The interrelationships among the formal, semiformal and informal credit demands of farm households in Vietnam

Abstract

Purpose: This study simultaneously explores the nexus among formal, semiformal and informal credit markets and farm households' credit demand determinants in Vietnam. Design/methodology/approach: This study uses a multistage stratified random sampling process for a survey of 648 smallholder farmers in the Red River Delta (RRD), Vietnam. The trivariate probit model (TVPM) is used to address the interdependence of farm households' credit demands in different credit markets. Findings: The results reveal complementary relationships among two pairs of credit markets (formal versus informal and semiformal versus informal). There are dissimilarities among the determinants (household characteristics, household head's characteristics, credit history and geographic factors) of farm households' credit demands in different markets, reflecting segmentation of Vietnam credit markets. Practical implications: The study's empirical findings are important for policymakers and credit providers to enhance farm households' access to credit for agriculture and to improve the operations of the three credit markets. Originality/value: This is the first empirical study in Vietnam and one of few in other developing countries simultaneously exploring the determinants of credit demand in and interrelationships among all three credit markets to provide more comprehensive and accurate results.