Formal and informal rural credit in the Mekong River Delta of Vietnam: Interaction and accessibility

► We examine the factors influencing rural households’ access to credit in the Vietnamese market. ► We employ conditional mixed process estimation to capture the effect of sample selection. ► Interaction between the two credit sectors can impact the household to participate in a microcredit program. ► Informal loan positively influences the probability of borrowing from the formal sector. ► Ignoring the interaction effect may lead to loan decisions that are less than optimal. ► Land holding status, informal interest, and informal loan duration influence access to informal credit. This paper examines the factors influencing rural households’ access to credit in the Vietnamese market. Analysis confirms an interaction effect between informal and formal credit sectors in which informal credit positively influences accessibility to microcredit programs. Ignoring this interaction effect may lead to microcredit providers making loan decisions that are less than optimal. In the formal credit sector, the lowest income group faces more credit rationing than other groups, despite the fact that microcredit programs are designed to target households at the bottom of the income pyramid. Results demonstrate that land holding status, informal interest, and informal loan duration are important factors influencing access to informal credit. Factors influencing microcredit accessibility include local government employee status, credit group membership, a “poor” certificate, educational attainment, working skills and village road access. To reduce reliance on informal credit and improve microcredit accessibility, rural households should actively participate in a microcredit group.