In the eighth session of the webinar series on Financial Transformation, Credit Markets and Household Debt in Southeast Asia, Dr Bezawit Beyene Chichaibelu and Prof Hermann Waibel presented their paper on the subject of the differences in rural household debt between Thailand and Vietnam.
REGIONAL ECONOMIC STUDIES PROGRAMME WEBINAR
Webinar Series 2020-2021: Financial Transformation, Credit Markets and Household Debt in Southeast Asia
Monday, 15 March 2021 – ISEAS – Yusof Ishak Institute hosted a webinar on “Exploring Differences in Rural Household Debt between Thailand and Vietnam: Economic Environment versus Household Characteristics” which was delivered by Dr Bezawit Beyene Chichaibelu, Senior Researcher, Center for Development Research, University of Bonn. She was joined by two discussants: Dr Attasuda Lerskullawat, Assistant Professor in Economics, Department of Economics, Faculty of Economics, Kasetsart University, Thailand; and Dr Hao Quach, Associate Professor, Banking and Finance, University of Lincoln, Business School.
Dr Bezawit began her presentation with an introduction to household debt in Southeast Asia, which has been at record high levels in recent years, a phenomenon brought about by the development of the financial sector. Understanding the differentiated household debt levels across the countries in the region is key in determining the cause of the sharp rise in household debt. As credit markets are crucial drivers of development in rural areas of the Asian economies, it is also essential to understand the opportunities and risks from the fast growth of household debt levels. Unfortunately, little research has been conducted on the household debt situation in these countries due to absence of data and the prevalence of informal credit market which affects measurements of household debts.
Dr Bezawit then elaborated on the research objectives which was to understand factors that contribute to rural household indebtedness and the varying cross-country aspects that affect household debt in Thailand and Vietnam. Both countries have achieved high economic growth and decrease in poverty levels due to the growth of the financial sector. In addition, financial inclusion in both countries were mainly driven by government institutions that targeted the rural areas. Despite the prevalence of formal and semi-formal institutions as sources of credit, informal lending still has an active role in the rural areas in both countries. However, both countries differ in terms of the financial depth, credit outreach and range of credit programs introduced to rural areas. Credit market participation rates and level of debt held by rural households also differ greatly.
Using a panel data comprising of Thai and Vietnamese responses to a household survey, summary statistics reveal that Thai rural households are more likely to participate in the debt market and are exposed to higher risk of over-indebtedness compared to Vietnamese ones. Amongst those that participate in the debt market, Thai households hold higher debt amounts and face higher indebtedness levels. While households in both countries indicate signs of stress from excessive debt burden, it is more prevalent in Thailand. To cope with loan repayment, indebted households have turned to multiple borrowing from various institutions, which increases the likelihood of facing over-indebtedness.
To further understand the factors affecting debt and over-indebtedness, a counterfactuals analyses were conducted using various methods. Results reveal that the differences in Thai and Vietnamese rural households are due to economic conditions of the two countries rather than differences in household characteristics. Credit market conditions in Thailand were more favourable for poor rural households to borrow more, compared to Vietnam. When moving up the debt distribution, the gap in debt holding and indebtedness increased significantly. Moreover, factors that affect the differences also varied along the debt distribution.
In conclusion, Dr Bezawit shared several policy implications. She contends that the study exemplifies the importance of micro data in assessing financial market risk and vulnerability in household debt. It has also surfaced the need for central banks or finance ministries of emerging markets in Southeast Asia to implement rural household debt monitoring systems, and reconsider the use of microcredit programs to reduce poverty among low-income households in rural areas and use instead specially designed programs, like cash transfer programs. The comparison also sheds light on the possible impact of credit market liberalisation for rural households in Vietnam.
The discussants then shared their comments on the findings. Dr Hao Quach posed several questions, namely at which level debt monitoring should occur, and whether Vietnam should revert to using traditional microcredit programs and state-driven programs for poverty reduction despite the diminishing role it has been playing. On the other hand, Dr Attasuda questioned the definition of ‘rural households’ used when selecting the households for survey and suggested several dependent and independent variables that could be included in the analysis.
The webinar concluded with Dr Bezawit answering the questions posed by the discussants and the audience. Some of the questions included whether there is evidence on borrowing to finance unexpected health expenditures, and what are the other policy implications from the studies given that the differences of the two countries are mainly attributed to the economic environment.