Risk Preference, Social Capital and Microcredit Lending Risk – An Experimental Study in the Mekong Delta

4.3.1. Regression results of the impact of risk preference on bad debt 99

4.3.2. Regression results of the impact of factors in the experiment on community contribution to bad debt 102

4.3.3. Regression results of factors affecting bad debt in the trust experiment 104

4.3.4. Regression results of factors affecting bad debt when combining risk preference experiment and community contribution experiment 106

4.3.5. Regression results of factors affecting bad debt when combining risk preference experiment and trust experiment 108

4.3.6. Regression results of factors affecting bad debt when combining the community contribution experiment and the trust experiment 111

4.3.7. Regression results of factors affecting bad debt in all three experiments 113

4.4. Robustness test: Using Probit model to regress the impact of experiments on the bad debt variable of participants 115

4.5. Summary of Chapter 4 116

CHAPTER 5: DISCUSSION OF RESEARCH RESULTS AND POLICY IMPLICATIONS 118

5.1. Summary and discussion of results 118

5.2. Policy implications 120

5.2.1. For microfinance institutions and credit institutions with microfinance activities 120

5.2.2. For the Government and the State Bank 122

CONCLUSION 125

LIST OF AUTHOR'S RESEARCH WORKS 129

REFERENCES i

APPENDIX xiv

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LIST OF ABBREVIATIONS

ADB

Asian Development Bank.
Agribank	Vietnam Bank for Agriculture and Rural Development.
BQ	Average.
BART	Measuring Risk Preference with Balloon Inflation Analogue Risk Task.
CBTD	Credit officer.
CEP	Capital Aid Fund for Self-Employed Poor Workers Fund For Employment of the Poor.
DVTC	Financial services.
Mekong Delta	Mekong Delta.
FSS	Financial Self Sustainability Ratio.
GSS	General Social Survey.
cooperative	Cooperative.
IFC	International Finance Company.
MTV	One member.
DAINTY	Non-Government Organization.
NH	Bank.
State Bank of Vietnam	State Bank.
Social Policy Bank	Social Policy Bank.
Cooperative Bank	Cooperative Bank.
Central Bank	Central Bank.
Commercial Bank	Commercial Bank.
Joint Stock Commercial Bank	Joint Stock Commercial Bank.
State-owned commercial banks	State Commercial Bank.
OSS	Operational Self-Sustainability.

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QTDND

People's Credit Fund.
ROA	Return on Average Assets.
ROE	Return on average equity.
TCHV	Behavioral finance.
TCTC	Financial organization.
TCTD	Credit institution.
TCVM	Microfinance.
TD	Credit.
TDVM	Microcredit.
Ltd.	Limited liability.
People's Committee	People's Committee.
UNCDF	United Nations Capital Development Fund
USD	Dollar - US currency.
VARHS	Survey data on access to resources for rural households in Vietnam.
VHLSS	Vietnam Household Living Standards Survey Statistics Living Standards Survey.
WB	World Bank-World Bank.

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LIST OF TABLES

Page Title

Table 3.1: Some data about the Mekong Delta 46

Table 3.2: Average income and daily expenditure per person in Vietnam 60

Table 3.3: Game options… 62

Table 4.1: Statistics on quantitative indicators in the survey sample. 79

Table 4.2: Statistics on participant characteristics in the choice of the risk preference elicitation experiment 83

Table 4.3: Statistics on participant characteristics in the choice of community contribution experiment 84

Table 4.4: Statistics on characteristics in the choice of the trust experiment 85

Table 4.5: Testing for differences in bad debt according to borrower characteristics 86

Table 4.6: Testing the difference in bad debt characteristics between the neutral group and the risk-seeking group and the risk-averse group 88

Table 4.7: Testing the difference in bad debt characteristics between the risk-seeking group and the risk-averse group 90

Table 4.8: Testing for differences in borrower characteristics in contribution choices in the community contribution experiment 93

Table 4.9: Testing for differences in bad debt characteristics of participants in the community contribution experiment 94

Table 4.10: Testing for differences in choice of giving money to partner by participant role in trust experiment 96

Table 4.11: Testing for differences in the proportion of money given to partners according to participant role in the trust experiment 97

Table 4.12: Testing the difference in giving money to partners according to bad debt characteristics in the trust experiment 98

Table 4.13: Regression results of factors affecting bad debt in the risk preference elicitation experiment 101

Table 4.14: Regression results of factors affecting bad debt in the community contribution experiment 103

Table 4.15: Regression results of factors affecting bad debt in the trust experiment 104

Table 4.16: Regression results of factors affecting bad debt combined with risk preference elicitation experiment and trust experiment 107

Table 4.17: Regression results of factors affecting bad debt combined with risk preference elicitation experiment and trust experiment 109

Table 4.18: Regression results of factors affecting bad debt combined with community contribution experiment and trust experiment 111

Table 4.19: Regression results of factors affecting bad debt in all three experiments ..113 Table 4.20: Regression results of factors affecting bad debt in experiments using Probit model 115

Table 4.21: Regression results of factors affecting bad debt in experiments with demographic variables using Probit model 116

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LIST OF IMAGES

Page Title

Figure 2.1: Hypothesized value function 19

Figure 2.2: Theoretical framework of research 43

Figure 3.1: Eckel and Grossman's game choices 51

Figure 3.2: Holt and Laury's game choices 53

Figure 3.3: Classification of risk aversion based on choice 54

Figure 4.1: Statistics on characteristics of borrower's debt 74

Figure 4.2: Statistics on education level of respondents 74

Figure 4.3: Statistics on the place of residence of respondents 75

Figure 4.4: Statistics on the use of collateral for TCVM loans 76

Figure 4.5: Statistics on borrowing locations 77

Figure 4.6: Statistics on main sources of income of households 78

Figure 4.7: Statistics of participants' choices in the risk preference elicitation experiment 80

Figure 4.8: Statistics on participants' choices in the community contribution experiment 81

Figure 4.9: Statistics of choices in the trust experiment 82

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SUMMARY

This study aims to collect and analyze the impacts of social and demographic factors of microfinance borrowers to measure the level of influence of those factors on microfinance lending risks of microfinance lending organizations in the Mekong Delta region. At the same time, it also considers risk preferences, social capital and other factors of microfinance borrowers to assess their level of influence on microfinance lending risks of microfinance organizations.

In this study, through economic experiments with participants who are microfinance borrowers in 6 provinces in the Mekong Delta region, the impact of risk preference and social capital on microfinance lending risk is examined. The research results show that risk preference and social capital both have an impact on microfinance lending risk. Specifically, those who seek higher risks are less likely to have bad debts, while those who are more risk averse are more likely to have bad debts. Regarding social capital, community support and trust have a positive impact on microfinance lending risk. These are also important bases for the author to have appropriate policy implications directly related to microfinance lending by organizations with microfinance lending activities.

Keywords: Microfinance, risk preference, social capital, risk seeking, risk aversion.

ABSTRACT

The aim of this study is to empirically analyze social and demographic factors and measure their effects on microcredit risk as affected by microfinance borrowers in the Mekong Delta of Vietnam. Furthermore, the study looks at risk preference, social capital of microfinance borrowers and estimate their impact on microcredit risk. Different interviews and on-stem experiments have been conducted directly with 176 customers. Research hypotheses have been tested by means of

descriptive statistics with data collected. Findings show that both risk preferences and social capital affect microcredit risks.

specific, risk seeking people tend to be less risky while risk aversion people have been likely riskier. Regarding social capital, reciprocity and trust between community have positive impact on microcredit risks. Implicative questions such as whether they are important enough to be considered in the credit analysis and lending decision, would be useful in assessing the creditworthiness of the borrowers and may have important implications for the microfinance institutions and retained.

Keywords : Microfinance, Risk Preference, Social Capital, Risk–Seeking, Risk-Aversion.

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