Lending Policies of Informal, Formal and Semiformal Lenders: Evidence from Vietnam

29 Pages Posted: 3 Apr 2007

See all articles by Thi Thu Tra Pham

Thi Thu Tra Pham

University of Groningen - Department of Finance & Accounting

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Abstract

This paper compares lending policies of formal, informal and semiformal lenders with respect to household lending in Vietnam. The analysis suggests that the probability of using formal or semiformal credit increases if borrowers provide collateral, a guarantor and/or borrow for business-related activities. The probability of using informal credit increases for female borrowers. It also appears that the probability of using formal credit increases in household welfare up to a certain threshold, but at a decreasing rate. In addition, the paper discerns the determinants of probability of default across lender types. Default risk of formal credit appears to be strongly affected by formal loan contract terms, e.g., loan interest rate and form of loan repayment, whereas default risk on informal loans is significantly related to the presence of propinquity and other internal characteristics of the borrowing household. Overall, the study raises several important implications for the screening, monitoring and enforcement instruments that may be employed by different types of lenders.

Suggested Citation

Pham, Thi Thu Tra and Lensink, Robert, Lending Policies of Informal, Formal and Semiformal Lenders: Evidence from Vietnam. Economics of Transition, Vol. 15, No. 2, pp. 181-209, April 2007, Available at SSRN: https://ssrn.com/abstract=976783 or http://dx.doi.org/10.1111/j.1468-0351.2007.00283.x

Thi Thu Tra Pham

University of Groningen - Department of Finance & Accounting ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Robert Lensink (Contact Author)

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

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