Are poor able to access the informal credit market? Evidence from rural households in China

Entrepreneurship has been among the key driving forces of the emergence of a dynamic private sector during the recent decades in Vietnam. This article addresses for Vietnam the questions “how capital constraints affect the performance of
family firms” and “how entrepreneurs’ human and social capital interact with capital constraints to leverage entrepreneurial income.” A panel of 1721 firms in 4 years is used. Results are consistent with the resource dependency approach, indicating an adverse effect of capital constraints on firm performance: firms suffering capital constraints perform substantially better, suggesting that they need more capital simply to finance newly recognized profit opportunities.
Human capital plays a vital role in relaxing capital constraints and improves the entrepreneurial performance, whereas the effect of social capital stemming from strong ties and weak ties is limited: strong ties bring emotional support and weak
ties give nonfinancial benefits from regular and useful business contacts. Advanced econometric analysis tools to take into account the endogeneity of capital constraints are used to establish relationships among relevant variables.

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Capital constraints and the performance of entrepreneurial firms in Vietnam

In recent years, the microfinance industry has received a substantial amount of cross-border funding from both public and private sources. This funding reflects the increasing interest in microfinance as part of a more general trend towards socially responsible investments. In order to be able to secure sustained interest from these investors, it is important that the microfinance industry can show evidence of its contribution to reducing poverty at the bottom of the pyramid. For this, it is crucial to understand under what conditions microfinance institutions (MFIs) are able to reduce poverty. This paper contributes to this discussion by investigating the relationship between the extent to which social capital formation is facilitated within different societies and the financial and social performance of MFIs. This focus on social capital formation is important, because in many cases MFIs use group loans with joint liability to incentivize asset-poor borrowers to substitute the lack of physical collateral by their social capital. Hence, the success of a large part of the loan relationship between MFIs and their borrowers depends on the social capital those borrowers can bring into the contract. We carry out a cross-country analysis on a dataset containing 100 countries and identify different social dimensions as proxies for how easy social capital can be developed in different countries. We hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis.

/pdf/microfinance-performance-and-social-capital-a-cross-country-47pica3v8x.pdf

Microfinance Performance and Social Capital: A Cross-Country Analysis

Does credit access affect household income homogeneously across different groups of credit recipients? Evidence from rural Vietnam.

This study analyses the effects of social capital on the repayment behaviour of borrowers in Thailand. In the context of agricultural economics, an innovative data collection approach is used that originates from the field of sociology. A personal network survey is carried out to measure the individual social capital of borrowers. Social capital variables are defined according to: tie strength (bonding/bridging) and social distance (linking) between the respondent and his/her network member. Bonding social capital has a significant and positive influence on repayment performance. However, we find no significant evidence for an effect of bridging and linking social capital.

/pdf/network-based-social-capital-and-individual-loan-repayment-1tn9apltk1.pdf

Network Based Social Capital and Individual Loan Repayment Performance

This paper analyses the effects of different forms of social capital on credit repayment behaviour. In the context of development economics an innovative data collection approach is used that originates from the field of sociology. A personal network survey is carried out to measure the individual social capital of borrowers. We distinguish four social capital variables between the respondent and his/her network members according to tie strength (bonding/bridging) and social distance (bonding link /bridging link ). The effects of social capital vary according to socio-cultural context. For instance, in Thailand bonding and in Vietnam bridging link social capital has a positive effect on loan repayment.

Hoang Dinh Quoc

Papers

Social capital and loan repayment performance in Southeast Asia

Social capital and loan repayment performance in Northern Vietnam