Because of growing gender inequality, it is argued that giving women access to credit is a means by which both their economic and social position in household and in the community would be enhanced (David Hulme and Paul Mosley, 1996). The argument bases on the assumptions: that women will use loan for their own business, that they will be successful in the business; that they will control over the profit from the business; and finally that the greater participation in business will consolidate the women’s economic and social status in the society.

2.1.2.2.3    Negative Impacts of Microfinance

When the interest rate increases, the budget constraint rotates through the point E in a clockwise direction from SL to PQ (that is the budget constraint line becomes steeper). The new consumption is at point A', with C₁ falling and C₂ rising relative to the initial equilibrium. In the graph, then, we have a case in which higher interest rates reduce current consumption and thus raise current savings.

When the interest rate goes up, there are two types of effects: substitution effect which tends to increase savings and income effect which is inclined to lower savings if the household was initially a net borrower.

Combining these two effects, the current consumption is obviously lower than before the interest increase. If the reduction in the future consumption due to the income effect is higher than the increase in the future consumption due to the substitution effect, the net effect of interest rate increase in the future consumption is negative. In the opposite case, although the future consumption is higher than before the increase in interest rate, this level is still lower than such level at which the interest changes but the utility unchanges (point B). It means that consumption levels of two periods due to the increase in interest rate are lower than those with the same interest rate but the initial utility. Therefore, the utility is lower than before interest rate increase. It means that borrower becomes worse off due to the increase in interest rate, other things equal. The indifference curve shifts downward from U₁ to U₂ as shown in Figure 2.4, the household borrower gets lower utility.

Besides negative effect on utility by this mechanism, credit induces the household to invest in higher return but higher risk activities, their income is therefore more vulnerable.

Getting microfinance gives rise the household to leave out free-interest loans from relatives or some source like that. It means that there is a loss which is equal to the difference between microfinance cost and cost of borrowing from free-interest rate loans[3].

Conclusion

Above are major impacts of microfinance including positive and negative signs. Although microfinance has a significant role on poverty reduction as proved before, it doesn’t stand for a panacea for this “disease”. To reduce poverty, alternative approaches are introduced as mentioned in the first section. Moreover, according to Padmanabhan K.P (1988), it puts in effect only under following conditions:

·                      The poor are entrepreneur, i.e., they understand what credit is and are confident of using it in their field conditions

·                      An improved technology which is clearly superior to traditional methods has been developed.

·                      The associated support services and infrastructure facilities are present.

2.2                  ANALYTICAL FRAMEWORK

2.2.1         Alternative Approaches on Microfinance Impact Assessment

In doing socio-economic impact assessment, there have been two major paradigms: the quantitative approach and the qualitative approach. Each paradigm has its own superiority and limitation. The importance is that the researcher has to know how to combine them in an appropriate manner. The following part will present the characteristics, advantages as well as disadvantages of each paradigm, and the correction to its limitation. 

2.2.1.1          Quantitative Method

Quantitative method is defined as a method in attempt to ensure that effects can be attributed to causes through experimentation, quasi-experimentation or non-experimentation. This method compares the statistical results of the control group with those of the treatment group to see the impact.

To show the real impacts of microfinance, i.e., the contribution level or the role of microfinance on poverty reduction, in quantitative method, researchers usually use econometric models. Generally, the impact model has the following form:

Y = SX_ij + e_i

In which:

Y_i is the proxy of impacts such as consumption, income, education level, empowerment and so on, which refer to the impacts on household i.

X_j is a vector of   household and comunity characteristics which affect Y_i such as loan size, length time of membership, family head’s education, family head’s age, and so on, which refer to the individual, households and community characteristics

e_i is the residual provided that  the expected mean of d_i is equal zero or E(d_i) = 0

Depending on availability of data, time, statistics skills, financial status, the different variables are introduced. Besides, in running regression, to avoid violence of OLS assumptions, researchers have to use different correction methodologies.

2.2.1.2          Qualitative Method

Qualitative approaches are also used in doing impact assessment with intention to provide an interpretation of the process involved in intervention and of the impacts that have a high level of plausibility rather trying to prove impact within statistically definable limits of probability. The focus instead is on understanding processes, behaviors, conditions perceived by interfered subjects (Valadez and Bamberger, 1994). This method often pays attention to the ways in which household perceives the microfinance programs and how they are affected by it.

CHAPTER 3: pROFILE OF THE  SAVINGS  AND CREDIT  SCHEME  OF  SCF/uk  IN CAM XUYEN, HA TINH

3.2            Profile of SCF/UK S&C programme in Cam Xuyen, Ha Tinh
Save the Children Fund of United Kingdom (SC - UK) is one of the largest international non-government organizations working for the best interest of children. Its involvement in Ha Tinh Province took in the first place in 1989 as a part of their “poverty alleviation” program through providing financial, technical and training support  in terms of “in kind” credit.
3.2.1 Objectives of the program

"To improve the quality of life of poor women and their families through the initiation of a sustainable credit and savings project in disadvantage communes" (SCF, 1996) has been seen as the overall aim of the Savings and Credit Program which has been launched firstly in Cam Long commune, Cam Xuyen district, Ha Tinh province since 1993. Specific objectives are:

·          Supplying small-scale productive loans to poor women for production activities and income generation;

·          Mobilizing member savings for self-procured investment capital and to improve families' economic securities;

·          Enhancing the management capacity and technical skills of implementers and managers at all levels through training, study visits, technical assistance;

·          Expanding the credit and savings program to other villages and communes;

·          Besides providing credit and savings service, the Program has also provided non-financial services such as education fund, training for women in credit management to reach its goal and objectives;

3.2.2         Target of the program

SCF/UK S&C programme targets the poor women with children 15 years old or younger.

3.2.3         Loan conditions and procedures

To borrow from the program, the applicant has to meet following requirements:

·          Resident in the target village;

·          Being women, regardless of membership in the women union;

·          Poor.  Most communes based their definition on a minimum of three months of food (rice) shortage combined with a maximum of 15 kilos of rice per head per month (or its equivalent);

·          Willing to participate fully in the programme, including making repayments on time and saving regularly;

·          Having experience in investment activities and/or being business- minded;

·          Women with children under 15 and women- headed households are given priority.

3.2.4         Lending and savings mechanism

As other NGOs, microfinance provided by SC-UK has been done in terms of small, short-term, productive and commercial repeated loans through joint-liability group of above 5 or 6 members. On  the other hand, savings also is included in microfinance activity. The following will consider in detail the credit and savings of this organization

-          Lending activity:

Ø       Joint-lending group: SCF applies the group lending model of Grameen Bank in running savings and credit scheme in Cam Xuyen district. The groups are formed voluntarily based on trust and proximity of homes of group members. The group members are not necessarily required to engage in the same productive activities. Group mechanism provides a social guarantee instead of collateral, which the poor normally do not have but usually is required by banking system when giving loans and  making repayment. If any of the group members does not repay or does not repay on time, others within the group cannot get loans because it is provided that in each group a maximum of only 3 people can be selected to receive the initial loans. The remaining members have to wait for loans until repayments of the previous borrowers have been made in full and on time. For that reason the groups are called joint- liability groups.

Ø       Small, short-term, productive and commercial repeated loans: The first loans are small because they suit needs and capacity of the poor. When they have gained some investment experience and repaid the first loans, loans in the next cycles will be expanded to a larger amount. The maximum loan size for each borrower in the first cycle is 500,000 dong and for all subsequent cycles are 1,000,000 dong.

Loan duration depends on production cycles, therefore short- term and up to 12 months.

Repeated loans are both an incentive for full and timely repayment and a way to help the poor to gradually get out of poverty.

Productive purposes ensure that the borrowers are able not only to repay the loans and interest, but also to earn profits for further investment. No property collateral is required from borrowers.

Before May 2001, SCF borrowers were charged at the rate of 2% per month, of which 1% was allocated for inflation fund; 0.5% for administration fund; 0.3% for risk fund and 0.2% for education fund. Based upon the current inflation rate, savings interest rate of commercial banks and other credit institutions and programs cost in recent years, the Project has established a new lending interest rate of 1.5% per month.

Repayment of loans and interest is made in monthly installments. A grace period is permitted for 1 month for all loans of up to 9 months and 2 months for loans of 10- 12 month duration. Prior- to- maturity repayment is encouraged.

-          Savings service:

 All members must save regularly in their groups, beginning 3 months before any loan is disbursed and continuing throughout their participation, regardless of whether they have a loan. Minimum monthly amount of savings is between 4,000 and 5,000 dong. Additional voluntary savings is encouraged. Savings cannot be withdrawn while borrowers have outstanding loans. Three months after repayment of loans and interest, savings can be withdrawn with one month in advance notice. The interest on savings is added to the initial savings when withdrawal is made. No interest is paid if savings is withdrawn prior to the agreed time. Before May 2001, savings earned an interest rate of 1.4% per month. At present, it is reduced to 0.6% and this figure seems to be attractive to savers as it is higher than the rate paid by the Bank and other credit and savings programs.

Savings mobilized then can be relent to either members or non- members at interest rate of 2% per month for the time before May 2001, and of 1.5% for now or deposited at a bank. Loans from savings have the duration of up to 6 months with the maximum amount of  300,000 dong. Loans can be used not only for productive purposes, but also for consumption, often in the cases of emergencies, family events. Repayment of loans from savings is made once at the end of the loan term. 

3.2.6         Performance of the program in Cam Xuyen district

S&C activities continue to expand and remain the core “pillar” of the programme. SCF/UK initial strategy was to provide loans to 65- 70% of the villages within a commune. After three years it will withdraw 50% of the loans from the old villages to transfer to new villages. So far, three communes in Cam Xuyen District (Cam Long, Cam Hoa, Cam Son) have rotated the loans to 100% of the villages in the communes.

Table 3.3:  SCF/UK scheme- General performance

Source: SCF/UK Report in 1999, 2000/ 2001.

Repayment rate of the programme is perfect (99%- 100%). High repayment rate, accumulated inflation fund and savings fund help not only to secure the loans fund but also to make them greater. Management costs have been covered from interest payment.

By August 2001, SCF/UK has granted a loans fund of 7,465 million dong to 22 communes among 27 communes of Cam Xuyen district for 16,801 borrowers of 3,177 groups. The total amount of savings is dong 4,631.224 million dong. On  average, each member has saved 275,652 dong. The total amount of loans revolved is 2.2 times as much as the initial loans fund from SCF/UK and 3.54 times as much as the total savings accumulated by the members. Each borrower has received 3- 4 loans from the programme. Some of its results in S&C activities are shown in Table 3.3.

CHAPTER 4: AN ANALYSIS OF impact of scf’s MICROFINANCE ON POVERTY REDUCTIOn in cam xuyen, ha tinh province

4.1 Overall approach of the study
In this chapter, the impact of  SCF savings and credit on poverty reduction will be explored based on the conceptual framwork in chapter 2 in order to answer all  research questions raised in section 1.3 will be answered. The analysis of savings and credit's impact on poverty is based on my own data survey in 5 communes in Cam Xuyen district, Ha Tinh province in May, 2001. The evaluation will be divided into three parts. Part 1 tries to see the outreach of the program in terms of penetration ratio based upon the project data as well as surveyed data. In this part, the author's desire is to answer the question: "Whether the program fits the poor or not?” Part 2 will analyze the impact of microfinance on three aspects including income change, vulnerability reduction and empowerment based upon the conceptual and analytical framework in chapter 2. To cope with the counterfactual problem, all three aspects are compared between the members and non-members. Part 3 will make clearer the impact of microfinance on income change by running regression.

4.2            An Analysis of Impact of SCF’s Microfinance on Poverty Reduction in Cam Xuyen, Ha Tinh Province

4.2.1         The outreach of the program

The easiest realized characteristic of SCF is that 100% of its members are women (data provided by SCF as well as shown in data survey) but the proportion of poor women in the whole members hasn’t been clearly shown. In addition, neither the reason why some poor women haven't joined the program nor what other sources of credit such people resort to haven't been fully explained. Here these problems will be answered in detail.

·      The proportion of poor and very poor borrowers access to SCF loan in the sample: In the sample of 120 members, up to 65% of which are poor and very poor. To some extent, the program has achieved its target on the poor. However, it also means that the non-poor still have chance to access to SCF loan. The reason is that the criteria for choosing member of SCF are based on number of months in shortage of food and number of children in family as SCF wants to more focus on children as its name. The threshold is that one household is in at least 3 months of food shortage and has at least three children under age of 15. However, this benchmark is sometime flexible, one household may not meet the threshold requirement of food shortage but has a lot of children (from 4 to more), it is still able to access SCF loan.

The reasons why some targeted people haven't joined the program: Although the poor and very poor were targeted by the program, there exists some disadvantaged who haven't joined SCF. The reason is that such households have no productive activities to develop or do not feel confident about making profitable use of their loan and being unable to repay. For them, microfinance seems not to present a profitable opportunities to improve their living conditions. In other words, microfinance is not really of major interest to the very poor and poor.

·          Other sources of funding: Beside SCF loans, loans from VBA, VBP, relatives and friends, and other sources such as ROSCAs, private lenders seem very popular in the surveyed area. Up to 57 percent of members borrow from these sources, of which 40 percent are the poor and very poor. It reflects that SCF loans haven't met the large demand for capital and that is  why they have to access to other sources of credit beside SCF. Especially, loans from informal sources take up 78% of total loans other than SCF loan, in which the poor and very poor borrowers take 81%. It implies that informal financial providers still dominate lending to the disadvantaged.

4.2.2         The impact of microfinance on poverty reduction

4.2.2     Income increase

The survey shows that up to 67% of interviewed members had higher income after 2 years whereas this percentage falls to  56% for non-members. Especially, nearly a quarter of such 67% have much higher income than before.

Table 4.1: The income change of the members and non-members

Source: Data survey

For SCF surveyed members, 70% of them used loan for investment, of which investing in new income-generating activities accounts for 34%, i.e. 23.8% of the whole surveyed members (Table 4.1). Taking SCF loans for consumption and debt payment make up 23% and 7% of total members, respectively. For those who used SCF loans for investment, up to 85% of them had higher income while 89% of those using loans for debt payment couldn’t increase their income. Surprisingly, nearly 70% of those spending their SCF loan for consumption got improved income. The reason is that credit used for consumption such as food, health and clothing can create income through improved productivity of labor.

Beside the use of the loan, income change can be influenced by the wealth level of the borrowers. Breaking the members with different levels of wealth and the level of income change, the income change on the very poor seems ambiguous. Fifty three percent of the very poor and poor borrowers have income unchanged or lower than before taking the loans while nearly 46% have income a litter higher and only 1% has income much higher. For the average and other better-off borrower categories, the income change appears clearer. All of them have income higher than 2 years ago, especially, 12% of such categories obtain much higher income.

                Table 4.2: Spreading  the members and non-members by wealth categories and income change (%)

By the same treatment with the non-borrowers, the findings are that only 23% of the poor and very poor non-borrowers have income a litter higher, the rest has income unchanged and lower.

In general, members become better off than non-borrowers do. For members whose income increases after taking SCF credit, the main reason in the member's perception, which is to have access to SCF credit accounts for 79%. Other reasons such as children growing up or taking aid from relatives also affected to the increase in income.              

Table 4.3: The most important cause for the increase in income by wealth categories (%)

The table above shows that involvement in SCF is the most important cause for the increase in income for the poor and average categories. The reason is that SCF help remove their most constraint for their income expansion, which is lack of investment capital. While for other wealth levels, taking SCF loan doesn’t play the most significant role for shifting their income out-ward, especially for the very poor category. This problem comes from the fact that credit is only one of constraints to their poverty as presented in Section 2.1.1.2. And credit only makes into full play if the borrower knows the way to do business with it while lack of knowledge is one of the most constraints to them. This result confirms the conclusion drawn by David Hulme (1996) that microfinance gives more benefit for the middle income than for the low-income.

The economic impact on income increase also can be seen by the ability of borrower to self-finance after each credit-cycle. The survey result shows that up to 19% of all members stating  that they had achieved or were achieving enough income by the end of the cycle to carry out their activities using their own fund.  It is much more frequent for the poor categories to consider that the amount they have accumulated has not been sufficient  to ensure their financial self-sustainability. In this sample, only 5% of the poor category could  self -finance thanks to their SCF loan at the end of the credit-cycle. This comes from the fact that  the profit gained by this disadvantaged is too low because of very low endowment and therefore endowment improvement financed by profit is given priority, so the retained profit  is insufficient to self-finance investment. While it is found that rate of members with financial self-sustainability at the end of the credit-cycle increases following the level of wealth as shown in Figure 4.3. It can be inferred from this analysis that the higher endowment, the higher possibility to get economies to scale, the higher profit the borrower get. And this is  an important fact, as if this respond is to be believed, the better-off categories should gradually cease to borrow.

4.2.2.2      Vulnerability reduction

The vulnerability can be reduced by microfinance through improving the capacity of holding more productive assets, reducing loans from informal sectors,  limiting the ability of selling productive assets at lower price or diversifying income-generating activities as mentioned in the conceptual framework. Because of lacking data, the author examines the impact of microfinance on vulnerability in these aspects: the substitute role of microfinance, the diversification of generating-income activities, less volatile in medicine payment and asset building between members and non-members.

4.2.2.2           The substitute role of microfinance

 The survey data shows that up to 30% of members took SCF loan for such overcoming cash flow deficit.

Above and beyond the direct impact on vulnerability reduction through dealing with the cash flow problem, SCF loan helps borrower avoid disadvantages caused by taking funds from such sources which have been done without SCF loan, thereby indirectly reducing vulnerability, as follows:

·          Selling gold or other assets: 18% of such members among the 74.1%, equivalent to 13.4% of total members.

·          Borrowing money-lenders and trade-lenders with higher interest rate than that charged by SCF: 32%, i.e. 23.7% of all members.

·          Borrowing at the interest rate of 0% from relatives or friends:  11%, i.e. 8.2% of total. The reason why such members use SCF loans other than relative and friend  loans is that they don't want to be dependent on those lenders. Anything has its own price, when borrowing without interest, the borrower has to pay the lender in terms of non-priced things such as providing free services to the lender, which would never have happened if he borrows from elsewhere. Providing non-priced things may reduce time for his own activities, resulting some economic disadvantages. As a result, the ultimate impact of borrowing from free-interest rate sources  may turn out to be nil, or even negative.

·          Selling young paddy or animals at low price: 18%, i.e. 13.4% of total. Selling labor: 9%, i.e. 6.7% of total

·          Miscellaneous: 12%, i.e. 8.9% of total

From Figure 4.5, the poor and very poor take account  a significant share of borrowers who would have not paid the expense without SCF loan. It implies that SCF loan is the best choice for them (the poor and very poor) to do such activities.

4.2.2.2.1         Diversifying income-generating activities

Diversifying and raising production are important in anti-poverty interventions in our countries generally and in this area in particular. Rice dominates production and consumption for agricultural households.SCF loan seems to induce members to diversify their income-generating activitities. As shown in Table 4.4, before involving in Savings and Credit Program of SCF, the major income source of members came from  agriculture. After borrowing SCF loan, the structure of income-generating activities changes with lower portion in purely agricultural activities and higher percentage in non-farming activities. Especially,  the number of households involving in non-farming self-employment has increased from 7.3% to 15%.

  Table 4.4: The structure of income-generating activities before and after taking SCF loan (%)

4.2.2.2.2      Less vulnerability in medicine payment

Medicine is the essential expense for every family, especially for rural families. However, the ability to cover such expensive as well as source of funding is different from household to household. For 80% of members, before taking SCF loans, they often used to borrow to make such expenses. The explanation is that their income is too low, leading to too low savings to meet such immediate payment. It means that their vulnerability was high. However, after taking loan, their income is higher, allowing them to save for emergencies. That is why up to 56% of members can cover medicine payment by their own income.

4.2.2.2.3      Asset building

The process by which microfinance stimulates asset-creation, is interesting.  Fifty seven percent of surveyed households bought new assets, of which 79% were members. To my surprise, mainly the average, the poor and very poor members had new assets. An plausible explanation is that the poor and very poor members bought new assets for three reasons: for a start, some assets can be readily sold to meet immediate consumption needs; secondly, asset-building can improve creditworthiness, thereby improving a household’s borrowing chances during a crisis; thirdly, a larger and more diverse asset base can reduce covariant risk. However, this spending on assets also has its associated risksThe message from this section partially reinforces the views of those who argue that providing credit will lead to a process of asset creation and a corresponding reduction in vulnerability.

4.2.2.3      Empowerment

4.2.2.3.1.1                          The contribution of women in the family’s income

The objective of SCF loan is to improve income for the poor women. The survey results shows that the number of woman members contributing much to family's income take up a significant share. Before taking SCF loan, only 12% of them contributed to half and more than family's income while most of them contribute insignificantly to their family income. After SCF loan, up to 30% percent of them have income  as high as half and more than of  family's income. Especially 56 percent among 46 percent of woman members whose income used to be insignificant in total family income increase their contribution to their family income from a quarter and more for the reason that they can decide how to use the loan with consultation from their group members and spouse. Joining the project helps women learn more experience from one another. They are better-known at organizing family life improved and managing the family budget. They become more creative and dynamic. Saving activities, in particular, train the poor women members with savings habits and economic independence and self-confidence.

There seems to exist the difference in the contribution level to family income between certain wealth categories. If the very poor women member's income contribution changes very small then the average and better-off woman members increasingly contribute significantly to their family's income after taking SCF loan.

4.2.2.3.2      The women’s participation in decision-making

The study shows a significant change in decision making of woman members. Before taking loan, they used to mainly involve in daily food purchasing. Decisions relating to the future of their children such as schooling enrollment, getting married for them were mostly decided by the husband. They hardly had right to control over assests and discuss with their spouse on buying major items, improving and building house.  After taking SCF loan, the voice of woman members has been increasingly improved. Up to 85% of women was found to be decided how to the use of the loan by their own  (Trinh Thi Thu Huong, 2000). Important things such as buying major items, building and improving house, getting their children married[5]  are mostly decided by both wives and husbands.

4.2.3              Testing the impact of microfinance on income change

4.2.3.1           Model selection and data

4.2.3.1.2                    Model selection

In order to quantify the impact of microfinance on income change in taking account other factors, running regression with the following specification is essential:

LOGINCOM = f(DMEMBER, SCFLO, SCFLO squared, SCFLO cubic, FORDEBT, INFODEBT, INTEREST, RANK2, RANK3, RANK4, RANK5, SECONDAR, HIGHSCHO, AGE, AGE squared, INCOSOU1, INCOSOU2, DEPEND, SEXHEAD, REGION1, REGION2, REGION3, REGION4)

4.2.3.1          Regression results

. Testing the positive impact of SCF accumulative loan on income increase

Holding other explanatory variables constant, an additional 1 million dong of SCF accumulative loan statistically significant changes the average monthly income per AE of the members by [-1.4*(SCFLO)² +12* (SCFLO) – 0.618] percent at 5% level. This result is obtained by taking the partial derivative of the estimated function according to the change in SCFLO It means that the percentage change in the member’s income per AE is a concave quardaric function of SCF accumulative loan. With SCF loan is lower than 0.05178 million dong, the change in income is negative. In the range from 0.05178 to 8.51161 million dong, the percentage change in member’s income per adult equivalent is positve (Appendix E for detail). In this range, it can be concluded that there exists a positive relationship between the change in member’s income and SCF accumulative loan. With SCF accumulative loan size is 4.28169, the growth rate income gets maximum to 25%. The intuition behind significant improvements in welfare taking place once a household has crossed a certain loan threshold can also be possibly interpreted as a switch from traditional, low-return on-farm activities to higher-return off-farm activities over time (Ravallion and Wodon 1996). As households become more accustomed to borrowing from SCF they are likely to be more willing to take such risks. It was also found in the survey that an occupational shift seems to take place as accumulative loan size (which is highly associated with membership length) increases. This loan threshold effect could also be created due to the fact that initial loans are often used for consumption purposes, repaying debts and repairing homesteads while subsequent ones are used for investment purposes so the efficiency of this amount doesn't make into full play. With the subsequently higher amount, the efficiency is improved because the household become more familiar with loan thanks to some drawn experiences from the first amount. However, beyond loan size of 4.28169 million dong, the change in income tends to decline (even the change is negative if the loan is higher than 8.51161 million dong). The reason is that credit follows the rule of diminishing return to scale.

.Testing the hypothesis that the members get better-off than the non-members in terms of income increase.

. Is SCF loan the only source of income improvement for the members?

Adjacent to SCF loan, the member can get other sources of credit from VBA, VBP, relatives and friends or money-lenders and so on. Those credits can be divided into two sources: the formal and the informal. Each source of credit has its own characteristics in terms of loan size, duration, interest rate, transaction cost, payment mechanism and so on, thus it may give rise to different impacts on poverty reduction. However, it is assumed that both of these credit sources have positive effects on income increase of borrowers thanks to adding capital for borrowers. This hypothesis is tested through two coefficients of FORDEBT, INFODEBT, respectively. It can be drawn from the coefficient of FORDEBT that an extra million dong increase in debt from the formal sector will statistically raise the average monthly income per AE of borrowers by 7%. While the same increase in debt from the informal sector will statistically reduce that of borrowers by 0.7%. The argument for this situation is that because the informal debt is short term and charged interest rate higher than the formal debt and often used in cashflow smoothing rather than investing in income-generating activities. This use can reduce the borrower’s vulnerability but poverty (i.e, income improvement) . Is SCF loan enough for income improvement?

Aside from the ‘SCF variables’, poverty reduction may be significantly determined by the average interest rate, age, education and occupation of the household head, the dependency ratio, the wealth endowment of the household and village conditions. To answer the above question, it is essential to see whether the monthly income per AE is statistically effected by above factors. The following will consider the impact of these factors on income increase.

First of all, the average interest rate is taken into account. In this model, it is impossible to separate the impact of interest rate charged by SCF from that charged by other sources of funding, so the author tries to use weighted average interest rate of all credit sources for doing impact evaluation. The coefficient of INTEREST indicates that the average interest rate has statistically significantly negative effect on the income change. Taking other independent variables constant, an additional percentage increase in the average interest rate will reduce the average monthly income of the borrowers by 0.26% at the significant level of 5%. This finding is consistent with the hypothesis in the conceptual model. Higher interest rate, higher cost endured by the borrowers, lower income for them, if other things to be equal.

Considering next the variables relating to household head characteristics including sex, age and education level. The monthly average income per AE seems to be statistically considerably lower for female-headed household than for male-headed households. In the survey of 120 borrowers, up to 10 cases are women-headed, in which 7 are widowers and divorced. The author found that in such households, their average income per AE is lower than the average income of the sample. It is found in the coefficient of SEXHEAD that the monthly average income per AE of female-headed households is lower than for male-headed households by 0.439% It comes from the reason that in households led by the women, she (often the mother) has to do everything from housework to earning to cover all family expenses. She does not have enough time to devote for income-generating activities. While in male-headed households, works are often assigned for each member according to her or his ability. Thus almost works are well-done. Therefore, return on investment in such households is higher than other households led by the women.

The study shows that the age of household head has considerably positive effects on the average income per AE if household head’s age is lower than 46. Holding other explanatory variables constant, an additional year of household head’s age will raise the average income per AE by about 0.1 to 0.3 percent in the range of age between 20 and 40 at the significant level of 1%. This can be rationaled that such range of age is the time at which people are healthy and it is no difficult for them to learn and get experience in production and business.  When the age overcomes a threshold, say 46, people’s health frequently goes down and it is less likely for them to learn and get experience. On the other hand, when people get older, they may become perfectionistic, i.e they don’t like risks. As a result, they may lose higher return but risky income-generating opportunities. That is why the increase level in the monthly average income per AE tends to decline when the age goes beyond such threshold. At the threshold age of 46, the increase level in income is zero and it is the point at which the maximum of the monthly average income per AE is achieved to approximately 394.5 thousands dong at the 0.1% significant level.

Not only sex and age of household heads but also her or his education level can have influence on the average income per AE. The education of household head is divided into three kinds: primary, secondary and higher education. With the base category to be primary education, two dummy variables for other education have considerably expected signs. Especially higher education, higher income increases. The reason is that when the household head is more educated, it is assumed that he (she) will have more ability to do business with the loan. He (she) will find the best profitable income-generating activity to invest. As a result, income increase augments more than the lower educated household.

Examining the household level variables, the regression results the lower average income per adult equivalent is statistically associated with higher depend ratio. Holding other things equal, one unit increase in depend ratio would reduce the average income per AE by 31%.

The increase in income of the household also depends on which is the major income source for the household. It is found in this study that non-agricultural self-employment augments income for household while wage employment reduces income. Noting that in rural areas, wage employment is meant selling labor. This work is often volatile and dependent on seasons. When household’s income is mainly from this source, lending to them is less meaningful because they often uses loan for non-productive purposes.

Turning to dummy variables describing the wealth levels of the household, the income change seems to increase with level of wealth. With the base category is the very poor category, except RANK5 all dummy variables for the poor, average, and wealth have significantly positive signs. For the poor category, the percentage increase in the average monthly income per AE is 0.115 higher than the very poor category while these figures for the average, wealth categories are 0.163% and 0.194%, respectively. It indicates that the ability of risk-bearing highly depends on the overall wealth of household and economies of scales significantly augment the income per AE.

The final set of explanatory variables is concerned with regional location. The base variable for commune condition is Cam Huy commune. In this area, most households have income from non-farming activities such as trading. The people here have better business skills than those in other communes in the district. That is why the poverty rate here is lower than that in other areas in the district. And therefore this commune is not selected to be the targeted area of SCF Savings and Credit Scheme. However, this commune is selected by the author to be the control area to see whether there exists the difference between the commune with project and the commune without project in term of income change. The regression results show that coefficients of dummy variables for all communes except Cam Phuc have significantly positive signs. It means that the change in income in project commune is higher than in commune without project if other things equal. The different coefficients of these dummy variables indicate that there is a variation in income change between the alternative project communes due to the diverse conditions in these communes.

CHAPTER 5: CONCLUSIONs AND policy implications

5.1 Conclusions

With a proper mechanism of lending, the Savings and Credit Scheme of SC/UK has reached a significant share of the targeted beneficiaries in Cam Xuyen district, Ha Tinh province. Besides targeting on the poor and very poor women, the Scheme doesn’t weed the better-off who have demand for SCF loan for investment. To some extent, the participation of the better-off in SCF lending group is good for other disadvantaged members thanks to their transfer of business experience to the poor members in group meetings. The involvement of better-off class also ensures the financial sustainability for the scheme. However, if the scheme focuses on the viability, it may leave its targeted households out. It is found in this study that most of the underprivileged who haven’t joined the program are those who claim to be excluded from the scheme but in fact do not want to take part in it for the reason that they have no income-generating activities or do not feel confident about making use of profitably their loan or being able to repay.

In addition, the potential reduction in poverty thanks to microfinance through a number of pathways including income improvement, vulnerability reduction and empowerment is also illustrated in this writing. Increases in income or consumption (i.e. reduction in poverty) can occur if credit is used for an income generating activity and that activity generates returns in excess of the loan installment repayments. Most members have higher income after participating SCF.  This is supported through the positive and statistically significant coefficient of DMEMBER. It means that if the household is a member, her family’s income per adult equivalent is likely to increase whether she gets credit or not because non-credit benefits can be obtained such as training, health care through participating SCF. It can be concluded that it is likely for members to increase their income not only through microfinance but also other services provided by SCF.

It is also found that there exists a positive relationship between accumulative SCF loan and income increase of members. However, the increase in income depends on the level of accumulative loan size. The empirical evidence in this paper suggests that there may be a threshold cumulative loan size beyond which micro-credit can make a significant impression on poverty.

The poverty reduction can be done through vulnerability reduction. One channel is the use of loan for cash flow smoothing or investment in diversified generating activities. The vulnerability is also reduced through substituting informal credit which charges a higher interest rate by SCF loan with an acceptable interest rate. An other channel for vulnerability dismissing is through asset-creation. Moreover, a temporary reduction in poverty can also occur if credit is used for non-investment purposes such as repaying existing debt, improving housing or social obligations. However, future consumption will have to be sacrificed to meet repayment obligations. Credit used for consumption, such as food, health, and clothing can generate income through improved productivity of family labor. This finding is opposite to many points  arguing that credit for consumption has no effect on income.

Micro-finance services also have an indirect impact on under-empowerment faced by women in a patriarchal society. The evidence in this paper shows that a woman’s higher contribution to family income and her decision-making participation in family are enhanced after borrowing from SCF’s micro-credit program.

5.2 Policy implications

There are a number of policy implications that can be drawn from this paper. First, from the fact that there exists a number of poor and very poor households to be self-excluded from the scheme, in the present instance, the solution for socio-economically marginalized farmers is not being provided, at least spontaneously, by using microfinance in terms of credit and savings alone as mentioned by Daubert P. et al (1997). The rooted cause for this situation is that such people lack business skills. Thus. the policy implication is that microfinance is likely to be a more effective remedy against poverty and vulnerability if it is complemented with other interventions which provide business training for poor rural people in order to improve their business awareness, to calculate the financial returns of their activities, and to shift to market-oriented production. The issue of complementarities also arises when considering the effect of micro-credit on the ‘empowerment’ of women. Whilst the provision of micro-credit can enhance a woman’s status in the eyes of other household members, as she is the source of an important resource, social mobilization and legal education interventions in conjunction with credit is likely to have a more significant effect than credit alone.

Second, it is required that microfinance institutions should focus on defining what different forms of poverty are rather than what poverty is and to recognize what level of action can be used to reduce them. Microfinance may shape amongst possible responses, but it will never be a panacea for poverty reduction. On the other hand, microfinance seems to be not good for ultra-poor, therefore, using money that would be lent to the ultra-poor is for opening an enterprise to employ these people may be more efficient in poverty reduction.

Thirdly, using microfinance for consumption may increase the household’s income through improving the quality of labor, therefore Savings and Credit Schemes should reconsider the current practice of discriminating against credit-worthy applicants who wish to use for maintenance of their family labor.

Finally, the observation is that the savings collected by organizations like SCF could have a greater impact on reducing vulnerability than they currently do. SCF-UK, Oxfam, AVV and existing NGOs running Savings and Credit Schemes in Vietnam have collected compulsory regular savings from their clients with a view that the money would act as a de-facto lump sum ‘pension’ when a client leaves the organization. Limited access to these deposits may curtail a potentially important source of consumption smoothing. Therefore, the program should provide such more flexible savings products as a current account scheme. Depositors earn a competitive market interest rate and are allowed to withdraw money irrespective of whether they have an outstanding loan or not.