrowers. A total of 619 bor-
rowers were randomly chosen to participate in the interview. Then, 309 non-borrowers
that were unable to obtain a formal loan within the previous 12 months were randomly
selected. Overall, 928 households were included in the sample. The head of the household
was specified as the interview respondent, as they were assumed to be the dominant deci-
sion maker, and because microloans are usually issued under the name of the household
head. In addition, to capture the fullest range of microcredit lending practices and to con-
trol for heterogeneity at the district level, the districts selected must have had microcredit
programs in operation since 2002. In addition, three of the 13 districts were deliberately
selected on the basis of their broad ethnic diversity.
We categorized the households as demanding either formal or informal credit if they:
(1) needed to borrow and had obtained a loan; (2) needed to borrow but had not obtained
any loan; and (3) did not need credit. This credit demand information was used to investi-
gate the interaction effect between the formal and informal credit sectors. Of the total 928
respondents, nine were excluded from the study, as they were not exposed to credit con-
straint; they had no loans and did not need to borrow money in the previous 12 months.
The remaining 775 borrowers and 144 non-borrowers formed a sample of 919 respond-
ents who had both demand for a loan and were subjected to credit rationing in the rural
credit market. Of the 775 borrowers, 156 borrowed from the informal sector, 261
borrowed from the formal sector, and 358 borrowed from both. This confirms the preva-
lence of private lenders and documents the coexistence of formal and informal loans in
the rural credit market.
To measure the consumption and income impact of microcredit, this study uses the
household monthly expenditure and income for measures of the outcomes. The pre-
treatment household monthly consumption and income of a one year period before the
impact evaluation are used to test whether there is a relationship between the pre-treat-
ment outcome and the unobserved factors, conditional on the observed factors. Mosley
(1997) shows that the unobserved factors can be controlled by using the pre-treatment
outcome as the observed explanatory variable in the model, under the condition that the
unobserved factor has a time-invariant effect on the outcome. Therefore, the pre-treat-
ment data of household consumption and income were used in the impact evaluation to
control for unobserved bias.
3.3. Descriptive statistics of variables

Table 1 compares the means of households monthly expenditures and incomes in the pre-
and post-treatment periods. The pre-treatment monthly expenditure mean is significantly
different at the 5% level between the two groups, but the pre-treatment mean monthly
income difference is not significant. This demonstrates that the initial monthly expenditure
is greater in the borrower than the non-borrower group. Similarly, the mean difference in
monthly expenditure in the post-treatment period between the borrower and non-borrower
is significantly different at the 5% level, but is not significantly different for monthly
income. This result is similar to Setboonsarng and Parpievs (2008) findings that the bor-
rower group in Pakistan was initially wealthier than the non-borrower group in terms of
consumption and food expenditure. If these initial differences are not controlled for in esti-
mating the impact, an overestimate of the impact of microcredit is likely to result.
Table 2 displays the mean characteristics of respondents. The average respondent is
47 years old and has attained some form of education, predominately at the primary level.
The respondent most likely engaged in farming work such as rice, orchard, or aquaculture
farming, although different non-farm activities were also reported. In general, a
Table 1. Descriptive statistics of pre-treatment and outcome variables.
Borrowers (1) Non-borrowers (2)
Variables Mean S.D. Mean S.D. Difference (1)(2)
Pre-treatment variables
Pre-treatment monthly 1.527 0.936 1.388 0.861 0.139
consumption (PRE_CONS)
Pre-treatment monthly 2.705 2.642 2.589 2.620 0.115
income (PRE_INC)
Outcome variables
Monthly expenditure 1.963 1.823 1.686 1.135 0.277
Monthly income 3.086 3.106 2.854 2.889 0.234
Number of observations 598 282
Notes: (1) Mean values are measured in 1000 VND.

(2) , , and indicate significance at 10%, 5%, and 1%, respectively.
566 C. Gan et al.
Table 2. Descriptive statistics of sample characteristics.
Variable Description Mean S.D.
Individual characteristics
AGE Age of household head (years) 47.29 13.34
GENDER Household head (1 D male) 0.45 0.50
ETHNIC Ethnic group (1 D ethnic group) 0.18 0.38
MARRIED Marital status (1 D married) 0.91 0.28
NOEDUC No education (D) 0.12 0.32
PRI_SCH Primary school (D) 0.51 0.50
MID_SCH Middle school (D) 0.24 0.43
HIG_SCH High school level (D) 0.11 0.31
GOV_EMP Working for local government 0.19 0.39
(D)
CRE_MEM Credit group member (D) 0.15 0.36
Household characteristics
HH_SIZE Household size (persons) 4.46 1.63
NUM_ERN Number of income earners 2.53 1.39
NUM_CHIL Number of children (persons) 3.12 1.96
OWN_LAND Landownership (1 D land owner) 0.66 0.48
AGRI_LAND Agricultural land (1000 m2) 6.27 13.84
POOR_CER Poor certificate (D) 0.26 0.44
MI_FARM Main inc. from farming (D) 0.47 0.50
MI_LIVES Main inc. from livestock (D) 0.25 0.43
MI_NONF Main inc. from nonfarm (D) 0.11 0.32
HH_INC Annual household income 38.25 46.94
(million VND)
HH_CON Annual household consumption 22.91 23.90
(million VND)
Geographic factors
DRA Direct road access to village (D) 0.63 0.48
ECO Ethnic concentration com (D) 0.19 0.39
URB Urbanized commune (D) 0.45 0.50
Loan characteristics
IFL Loan amount of informal 3.54 8.16
microcredit (million VND)
FL Loan amount of formal 12.58 16.18
microcredit (million VND)
Participation in the microcredit 0.67 0.47
program (P D 1 if formal
borrower, P D 0 otherwise)
Note: D is dummy variable, indicating the variable takes the value of 1 if the statement is true and 0 if otherwise.
household consists of five members in the family, of which three are children. The house-
hold owned about 0.63 ha of land and earned a mean income of 38.28 million VND annu-
ally. Table 2 also describes formal and informal loan characteristics. On average, the
value of a formal loan is greater than an informal loan. The formal interest rates are
commonly fixed and below the average market interest rate for different microcredit
schemes while the informal interest rates are excessively high. It is widely assumed that
interest rates tend to vary more for the informal loan than the formal loan. Formal loans
through microcredit programs are usually short-term, while informal loans are generally
for longer terms. In addition, formal loans are mainly used for production purposes, while
informal loans tend to be used for consumption.
3.4. Estimation techniques

This study assumed few of the characteristics of the borrower and non-borrower changed
over time. We also assumed that the selection of a group of participants in a microcredit
program is not random, due to the poverty targeting objectives of microcredit programs.
The coefficient of the average impact of microcredit program on the borrower, denoted
by dATT
PSM , is obtained using the PSM method, based on the following specification:
PSM EY1 jX; P 1 EX EY0 jX; P 0jP 1;

dATT 3
where Y is the households monthly expenditure and income (measured in million VND);
P 1 if a household is a program participant; it is zero otherwise. X is a covariate of the
observed factors, including the household heads characteristics, households characteris-
tics, and geographic factors (see Table 2). The pre-treatment household consumption and
income in 2008 are also included in the covariate to explain the program impact estimator
for each outcome.
Selection of the covariates to control for individual heterogeneity follows the rule that
the variable should simultaneously influence program participation and the outcome
(Caliendo and Kopeinig 2008). Our covariates are selected from the variables that were
significant in determining credit participation. For example, household characteristics
such as education and household size are strongly associated with income and consump-
tion outcome in microcredit (see Nguyen 2008; Imai, Arun, and Annim 2010 for detail).
Given that the borrowers are not a random group of participants and the households are
assumed to be time invariant during the comparison period, the impact estimators can be
obtained from different matching procedures.
The matching procedure consists of the following steps. The estimation begins with
selection of the variables for the covariates utilized to define the probability of participa-
tion in a microcredit program. Three different sets of covariates are defined for the con-
sumption and income estimators. The base covariate (C1) for the consumption estimator
includes: AGE, GENDER, ETHNICITY, MARRIED, NO_EDUC, PRI_SCH,
MID_SCH, HIG_SCH, GOV_EMP, CRE_MEM, POOR, HHSIZE, NUM_CHIL,
OWN_LAND, MI_FARM, MI_NONF, DRA_VIL, ECN_COM, and URB_COM (see
Table 2 for descriptions of these variables). The second covariate (C2) is equal to C1 plus
PRE_CONS, the pre-treatment consumption, which is expected to control for unobserved
factors that are likely to correlate with consumption in the pre-treatment period (see
Table 1). The third covariate (C3) is equal to C2 plus ln IFL, which is expected to control
for any external credit that affects the program outcome. Because informal credit (IFL)
significantly influences the probability of access to microcredit, it should be also con-
trolled when estimating its impact (Caliendo and Kopeinig 2008). This also allows us to
check the sensitivity of the effect of the microcredit program to see whether there is a
lower level of treatment likely to affect the outcome (Lee 2005). Similarly, the covariates
568 C. Gan et al.
I1, I2, and I3 are specified for the income estimator using variables described in Table 2,
with the exception that PRE_INC replaces the PRE_CONS variable in the covariates I2
and I3 (See Table 2).
Once the covariates are selected, the probabilities of participating in the VBSP micro-
credit program are calculated using the probit model. Following this, the propensity
scores are calculated based on these probabilities. Tests for balancing the group are then
conducted to ensure that the mean propensity score is not different for the treated and con-
trol groups in each block for each model. This results in the construction of a robust com-
parison group. If the balancing property is satisfied, common support is defined and used
for matching purposes. Finally, kernel (with the default bandwidth of 0.06) and radius
matching (with the default radius of 0.1) are used to perform the PSM for the credit
impact on consumption and income.
4. Results
4.1. Impact of VBSP on household income and consumption
The results of the probit model calculations for propensity scores are reported in Appendi-
ces 1 and 2. This analysis shows that MARRIED, ETHNICITY, GOV_EMP, CRE_
MEM, POOR, OWN_LAND, URB_COM, ECO_COMT, and DRA_VILL are significant
at the 10% level. In addition, PRE_CONS and PRE_IFL are positive and significant at
the 5% and 10% level, respectively, in the covariates of the consumption models. For the
income model, ln IFL is positive and significant at the 10% level, but the PRE_INC is not
significant in determining the propensity score. The chi-square test for each model shows
statistical significance at the 1% level, indicating that the variables included in the model
explain the propensity scores used in the matching steps.
Based on the results of the probit models, the propensity scores for each covariate
were estimated. Testing demonstrated that all three specifications were balanced. We
report the kernel densities of the propensity scores only where the pre-treatment expendi-
ture and informal loans were included in the covariate C3. Figure 1 shows the distribution
of the propensity scores of non-borrowers and borrowers. The propensity score ranges
from 0.182 to 0.958 for borrowers, and from 0.254 to 0.994 for non-borrowers; the mean
scores are 0.578 and 0.727 for borrower and non-borrower groups, respectively. Given
the substantial overlap in the distributions, the common support region is defined as the
range from 0.250 to 0.994. The average treatment effect is restricted to the overlapping
area wherein non-borrowers are comparable with borrowers, based on their observed
characteristics. Some non-borrowers, who are not similar to borrowers in terms of the
observed characteristics, were not used in the comparison.
Table 3 summarizes the estimates of the average treatment effect of the VBSP micro-
credit program participation on the treated group (ATT) for the three specifications, using
kernel and radius matching routines. The first column in Table 3 specifies the control vari-
ables included in the propensity score function, whilst the second column reports the sizes
of the treated and control subsamples used in the matching process. The last two columns
display the ATT for household monthly consumption by kernel and radius matching; the
standard errors are provided in parentheses. According to these PSM estimates,
borrowers monthly expenditures were 265,000274,000 VND higher than non-
borrowers. This comparison is based on matching the 595 borrowers and 274 non-bor-
rowers, using the controlling variables in C1. The matching results are statistically signifi-
cant at the 1% level.
Figure 1. Propensity scores of borrowing status based on covariate C3 for monthly consumption
impact on rural households.
However, if pre-treatment consumption is included in the covariate to control for the

unobserved factors, then the difference in consumption declines to 138,000 VND and
196,000 VND for the kernel and radius matching estimators, respectively. Although ker-
nel matching reduces the significance of the statistical test, both impact estimators are sta-
tistically significant at the 10% level. The results are similar to Doans (2011) study,
where the impact of microcredit on the education expenditure of poor households in
Vietnam was evaluated. Including more pre-treatment variables in the covariates results
in a reduction of both the magnitude of the education expenditure impact and the signifi-
cance level, but the outcomes of analysis are still statistically significant at the 10% level.
Table 3. Average treatment effect on household monthly consumption (in million VND) using
matching estimators.
Control variables in the Treated6 Kernel Radius

propensity score estimation control matching matching
Covariate 1 in probit estimation (C1) 5956 274 0.274 (0.113) 0.265 (0.110)
C2 D C1C PRE_CONS 5956 274 0.138 (0.092) 0.196 (0.093)
C3 D C2 C ln IFL 5926 270 0.130 (0.092) 0.186 (0.093)
Notes: (1) Bootstrapped standard errors in parentheses with 1000 replications.

(3) C1: AGE, GENDER, ETHNIC, MARRIED, NO_EDUC, PRI_SCH, MID_SCH, HIG_SCH, GOV_EMP,
CRE_MEM, POOR, HHSIZE, NUM_CHIL, OWN_LAND, MI_FARM, MI_NONF, DRA_VIL, ECN_COM,
and URB_COM.
(4) ln informal loan is obtained from Tobit estimation.
(5) The common support region for kernel matching ranges from 0.250 to 0.994.
570 C. Gan et al.
Given the small trade-off between the reduced number of observations in the treated and
control groups, including the household consumption in the pre-treatment period allows
the observed variables to control for more differences and similarities in both groups.
This generates a more reliable impact estimator.
The matching results for covariate C3 show that both kernel and radius procedures
matched 592 borrowers to 270 non-borrowers, were significant at the 10% level, and
documented a consumption impact of 130,000186,000 VND per month on the bor-
rowers. The informal loan controls for the lower level of treatment effect; it slightly
reduces the impact of the microcredit program on household consumption. The results
provide two implications. First, households participating in microcredit programs have
significant gains in consumption over non-participants. Second, pre-treatment factors can
also be used to control for unobserved factors that influence the probability of access to a
microcredit program (see Khoi et al. 2013 for detail). Including these pre-treatment fac-
tors allows the matching methods to control for unobserved bias in the impact evaluation
of a microcredit program.
The findings are consistent with previous studies that employed similar PSM methods.
For example, Setboonsarng and Parpievs (2008) study provides evidence of the micro-
credit impact on the poor in Pakistan. In that study, microcredit programs were shown to
significantly improve agricultural production, particularly the raising of animals. Simi-
larly, Arun, Imai, and Sinha (2006) found evidence of the impact of microfinance institu-
tions on household poverty in India. Microcredit significantly reduces the poverty rate in
all cases; borrowing for productive purposes has a larger impact in raising the index-
based ranking (IBR) indicator for those above the poverty threshold. Furthermore, our
findings support Pitt and Khandker (1998), whose study indicates that microcredit signifi-
cantly improves a households annual consumption, and also Nguyens (2008) study,
which revealed a positive impact of microcredit programs on household per capita con-
sumption in Vietnam.
4.2. Impact of VBSP microcredit on household income

Figure 2 shows the kernel densities of the propensity scores estimated for evaluating the
impact of credit on household monthly income. The propensity scores range from 0.207
to 0.966 for borrowers, and from 0.274 to 0.994 for non-borrowers; the mean scores are
0.583 and 0.724 for borrower and non-borrower groups, respectively. Given the substan-
tial overlap in the distributions, the defined common support region ranges from 0.274 to
0.994; the average treatment effect is restricted to the overlapping area where the non-
borrowers are comparable to the borrowers, based on their observed characteristics.
Table 4 reports three estimates of the credit program impact on monthly household
income. The results show that the effect of credit program participation on income is not
significant, regardless which set of covariates and matching approach is used. The impact
of the microcredit program on income approaches zero if the pre-treatment income and
informal loans are controlled in the covariates. The insignificant impact estimator of
income revealed that income has more variation than consumption, but the mean incomes
are approximately equal for the two groups. It is more likely that rural households have
unstable income from many sources, such as farming and non-farm activities, and these
incomes vary between the borrower and non-borrower groups. As a result, comparing
across the poor and low-income groups where there is large variation will likely yield
insignificant results.
Figure 2. Propensity scores of borrowing status based on covariate i3 for household monthly
income impact on rural households.
Another possible explanation for the insignificant effect of the microcredit program on
income is that a microcredit program provides small loans to help rural households to
cope with risk and shocks in agricultural production. Morduch (1995) argues that rural
households cope with risk such as income fluctuation or low yields due to variations in
weather conditions by either smoothing their income or consumption. Households can
smooth their income, which is often achieved by making conservative production or
employment choices and diversifying economic activities. In this way, households take
steps to protect themselves from adverse risk before these occur. Microcredit is used for
Table 4. Average treatment effect on household monthly income (in million VND) using matching
estimators.
Control variables in the Treated6 Kernel Radius

propensity score estimation control matching matching
Covariate 1 (I1) 5956 274 0.087 (0.254) 0.047 (0.234)

I2 D I1 C PRE_INC 5956 267 0.001 (0.145) 0.003 (0.171)
I3 D I2 C ln IFL 5926 263 0.002 (0.145) 0.002 (0.239)

(3) I1: AGE, GENDER, ETHNIC, MARRIED, NO_EDUC, PRI_SCH, MID_SCH, HIG_SCH, GOV_EMP,
CRE_MEM, POOR, HHSIZE, NUM_CHIL, OWN_LAND, MI_FARM, MI_NONF, DRA_VIL, ECN_COM,
and URB_COM.
(5) The common support region for kernel matching ranges from 0.274 to 0.994.
572 C. Gan et al.
non-farm activities such as small trade or stocking materials for handicrafts in order to
diversify household income. Households can smooth consumption by borrowing and sav-
ing, and by depleting and accumulating nonfinancial assets. These mechanisms usually
take force following unexpected events and help insulate consumption patterns from
income variability. However, income and consumption smoothing cannot be tracked eas-
ily because tracking depends on how much constraint the household faces when dealing
with certain kinds of risk, in situations where one risk dominates the other. Our findings
imply that loans are likely to be used for household consumption needs before they are
used for income generating activities. In this study, the consumption smoothing impact is
believed to be stronger than the income smoothing impact.
The findings on income impact are consistent with Colemans (1999) study in Thai-
land. That study provided inconsistent evidence of microcredit program effects on poor
households. The impact was insignificant on a set of outcomes such as physical assets,
savings and expenditure. Conversely, the impact was significant and negative on expendi-
ture for mens health care. However, our findings contrast with a number of studies that
showed a significant positive impact of microcredit on household income. For example,
Hossain (1988) showed that Grameen Bank members realized incomes that were 28%
higher than non-participants in all 30 project villages under survey. Hashemi and
Morshed (1997) observe that the Grameen Bank not only reduced poverty and improved
the welfare of participating households, but also enhanced the borrowers capacity to sus-
tain their gains over time. Gibbons et al. (2000) report similar findings in Indonesia, Sri
Lanka, and India. Sarangis (2007) findings in India show a significant positive effect of
program participation. That study confirmed an increase in the income of poor households
as the participants in the program obtained easy access to credit from a group savings
fund.
4.3. Poverty targeting of VBSP microcredit

As microcredit targets the poor, our analysis tries to answer the question to what extent
the VBSP microcredit program has changed the outcomes for the poor. To address this
problem, we used the subgroup of all households certified as poor households by the local
authorities.3 Choosing this subgroup of poor households faces the trade-off between the
level of research interest and matching performance. The subgroup allows us to compare
the poors outcomes but it also reduces the number of treated and control observations.
As the sample size gets smaller, the trade-off between bias and variance rises, and the
choice of the matching algorithm becomes more important (Heckman 1997). Caliendo
and Kopeinig (2008) suggest performing matching without replacement when there are a
few control observations. Both the kernel and radius algorithms can perform multiple
matching where the control unit can be matched with the treatment unit more than once.
For this portion of the analysis, a total of 177 borrowers were matched with 46 non-
borrowers for kernel matching (different number of borrowers and non-borrower were
used in radius matching). The matching procedures follow the same steps as the previous
matching. However, since the subgroup is the poor, the poor certificate variable is
excluded from the covariates. The results of the propensity scores are reported in Appen-
dices 1 and 2. The informal loan coefficient is not significant in defining the probability
of access to microcredit. While pre-treatment consumption is positive and significant, the
pre-treatment income is not significant. Therefore, the covariates C1 and I1 are defined
and the average treatment effect of microcredit on the poor is performed over the region
of common support.
Table 5. Average treatment effect on monthly consumption and income (in million VND) using
matching estimators.
Control Treated6 Kernel Treated6 Radius

variables control matching control matching
Covariate C1 excluding poor certificate 1776 46 0.518 (0.226) 1236 38 0.463 (0.201)
Covariate I1 excluding poor certificate 1776 46 0.434 (0.318) 1776 35 0.388 (0.725)

(3) C1 and I1: AGE, GENDER, ETHNIC, MARRIED, NO_EDUC, PRI_SCH, MID_SCH, HIG_SCH,
GOV_EMP, CRE_MEM, HHSIZE, NUM_CHIL, OWN_LAND, MI_FARM, MI_NONF, DRA_VIL, ECN_
COM, and URB_COM.
(5) The region of common support ranges from 0.327 to 0.996.
The estimates of the credit impact on consumption and income are reported in Table 5.
The results show that the effect of credit participation on consumption is significant at the
1% level for kernel matching and 5% level for radius matching, but the impact on income
is not significant. The consumption impact of microcredit is greater for the poor than for
the low-income households. Specifically, the microcredit program produces a consump-
tion impact of 518,000 VND and 463,000 VND by kernel and radius matching methods,
respectively. Although the income impact is not significant for either matching method,
the impact of the microcredit program on income is greater than zero. This implies a posi-
tive role of microcredit in enhancing the lives of the rural poor, but the result needs fur-
ther validation to be conclusive.
There is a notable difference between the results presented in Table 5 and those in
Tables 4 and 3. These latter two tables show a positive impact of a microcredit program
on household consumption, and an insignificant one on household income; the impact
approaches zero. Table 5, however, shows a positive and significant impact of the micro-
credit program on household consumption and an insignificant impact on household
income. The comparison shows the magnitude of the impact on consumption for the rural
poor is higher than the result for the ordinary rural household. A possible explanation for
this difference is that microcredit is designed to reduce the credit constraint on poor
households under the condition that the relationship between microcredit investment and
income is positive. Therefore, microcredit is expected to increase both household income
and consumption. Gibbons et al. (2000) argue that the amount by which income increases
due to microcredit cannot be determined easily. The income effect of microcredit is trans-
ferred through many stages, from technical changes in household production to output
changes subject to market conditions, which leads to a savings change in the household.
These changes comprise a multiplier effect on income and savings, before any real
income changes can be realized. As a result, the empirical findings of the microcredit
impact on household income are inconsistent in determining the impact of microcredit
(for example, see Coleman 1999; Pitt and Khandker 1998).
Many empirical findings conclude that microcredit programs do not benefit the poor
much in terms of outreach (see Coleman 2006; Nguyen 2008; Morduch, 1999). Further-
more, the non-targeting issue, in which the proportion of poor participants is smaller than
non-poor participants, also diminishes the intended impact of microcredit programs. Our
results show that the diminishing income impact was reported when the comparison
includes both low-income and poor households. However, when the poor group is
574 C. Gan et al.
restricted in the comparison, an income impact clearly emerges. This implies the true
poor group is likely to benefit more from participating in a microcredit program than
low-income households. This finding is consistent with the consensus that a well-
designed credit scheme can raise the incomes of significant numbers of the poor across
countries such as Indonesia, Bangladesh, Sri Lanka, and India (Hulme and Mosley 1996).
5. Conclusions
This study evaluates the impact of the VBSP microcredit program on the rural households
using cross-sectional survey data collected in 2010. PSM estimates show that VBSP
microcredit programs have a significant, positive impact on household consumption, but
no significant impact on household income. Both kernel and radius matching procedures
display similar estimates that provide evidence of a positive consumption impact of the
microcredit program at different significance levels. To account for possible unobserved

bias, pre-treatment consumption and income were included in our models. In addition, a
lower level of credit impact was considered by including the informal loan in the covari-
ates of the PSM models. Our findings show a greater consumption and income impact for
the true poor when only the certified poor group is included in the comparison. This
implies the true poor benefit more from involvement with a microcredit program than
low-income households.
While PSM is a useful tool in controlling for bias due to observed factors in impact
evaluation, results have to be interpreted with caution as shown in the discourse between
Smith and Todd (2005) and Dehejia (2005), particularly with matching based on cross-
sectional data. First, unmeasured characteristics or time effects cannot be controlled for
by cross-sectional data. Second, bias associated with cross-sectional matching estimators
may be large in the absence of a good set of covariates or if treated and control house-
holds are not strictly comparable, if, for example, they are located in different markets
(Smith and Todd 2005). Therefore, methods controlling for unobserved bias, such as the
fixed effect model using panel data, are recommended for microcredit program evaluation
if data are available.
Notes
1. In 2006, the national poverty line was set at VND 260,000 (US$16) per month per person in
urban areas and VND 200,000 (US$12) per month per person in rural areas.
2. GSO-WB approach follows the international poverty line which set a minimum income
US$ 1.25 a day per person.
3. The definition of a certified poor household in Vietnam is more stringent than the definition of
the poor by income bracket. The procedure of defining a poor household is demanding. First, a
poor household has to be a permanent resident in the commune in order to apply for a poor cer-
tificate, and the household has to be recommended by his or her neighbours in the community.
Then, a review based on criteria such as main source and amount of total income, house condi-
tion, assets, etc., will be done yearly. If all criteria are met, a poor certificate is issued to the
household.
Notes on contributors
Christopher Gan is professor in accounting and finance at Lincoln University, New Zealand. His
research interests are microfinance, banking, Asian Economics and the stock markets. He is the
director of Lincoln University Center for International Development. His recent publications are in
the Journal of Asian Economics, Accounting and Finance and International Review of Economics
and Finance.
Phan Dinh Khoi is lecturer and Head of Department of Finance and Banking, Can Tho University,
Viet Nam. His research interests are rural finance, development economics, financial markets,
behavioral finance, risks and insurance.
Gilbert V. Nartea is senior lecturer in finance at Lincoln University, New Zealand. He received his
PhD degree from the University of Illinois at Urbana-Champaign. His areas of research interest
include microfinance, asset pricing, decision analysis, and risk management. He has recent publica-
tions in the Journal of Asian Economics, International Review of Economics and Finance, and
Pacific-Basin Finance Journal.
David A. Cohen is associate professor of marketing at Lincoln University, New Zealand. His
research interests include marketing and management theory, rural finance, and the effects of adver-
tising and promotion on consumers health behaviors. His recent publications are in the Journal of
Management and Organisation, Journal of Asia Business Studies, Asia Pacific Journal of Marketing
and Logistics, and Asia Pacific Journal of Tourism Research.
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Appendices
Appendix 1. Probit results for the propensity scores for consumption (C) and income (I) impact on rual households
Control variables Specification (C1) Specification (C2) Specification (C3) Specification (I1) Specification (I2) Specification (I3)
Coefficient S.E. Coefficient S.E. Coefficient S.E. Coefficient S.E. Coefficient S.E. Coefficient S.E.

Constant 1.202 0.35 1.440 0.36 1.638 0.38 1.202 0.35 1.228 0.35 1.438 0.37
AGE 0.005 0.01 0.005 0.01 0.007 0.01 0.005 0.01 0.005 0.01 0.006 0.01
GENDER 0.071 0.10 0.051 0.10 0.077 0.10 0.071 0.10 0.066 0.10 0.095 0.10
MARRIED 0.323 0.17 0.321 0.17 0.350 0.17 0.323 0.17 0.323 0.17 0.354 0.17
ETHNICITY 0.310 0.16 0.324 0.16 0.359 0.16 0.310 0.16 0.317 0.16 0.352 0.16
NO_EDUC 0.149 0.24 0.212 0.24 0.211 0.24 0.149 0.24 0.160 0.24 0.157 0.24
PRI_SCH 0.005 0.15 0.048 0.15 0.058 0.15 0.005 0.15 0.010 0.15 0.019 0.15
MID_SCH 0.002 0.16 0.016 0.16 0.012 0.16 0.002 0.16 0.001 0.16 0.006 0.16
GOV_EMP 0.411 0.14 0.404 0.14 0.427 0.14 0.411 0.14 0.403 0.14 0.429 0.14
CRE_MEM 0.412 0.15 0.401 0.15 0.433 0.15 0.412 0.15 0.412 0.15 0.446 0.15
POOR 0.621 0.14 0.660 0.14 0.695 0.14 0.621 0.14 0.630 0.14 0.667 0.14
HHSIZE 0.009 0.03 0.006 0.03 0.009 0.03 0.009 0.03 0.007 0.03 0.004 0.03
NUM_CHIL 0.031 0.03 0.031 0.03 0.031 0.03 0.031 0.03 0.030 0.03 0.030 0.03
OWN_LAND 0.391 0.13 0.363 0.14 0.353 0.14 0.391 0.13 0.382 0.14 0.374 0.14
MI_FARM 0.190 0.13 0.211 0.13 0.262 0.13 0.190 0.13 0.187 0.13 0.240 0.13
Journal of the Asia Pacific Economy
MI_NONF 0.008 0.13 0.016 0.13 0.022 0.14 0.008 0.13 0.008 0.13 0.016 0.13
POOR_NOEDU 0.340 0.32 0.369 0.31 0.365 0.32 0.340 0.31 0.345 0.31 0.343 0.31
URB_COM 0.229 0.12 0.210 0.12 0.207 0.12 0.229 0.12 0.231 0.12 0.225 0.12
ECON_COM 0.552 0.18 0.572 0.18 0.610 0.18 0.552 0.18 0.555 0.18 0.595 0.18
DRA_VIL 0.550 0.15 0.577 0.15 0.605 0.15 0.550 0.15 0.559 0.15 0.586 0.15
PRE_CONS6 INCy 0.145 0.06 0.139 0.06 0.010 0.02 0.007 0.02
ln IFL 0.085 0.05 0.089 0.05
N 877 877 872 877 877 872
Chi2 126.5 133.3 135.4 126.5 126.7 129.3
577
Note: , , and indicate significance at 10%, 5%, and 1%, respectively.
y
Consumption and income of pre-evaluation period were used for consumption and income models, respectively.
Appendix 2. Probit results for the propensity scores for consumption (C) and income (I) impact in the rural poor household
578
Control variables Specification (C1) Specification (C2) Specification (C3)
Coefficient S.E. Coefficient S.E. Coefficient S.E. Coefficient S.E. Coefficient S.E. Coefficient S.E.
Constant 0.206 1.02 0.150 1.05 0.264 1.07 0.206 1.02 0.263 1.02 0.038 1.05
AGE 0.012 0.01 0.011 0.01 0.009 0.01 0.012 0.01 0.012 0.01 0.008 0.01
GENDER 0.240 0.24 0.236 0.25 0.255 0.25 0.240 0.24 0.242 0.24 0.276 0.25
MARRIED 0.027 0.37 0.092 0.38 0.100 0.38 0.027 0.37 0.070 0.37 0.073 0.38
ETHNICITY 0.340 0.33 0.397 0.33 0.425 0.33 0.340 0.33 0.389 0.33 0.438 0.34
NO_EDUC 0.293 0.70 0.356 0.72 0.346 0.72 0.293 0.70 0.337 0.71 0.310 0.71
PRI_SCH 0.268 0.68 0.319 0.70 0.296 0.70 0.268 0.68 0.305 0.68 0.253 0.69
MID_SCH 0.208 0.71 0.250 0.73 0.218 0.73 0.208 0.71 0.267 0.72 0.206 0.72
GOV_EMP 0.368 0.33 0.386 0.34 0.408 0.34 0.368 0.33 0.349 0.34 0.364 0.34
CRE_MEM 0.687 0.34 0.644 0.35 0.660 0.35 0.687 0.34 0.609 0.35 0.643 0.35
HHSIZE 0.049 0.08 0.015 0.08 0.006 0.08 0.049 0.08 0.024 0.08 0.012 0.08
NUM_CHIL 0.038 0.08 0.033 0.08 0.035 0.08 0.038 0.08 0.042 0.08 0.042 0.08
C. Gan et al.
OWN_LAND 0.298 0.30 0.290 0.31 0.233 0.31 0.298 0.30 0.291 0.30 0.219 0.31
MI_FARM 0.036 0.35 0.100 0.36 0.158 0.36 0.036 0.35 0.018 0.36 0.076 0.36
MI_NONF 0.246 0.31 0.173 0.32 0.169 0.32 0.246 0.31 0.257 0.31 0.277 0.31
URB_COM 0.197 0.27 0.151 0.27 0.194 0.28 0.197 0.27 0.216 0.27 0.278 0.28
ECO_COM 1.076 0.40 1.143 0.41 1.207 0.42 1.076 0.40 1.042 0.40 1.146 0.42
DRA_VIL 1.067 0.39 1.128 0.39 1.163 0.39 1.067 0.38 1.048 0.39 1.103 0.39
PRE_CONS6 INCy 0.394 0.20 0.393 0.20 0.118 0.11 0.124 0.11
ln IFL 0.069 0.14 0.127 0.13
Number of obs. 223 223 222
Log likelihood 95.30 93.23 92.78
Chi2 36.41 40.54 40.99
Note: , , and indicate significance at 10%, 5%, and 1%, respectively.
y
Consumption and income of pre-evaluation period were used for consumption and income models, respectively.

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This article was downloaded by: [Universidad de Sevilla]

On: 23 February 2015, At: 02:49

Journal of the Asia Pacific Economy

The impact of microcredit on rural

To link to this article: http://dx.doi.org/10.1080/13547860.2014.920591

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The impact of microcredit on rural households in the Mekong River

*Corresponding author. Email: Christopher.Gan@lincoln.ac.nz

2014 Taylor & Francis

programs tends to overestimate the positive impact of these programs.

2. Background of microcredit programs targeting poverty reduction in rural Vietnam

Yi Yi0 Yi1 Yi0 Pi Yi0 dPi : 2

cross-sectional survey. To overcome the incomplete information problem, different meth-

3.3. Descriptive statistics of variables

Table 1. Descriptive statistics of pre-treatment and outcome variables.

Borrowers (1) Non-borrowers (2)

Variables Mean S.D. Mean S.D. Difference (1)(2)

Notes: (1) Mean values are measured in 1000 VND.

Table 2. Descriptive statistics of sample characteristics.

Variable Description Mean S.D.

3.4. Estimation techniques

PSM EY1 jX; P 1 EX EY0 jX; P 0jP 1;

However, if pre-treatment consumption is included in the covariate to control for the

Control variables in the Treated6 Kernel Radius

Notes: (1) Bootstrapped standard errors in parentheses with 1000 replications.

4.2. Impact of VBSP microcredit on household income

Control variables in the Treated6 Kernel Radius

Covariate 1 (I1) 5956 274 0.087 (0.254) 0.047 (0.234)

Notes: (1) Bootstrapped standard errors in parentheses with 1000 replications.

4.3. Poverty targeting of VBSP microcredit

Control Treated6 Kernel Treated6 Radius

Notes: (1) Bootstrapped standard errors in parentheses with 1000 replications.

microcredit program at different significance levels. To account for possible unobserved

Oxford University Press.

Control variables Specification (C1) Specification (C2) Specification (C3)

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