Epsilon Archive for Student Projects

Abstract

Segmentation of the rural credit markets is present in various countries in the world but remain only partially understood. This thesis contributes to filling this gap. Using data from the rural credit markets of Thua Thien Hue Province in Phu Thuong Commune it aims to: (i) identify the main providers, borrower groups and their characteristics in the credit market; (ii) to learn about the performance of the segmented credit market; (iii) and to explain the reasons and conditions for rural credit market segmentation.

This study presents an analytical literature survey and analysis of survey data which includes the results from a household survey, group discussions, individual interviews and observations. The analyses are conducted from the viewpoint of both the lenders and the borrowers to see how their particular characteristics influence their credit transactions as well as market segmentation.

The results of the research reveals that the formal, semi formal and informal sector co-exists and operates in the rural credit markets of Phu Thuong commune. Beside the similarities in business place and responsibility in supplying loans to local clients, each credit sector have had particular characteristics in term of kind of credit products/services, number of transactions, credit transaction terms, as well as process of disbursing credit.

The segmentation of Phu Thuong credit market is recognized in each term/clause of a credit transaction. In that light, the credit market is segmented in aspects of purpose, duration, interest rate, and amount of loans.

With regard to loan purposes, the segmentation is not only seen from the credit sector aspect but also in terms of the different lenders.

Regarding to duration of loans, formal lenders have provided loans with long duration, informal sector have lent short period loans, while semi formal lenders have dominated medium term loans. From borrower’s aspect, segmenting within each household group by loan duration is not obvious.

In terms of loan size, agricultural households have obtained credit with the smallest amount on average, and a major part coming from the formal sector. The mixed group and nonfarm group have been not much different in credit volume. However, the biggest part in volume of credit of agricultural households and mixed households has come from the formal sector, whereas, in the nonfarm group, the biggest share has belonged to the informal sector. Though segmented by loan size, the market has still been based on the interaction among credit sectors, as only 4.44% of households have just obtained credit from one of the sectors.

The segmentation of interest rate has been obvious among credit sectors, especially between formal sector and the two other sectors. Average interest rate of loans in formal sector is lowest, approximately a half of that in semi formal sector and informal one. From borrowers’ aspect, the segmentation of interest rate among household groups has not been clear because of the variety of credit sources from which households ask for loans.

Regarding the reasons of segmenting credit market, the policy issue, information and conditions of transaction have been recorded as the main reasons.