how will it effect people who have takes loan especially from the non formal sources credit s?
Answers
Answer:
I. Introduction
Despite more than a decade of excellent macroeconomic performance Vietnam remains a poor country. Some 70 per cent of the population continues to live in rural areas and depend on agriculture for their livelihood. How the country can transform itself and its agricultural sector into a more modern society is a critical policy challenge. Access to credit for smallholders is, as elsewhere, a key ingredient in the development process. Diagne et al. (2000) demonstrate that access to credit affects household welfare through two key channels. First, it alleviates capital constraints on agricultural households. This can significantly improve the ability of households to procure needed agricultural inputs, and will also reduce the opportunity costs of capital-intensive assets, encouraging labour-saving technology and raising labour productivity. Second, credit access increases the risk-bearing capacity of households, altering risk-coping strategies. Households with access to credit may be more willing to pursue promising but risky technologies, and will be better able to avoid risk-reducing but inefficient livelihood strategies.
Such considerations have, as elsewhere in the developing countries, led the Vietnamese Government and its donor community to set up rural credit programmes; and significant expansion is foreseen in the coming years (see World Bank, 2003). Formal and informal credit market segments exist in Vietnam much along the lines of the dual credit market described by Mohieldin and Wright (2000). They cite Hoff and Stiglitz (1993), and point out that there are two competing views as to why formal and informal credit markets co-exist. Government may intervene, capping interest rates, and this remains the case in Vietnam. The alternative view, that differences in the costs of screening, monitoring and contract enforcement across lenders lead to fragmentation, also appears to carry explanatory power.
The interaction between the formal and informal credit market segments is also open to conflicting interpretations. This is evident in the theoretical papers by Gupta and Chaudhuri (1997) and Chaudhuri (2001), on the one hand, and the careful empirical work by Zeller (1994), Diagne (1999) and Diagne et al. (2000), on the other. Diagne and co-authors highlight that understanding how informal institutions serve the financial needs of households and interact with the formal credit institutions is important, especially for ‘sustainable and market-oriented financial institutions that plan to expand and complement the services offered by the existing informal credit market rather than substitute for them’. Diagne et al. (2000) offer a concise methodological review, which together with papers by Kochar (1997) and Petrick (2005) provide the general analytical background for the present study. Kochar points out that the literature on rural credit has generally assumed that households are rationed in their access to subsidised ‘formal’ credit; but she adds that the validity of this assumption hinges on the level of effective demand for formal credit, which is in turn a function of the demand for credit and its availability from ‘informal’ sources. This implies that the extent of credit market rationing may be less than is often assumed. We take this cautionary note seriously here and attempt to capture credit demand correctly.
Explanation:
Despite more than a decade of excellent macroeconomic performance Vietnam remains a poor country. Some 70 per cent of the population continues to live in rural areas and depend on agriculture for their livelihood. How the country can transform itself and its agricultural sector into a more modern society is a critical policy challenge. Access to credit for smallholders is, as elsewhere, a key ingredient in the development process. Diagne et al. (2000) demonstrate that access to credit affects household welfare through two key channels. First, it alleviates capital constraints on agricultural households. This can significantly improve the ability of households to procure needed agricultural inputs, and will also reduce the opportunity costs of capital-intensive assets, encouraging labour-saving technology and raising labour productivity. Second, credit access increases the risk-bearing capacity of households, altering risk-coping strategies. Households with access to credit may be more willing to pursue promising but risky technologies, and will be better able to avoid risk-reducing but inefficient livelihood strategies.
Such considerations have, as elsewhere in the developing countries, led the Vietnamese Government and its donor community to set up rural credit programmes; and significant expansion is foreseen in the coming years (see World Bank, 2003). Formal and informal credit market segments exist in Vietnam much along the lines of the dual credit market described by Mohieldin and Wright (2000). They cite Hoff and Stiglitz (1993), and point out that there are two competing views as to why formal and informal credit markets co-exist. Government may intervene, capping interest rates, and this remains the case in Vietnam. The alternative view, that differences in the costs of screening, monitoring and contract enforcement across lenders lead to fragmentation, also appears to carry explanatory power.
The interaction between the formal and informal credit market segments is also open to conflicting interpretations
Please mark me as a brainliest please