Internet Use and Rural Households' Access to Credit in Vietnam and Thailand
A study co-authored by Chung Phan (HAPRI Research Associate), Stefano Filomeni and Seng Kiong Kok finds that, on average, internet access is linked to lower loan approval for rural households in Vietnam and Thailand. The authors say their findings provide richer insights into the impact of information and telecommunication technologies on access to finance in developing countries where large rural areas are affected by severe information asymmetry.
Context
Economic digitalisation has accelerated rapidly in recent years, together with the fast development of technology-augmented finance. Less understood, the authors note, is how such technology-augmented finance has impacted access to credit in the rural areas of developing economies.
The study compares rural households in two countries at different levels of economic development: by the World Bank's classification, Thailand is upper-middle income and Vietnam is lower-middle income.
Methods
The authors use household-level survey data from rural Vietnam and Thailand, drawn from a two-year panel gathered in 2016 and 2017 in which households were asked about their internet use. Access to credit is measured by loan approval, and the authors also examine loan terms: loan duration and the interest cost of borrowing. The estimates rely on a heteroscedasticity-based instrumental variable method, and the results are also examined by country and for formal loans.
Key findings
On average, the authors find a negative relationship between rural households' access to credit, measured by loan approvals, and internet access.
In the countries studied, use of the internet in rural areas reduces the chance of accessing credit by up to 65%.
On loan terms, internet users get six-month shorter loan durations and have a lower interest cost of borrowing of up to 1.2%.
The results for loan approval rates persist for formal loans and for nations at a lower stage of economic development, that is, only within the less developed Vietnamese rural context.
Policy implications
The authors highlight, on the demand side, the need to ensure that government initiatives should aim to better educate rural borrowers in relation to financial literacy and credit choices. The study's findings, on the supply side, urge the need to introduce policies for formal lenders targeted towards the reduction of the information asymmetries pervasive in rural areas.
Keywords:
Rural Vietnam
Thailand
Access to Credit
Internet Access
Loan Approval
Information Asymmetry
Link:
Citation:
Phan, C., Filomeni, S., & Kok, S. K. (2024). The impact of technology on access to credit: A review of loan approval and terms in rural Vietnam and Thailand. Research in International Business and Finance, 72, 102504.
