Rural Credit and Community Relationships in a Northern Vietnamese Village

Abstract

The purpose of this paper is to examine the conditions of success in rural credit in developing countries, based on the investigation of a Vietnamese case. The rural credit institutions in Vietnam have achieved splendid results, compared with those in other Asian countries. Some studies of rural credit in Vietnam have paid attention to the group lending scheme based on the Grameen Bank model or to social ties among borrowers. However, these studies did not show howgroup lending and social ties function in the rural credit system, so the author interviewed people in a northern Vietnamese village. The author found that joint liability groups formed by borrowers are just nominal and have no provision for borrowers’ default. Nevertheless, the bank loans have rapidly penetrated many villagers, and have never been defaulted. This is because the entire hamlet participates in monitoring. Almost all social activities here take place in hamlets. If someone causes trouble in a hamlet, it may result in economic and social sanctions from others, including non-borrowers. However, young villagers with non-agriculture income are under less economic pressure to follow the rules of behavior that have traditionally governed interactions in their hamlets. The author concludes that Vietnamese rural credit has succeeded by depending on rural communities characteristic of Vietnam, but an effective monitoring system must be created.