Abstract :
[en] In the Northern Midlands and Mountains (NMM) region, the agricultural sector plays an essential role in the local economy because it is the main livelihood of the majority of the rural population. Among the factors influencing agricultural development, capital/financing has been becoming increasingly important because it affects the inputs used, investment in fixed assets, and the application of advanced technology. Unfortunately, the NMM region is the poorest area of the country, therefore, almost farmers here lack of capital to finance their agricultural production. This explains the reason why they still remain to be stuck in the cycle of chronic poverty: low investment, low productivity, low income. Moreover, several recent empirical studies reveal that agribusiness and other agriculture-based actors in Viet Nam also face with financial shortages. This study, therefore, examines financial demands of farmers and other farming actors in Lao Cai province as well as their constraints to access affordable credit to finance agricultural activities, and then, suggests feasible recommendations to increase funds to agriculture in the research site.
In this study, we approach the agricultural financial markets in Lao Cai province based on financial supply-side and demand-side analysis. On the supply side, 24 in-depth interviews with financial providers about their agricultural credit provision were conducted. On the agricultural finance demand side, we study two subclasses: (i) agricultural production by local farmers and (ii) the Seng Cu (SC) rice value chain, including production, processing, and consumption activities. At the general level, agricultural production, the study surveyed 193 farm households to determine their financial needs and their actual access to credit for agricultural investments. At the agricultural value chain financing analysis, we conducted 160 SC rice producers and 31 chain actors (small collectors, large collectors, and retailers). In addition, two econometric models are applied to determine the factors affecting the results of banking credit application of households; and, the influence of internal and external financing on SC rice production.
Our findings show that the financial sources for agricultural activities are diverse: formal sector (two state-owned banks: VBARD and VBSP); semi-formal sources (Farmers’ Union, Women's Union); informal actors (moneylenders, friends, relatives), and direct Government’s subsidies (Program 135, 30A and World Bank’s Project). Compared to other financial providers, VBARD and VBSP have many advantages related to loanable funds, transaction points, and low-interest credit. However, credit provision of banks likely creates credit constraints to local farmers. Specifically, VBARD just devoted a small proportion (18.3%) of credit volume to farmers. In addition, VBARD’s and VBSP’s decision-making on disbursement strongly depends on assessments of local authorities, it is sometimes distorted by nepotism. In addition, credit services in terms of duration and repayment methods are not much improper, compared to clients’ demands.
The survey of 193 farm households shows that a large proportion (84%) of the households have high credit demand because their own capital is not enough to finance their agricultural activities. Among farmers applied a loan at banks, 48% of them received nothing or smaller loans than their desires. They are mainly small and medium farmer households. Using the Multinomial Logistic Model (MLM), the study points out determinants of credit access of households: (i) lack of collateral; (ii) lack of good relationships with local authorities involved in application screening, (iii) low human capital (education/ethnicity). Difficulties in formal credit access, these farmers often fall into the following three actions: 1) reduce investment in agriculture; 2) using a large proportion of self-produced and low-quality inputs; and/or, 3) borrow money from informal lenders at very high interest rates. All these actions make agricultural production inefficient and undermine farmers’ income. Arguably, although they are the beneficiaries of the preferential credit policy, they are often excluded from the formal credit market, which leads them still to be stuck in a vicious cycle of chronic poverty.
Likewise, the majority of actors participating in the SC rice value chain had high specific financial needs. SC rice growers received high-quality inputs and technical assistance from the input supplier (JVC) and the purchasing enterprise (TPC), which help them to reduce diseases, price, and market risks. Besides the advantage of SC rice's selling retail price, the linkages between chain actors contributed to the great potential of this value chain. However, banks still maintained the strict risk-avoidance strategy, which strongly depends on collateral of individual chain actors, not the entire chain. As a result, almost chain actors received lower-than-expected loans from banks, especially SC rice growers in uplands and TPC.
From the above research results, we can conclude that improving banks’ efficiency in credit provision and banks’ participation in the chain are the first steps to improving the agricultural finance system in the research site. In addition, farmers and other chain members need to improve their production capacity and financial management in order to be assessed creditworthy by the bank. In addition, it is necessary to enact new legal regulations from the Government to encourage value chain financing models nationwide and to support the infrastructure system in mountainous areas. The coordination among four key players: producers, businesses, banks, and the public sector is a comprehensive solution for agricultural finance in the research site.
