Land-Use Rights and Informal Credit in Rural Vietnam

Access to credit and its cost are a major challenge for farmers in developing countries. Land serves as collateral for accessing formal credit, but the role that land ownership plays in accessing informal credit and determining its cost is understudied. This paper provides empirical evidence on the effects that land ownership has on both the demand for and the cost of informal and formal credit in the Mekong Delta. The results show that as land ownership increases, both the demand for and the cost of informal loans decrease, while the amount of money borrowed from formal lenders increases. The design and implementation of appropriate land redistributions seem to be a fundamental way to fight the informal credit market.