| Abstract: |
Access to credit and its cost is a major challenge for farmers in developing
countries. Formal moneylenders often ration these economic agents, as they
lack assets to give as collateral for the loans. The phenomenon is
particularly diffused in the countryside, where the formal moneylenders are
less present. Consequently, farmers resort to informal credit. Several studies
show that land serves as collateral for accessing formal credit, but they
often do not find any significant effect of land size on access to informal
credit. Here I study the effects of land ownership on both the demand and the
cost of informal credit in the Mekong Delta. Vietnam is an interesting country
for studying this issue, as informal credit is widespread in the countryside,
despite the government’s effort to eradicate it, also subsidising the formal
lenders. The analysis is based on 603 households farming relatively small
parcels. The results show that as land ownership increases, both the demand
and the cost of informal loans decrease. This result is relevant in developing
countries, where land reforms are still ongoing, as it shows that land
redistribution may contribute to the development of formal credit markets. In
particular, from a policy point of view, design and implementation of
appropriate land redistributions appears to be a fundamental way to fight the
informal credit market. |