Rural Financial Development: Farm
Credit Access and Credit Constrains of Rural Farm Households in Naxaithong and
Phonghon Districts in Lao PDR
Phinseng Channgakham*
* Ph.D. Student (Lao)
International Graduate School of Social and Sciences
Yokohama National University
Japan
Abstract:
Access to rural financial services has a crucial role to play on poverty
reduction in rural areas. Farm credit is needed for short-term investment as
well as medium- and long-term investment, especially credit for purchasing
inputs and investing in livestock and tree crops. This study attempts to search
on main determinants which influence on farm household borrowing behavior and
their credit constrain. The survey was conducted in Phonghon district of
Vientiane Province and Naxaithong district of Vientiane Municipality where
villages are classified as rural zones with the road access. Both loan borrowing
and non-borrowing farm households were interviewed with totally 450 farm
households in 10 villages of these districts. The detail of questionnaires was
to obtain the cross-sectional data on socio-economic characteristics,
intermediate inputs, amount of loan, capital, cultivated areas, family labor
stock and other related information during 2003 - 2004. Probit model was applied
to estimate and analyze the determinants of borrowing possibility and credit
constrain. In the case of borrowing possibility by farm households, the analyses
found that age of family’s head had significantly negative correlation. Family
labor stock had significant positive correlation which means bigger farm
household tend to apply loan into their farm investment. However, the effect of
education of family’s head and cultivated area showed insignificant correlation.
Numbers of dependent, hired labors and frequency of cultivated time per year had
significant positive correlation. Farm households, who have more number of
dependents and hire more labor for their cultivation as well as produce more
than one time a year, have higher possibility to make a loan. Regarding credit
constrain by farm households, the study found that farm households which
family’s head has high education level face low possibility to become credit
constrain. In contrast, numbers of livestock, cultivated areas and family labor
stock had significant positive correlation. This mean that farm households who
raise more livestock, cultivate in larger farm areas and have more family labor
stock, have higher level in credit constrain. This study concludes that rural
financial services provides more advantage to large or rich farm households,
while small and poor farm households remain leaving behind as well as weakly
utilize the farm credit services.
Keywords: Rural finance, farm credit, probit model, credit constrain, borrowing
possibility