The role of social capital to access rural credit : a case study at Dinh Cu and Van Quat Dong village in coastal area of Thua Thien Hue province

Abstract: As a poverty reduction strategy, credit access has played an important role in supporting the peasants to improve their production and living standard. However, the level of access to credit differs among various regions and it has been affected by many factors. This thesis examines the relation between social capital factor and capacity for obtaining the credit sources of local people in coastal area of Thua Thien Hue province in Vietnam. It analyzes the role of social capital to access different credit sources as well as explores the effect of network types horizontally and vertically on obtaining the credit from Bank, "hui" groups and moneylenders. Through exploring the influence of social capital on credit access, this research aims to contribute to the debates on social capital and its effect on economic outcomes. The study applies a qualitative approach based on focus group discussion and in-depth interviews. The theoretical underpinnings for the research is drawn from perspectives of scholars about social capital, the context of Vietnamese rural society and the effect of social capital to obtaining the credits. The findings indicate that social capital affects the credit access from the bank through group lending which is assessed by participating in popular organizations. Neighbor network, which is exposed by generalized trust, reputation, balanced reciprocity, and mutual aid activity, facilitates to establish "hui" group in order to obtain rotating credit. On the other hand, vertical relation, which is exposed by trust, generalized reciprocity, and reputation, supports to receive the loans from moneylenders. The study concludes that, the social capital, which is addressed by horizontal and vertical network, is a sine qua non for obtaining credit from both formal and informal credit sources. Simultaneously, the thesis suggests that in order to improve the capacity for accessing credit of local people in rural area, the mechanism of VBSP loans delivery should be expanded to other type of popular organizations instead of focusing on women- and farmer unions. We need to encourage local people to participate in popular organizations to enhance the opportunity of obtaining the credit from VBSP. It is important to integrate "hui" activity into popular organizations’ programs in order to expand this type of credit.