Franz Heidhues

Credit rationing of rural households in China

Purpose - In the presence of credit rationing the poor are unable to exploit growth-promoting opportunities. Using data gathered from a household survey on North China Plain, the purpose of this paper is to find pervasive rationing in the highly regulated formal credit market in rural China. The subsidized credit policies favor local elites instead of the targeted poor strata and earmarked credit programs are less effective. By jointly estimating credit rationing in both the formal and informal sectors, this paper elaborates on the fragmented rural credit market in China where different borrower segments are systematically sorted out across different loan types. Non-targeted credit programs cannot address income redistribution or sustainable poverty reduction in the presence of such skewed equality and equity. Design/methodology/approach - The basis of this study is a multi-topic household survey data on rural households in the North China Plain, with 337 rural households being randomly sampled out of five purposely selected counties. The particular objectives are to identify the determinants of credit rationing in both formal and informal sectors, to show the extent of credit rationing by using Probit model, to explore the substitutability of institutional and informal lending by using bivariate probit specification. Findings - First, there exists pervasive rationing in the highly regulated formal credit market in rural China. Second, the subsidized credit policies favor local elites, instead of the targeted poor strata; and the earmarked credit programs are less effective. Third, informal credits, in a form of reciprocal arrangement, are weak substitutes for institutional loans. Different segments of borrowers are systematically sorted out across different loan types; the rural credit market is fragmented. Fourth, government-led credit programs are not effective in promoting agricultural investments; credits of rural non-farm activities facilitate agricultural transformation. Originality/value - Since 2004, the policymakers in China initiated a set of policies towards promoting agricultural and rural development to spur the rural economy and ease tensions in rural area. Credit policies, believed often to be efficient and guided tools to provide financing to investors, gained a great deal of appeal. Given the widely existing failure of government-driven rural credit programs in many other developing countries, how the interventions affect the rural economy in China should be investigated. However, little has been done to explore the interventions on smallholder farmers and the existing evidence is therefore pieced and anecdotal. This paper aims to fill that gap.

Rural development and financial markets in Romania

In the transition from a centrally planned to a market-oriented economy, such as in Romania, the domestic financial market plays two important roles. First, the financial market itself must be fundamentally restructured. Second, its efficient functioning is a crucial precondition for economic transformation. In transition economies, however, financial market institutions tend to concentrate their services on urban or larger rural enterprises. So far, small rural enterprises, even those with profitable investment plans, often do not have access to the financial market. This paper briefly characterizes the key issues of agricultural production units and their institutional environment and analyzes the depth and the efficiency of rural finance and its effect on Romanias rural economic transformation. It concludes with policy and institutional recommendations to strengthen rural finance.

Linkages Between Agriculture, Poverty and Natural Resource Use in Mountainous Regions of Southeast Asia

In the mountainous regions of Southeast Asia, smallholder farmers are both victims of and actors in the degradation of natural resources, as a result of their agricultural activities. Addressing sustainable development thus requires a good understanding of the agriculture-poverty-environment nexus – defined as the set of complex linkages between agriculture, poverty and the environment – and of the economic incentives that drive the natural resource use of smallholder farmers in vulnerable areas. The objective of this chapter is to improve our understanding of the extent and nature of these linkages across different settings in Southeast Asia – namely northern Vietnam and northern Thailand, and to derive policy recommendations that can contribute towards the enhancement of sustainable development in these regions. The chapter draws on empirical research conducted in northern Vietnam and northern Thailand between 2007 and 2011.

Linkages between poverty and sustainable agricultural and rural development in the uplands of Southeast Asia

Most of the upland areas of Southeast Asia are characterized by insufficient infrastructure, low productivity in smallholder crop and animal production, mounting environmental problems such as soil and forest degradation and loss of biodiversity, increasing population pressure, and widespread poverty, particular in rural areas. While some upland areas in South East Asia have been experiencing considerable progress during the past twenty years, others have stagnated or even declined with respect to economic, social and environmental objectives of development. The purpose of the paper is to describe major trends regarding sustainable development in the upland areas of selected countries in South East Asia, and review explanatory approaches for the observed trends based on case studies from Cambodia, Laos, Thailand, Vietnam, and Indonesia. The conceptual framework for this paper builds on the critical triangle of sustainable rural development. Here, equity or poverty alleviation, economic growth, and the protection of the environment are the three major policy objectives. We further distinguish three explanatory approaches for land use change and agricultural and rural development. Apart from the market approach and the population approach, we suggest that future studies should focus more on governance issues as a major driving force of land use change. The governance approach appears particularly relevant for upland areas which are often politically and institutionally marginalized. The paper begins with a review of definitions of sustainability, and proceeds with a conceptual analysis of the two-way linkages between poverty and the environment, and poverty and economic growth in rural areas. This is followed by empirical findings from research on agriculture and forestry as the major land uses in upland areas of selected South East Asian countries. Based on the results of different case studies from Cambodia, Laos, Vietnam and Indonesia, we seek to contrast stories of relative success with those of failure. The paper concludes with implications for rural and agricultural development policies, and suggests future areas of research.

Participatory Approaches to Research and Development in the Southeast Asian Uplands: Potential and Challenges

Participatory approaches have been discussed as alternatives to and complementary elements of more conventional research on sustainable land use and rural development in upland areas of Southeast Asia. Following a brief overview of the history of participatory approaches (Sect. 9.1), this chapter discusses the potential and limitations of applying Participatory Rural Appraisal (PRA) tools to field research practice in Vietnam (Sect. 9.2) and of involving stakeholders in priority setting, modeling and environmental valuation in the Southeast Asian uplands (Sect. 9.3). Section 9.4 scrutinizes the use of the Payments for Environmental Services (PES) tool, which aims to actively engage smallholder farmers in preserving fragile mountain ecosystems in Southeast Asia by rewarding them in cash or in kind. Section 9.5 provides an example of a successful multi-stakeholder knowledge and innovation partnership in northern Thailand – in the form of a litchi processing and marketing network formed among Hmong villagers, an approach which uses a promising action-research approach towards building sustainable rural livelihoods among ethnic minority groups.

Participatory research for sustainable development in Vietnam and Thailand : From a static to an evolving concept

According to its proponents, participatory agricultural research is related to sustainable land management in various ways. First, it is argued that sustainable agricultural technologies can only be developed and turned into innovations and farmers’ practices if land users’ priorities are adequately addressed by the research agenda (section 2). Second, sustainability is not a static condition, but rather a negotiated and contested concept in which various tradeoffs exist, and different — and often dissenting — perspectives of numerous stakeholders have to be taken into account (section 3). Third, involving farmers in technology development and making use of their knowledge and comparative advantages in experimenting is regarded as a prerequisite for generating innovations that contribute to sustainable land use (section 4). Finally, the institutional and socio-political setting plays an important role in creating a favorable environment for sustainable land management (section 5).

Policies for Sustainable Development: The Commercialization of Smallholder Agriculture

Sustainable development requires a mix of policies that can simultaneously address social, economic and environmental objectives. While the preceding chapters of this book have focused on agricultural, environmental and socio-economic aspects and related policies, this chapter looks at the commercialization of smallholder agriculture and, in particular, the need to target the poor so as to enable them to better participate in market-oriented development. The mountainous regions of northern Thailand and northern Vietnam have witnessed a substantial transformation over the last two decades, turning as they have from largely subsistence-oriented to market-oriented agriculture. This development began in Thailand earlier than in Vietnam, but during the 2000s, smallholder agriculture in Vietnam also commercialized at a rapid rate, leading to an increase in farm incomes and a decline in poverty levels. Our main policy conclusion here is that the commercialization of agriculture can be conducive to a sustainable increase in smallholder incomes and reduction of poverty levels; however, policies aimed at addressing the environmental externalities caused by market participation must be combined with socially-oriented policies that target poorer segments of the population, especially in the areas of education, health, social assistance, political participation and non-subsidized credit, as well as infrastructure and market-oriented development policies aimed at long-run sustainability.

Resource Tenure and Sustainable Land Management — Case Studies from Northern Vietnam and Northern Thailand

Property rights regimes can have a significant impact on the use of natural resources, especially land, forests, pastures and water. The literature identifies many environmental problems such as soil degradation and forest depletion as a result of incomplete, inconsistent or poorly enforced property rights (Bromley and Cernea, 1989; Feder and Feeny, 1991; Kirk, 1999). Gordon (1954) and Hardin (1968) claimed that under common property regimes, natural resources would be prone to overexploitation because the costs of negative externalities like pollution of water or overgrazing of pastures are borne by the community as a whole, whereas the potential benefits accrue to the individual. The general interpretation of these theorems in many Southeast Asian countries was that collective ownership was the culprit for forest destruction, land degradation and water pollution and that private property or control by state authority was crucial to sustain natural resources (Chalamwong and Feder, 1985; Narkwiboonwong et al., 1994). However, a growing amount of empirical evidence suggests that sustaining environmental resources does not primarily depend on whether the property rights regimes are based on states, communities or individuals, but rather on a well-specified property rights regime that is congruent with its ecological and social context (Ostrom, 1990 and 2001; Bromley, 1991).

Sustainable and Less Sustainable Developments in the Rural Financial Market of Northern Vietnam

It has been pointed out repeatedly that broad access to appropriate and lasting financial services is important for poverty reduction, as this contributes to higher income and better food security (ADB, 2000; Heidhues, 1998; Zeller et al., 1997). Enhanced access to financial services can support sustainable land use through increased agricultural productivity. This is achieved by giving farmers the opportunity to use external production inputs. Higher agricultural productivity can potentially contribute to natural resource protection; with higher yields on existing fields, farmers may be less prone to move into vulnerable, marginal areas.3 Besides, access to appropriate financial services also improves the ability of poor farmers to better manage external shocks. This again reduces the probability of farmers beginning to exploit marginal areas in times of crises and, therefore, supports resource protection.

The Contribution of Science and Research to the Development of Microfinance

The way the financial sector functions, particularly the credit side, has on occasion been illustrated by a quotation from the Bible: “I say to you, to everyone that has, more will be given; but from the one that does not have, even what he has will be taken away” (Luke 19:26).