Impact of microcredit on rural households: an evaluation using panel data

Abstract

This paper investigates the impact of microcredit on rural households. The impact of a microcredit program on target households is subject to two main sources of bias, observed and unobserved bias. To evaluate the microcredit program’s impact, we used the 2006 and 2008 Vietnam Household Living Standard Surveys and applied the Propensity Score Matching approach and Fixed Effects models. The results show a greater consumption and income impact for the ‘true poor’ when only the poor group is included in the comparison. This implies that the ‘true poor’ benefit more from involvement with a microcredit program than do low-income households. In addition, greater impacts were identified in the Mekong River Delta, assuming that endogeneity is significantly controlled for in the models.