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



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