The Impact of Microfinance on Household Welfare in Rural Vietnam: A Case Study in Phu Tho Province

In Vietnam, microfinance is regarded as one of the important measures to reduce poverty. However, empirical findings indicated that microfinance services can only meet less than half of the poor's demand. About 3.6 poor and near poor households remained vulnerable to external shocks in 2012. Therefore, this study aims to examine whether and to what extent microfinance programs have helped to increase household economic welfare in rural Vietnam. A survey was conducted in Phu Tho province - one of the poorest areas in the northern of Vietnam through face to face structured interviews with 257 respondents. The study employs a two stage least square regression model to deal with self selection bias in the evaluation of the impact of microfinance on household welfare. The main outcome indicates that formal microfinance has helped to increase the household economic welfare in terms of per capita income, expenditure and value of non land asset of the household with the coefficients are 0.002, 0.004, 0.003, respectively. Although the effect is small, microfinance has helped the better off groups to increase their income and expenditure, while the poor groups increase their expenditure and acquire more assets, implying that the credit is distributed to other purpose besides income generating. However, these small impacts suggest a further study about the cost effective of the microfinance programs.