Do Hong Nhung, Michel Simioni, Phan Thi Thanh Huong, Dinh Tran Ngoc Huy, Tran Huu Y
The rural credit market plays an important role in poverty alleviation in Vietnam, especially in rural and mountainous area. Yet, little if anything is known about the formal and informal credit market for ethnic minority households. The paper, therefore, contributes to the microfinance literature by presenting an empirical analysis of the gap in rural housesholds’ accessibility to credit of different ethnic groups. More specifically, we compare factors affecting credit demands in rural area and ethnic groups. The lack of attention to the credit demand in the previous studies of credit rationing leads to a problem that the magnitude of credit rationing in the formal credit market is likely to be overestimated (Kochar 1997). For this purpose, while other studies use logit model, we employ a new methodology of random forest (RF) based classification and decision tree to analyse the formal and informal rural credit market and uncovered the factors influencing credit accessability of ethnic groups in rural area. This approach will bring more accurate projections and measurements of the gap in credit accessibility of King and minority groups. Using data of the Vietnam Access Resource Household Survey (VARHS) 2014, our empirical results show that land ownership and household’s labour size positively correlate with rural credit accessibility. In contrast, those with saving account acquire less credit from both formal and informal market. This suggests that if a household possesses production inputs, the demand for capital increase to make effective use of these inputs, In contrast, family have capital prefer using internal resources than those on financial market. Moreover, it is interesting to note from our model that poorer rural family in Vietnam have better chance to acquire formal credit and lower education level ones have less credit from informal market. It may imply that both poor and lower education households heavily depend on government’s subsidies which are provided through formal markets to fulfil their needs for capital. Finally, the Kinh group has higher income and therefore this group has more advantage to obtain credit from both formal and informal market. However, insight into the formal market, minority group has better chance to get credit from the Vietnam Bank of Social Policy (VBSP).