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Reviewing the development of rural finance in Vietnam

Reviewing the development of rural finance in Vietnam. The objective of this article is to review the development of the ruralf inancial sys-tem in Vietnam in recent years, especially, afteroimoi. There are two opp osite schools of thought in the literature on rural credit policies in develop ingcountries. | Journal of Economics and Development Vol. 15, No.1, April 2013, pp. 121 - 136 Reviewing the Development of Rural Finance in Vietnam ISSN 1859 0020 Pham Bao Duong Hanoi University of Agriculture, Vietnam Email: pbduong@hua.edu.vn Abstract The objective of this article is to review the development of the rural financial system in Vietnam in recent years, especially, after Doi moi. There are two opposite schools of thought in the literature on rural credit policies in developing countries. One is the conventional supply-side (government-led) approach while the other is called “a new paradigm” that emphasizes the importance of the viability of financial providers and the well functioning of rural credit markets. Conventional theories of rural finance contend that rural finance in low-income countries is generally accompanied by many failures. Contrary to these theories, rural finance in Vietnam does not encounter the above-mentioned failures so far. Up to the present time, it is progressing well. Using a supply-side approach, methodologically, this study reviews the development of the rural financial system in Vietnam. The significance of this study is to challenge the extreme view of dichotomizing between the old and the new credit paradigms. Analysis in this study contends that a rural financial market that, (1) is initiated and spurred by government; (2) operates principally under market mechanisms; and (3) is strongly supported by rural organizations (semi-formal/informal institutions) can progress stably and well. Therefore, the extremely dichotomizing approach must be avoided. Keywords: Rural finance, Vietnam, financial market. Journal of Economics and Development 121 Vol. 15, No.1, April 2013 1. The setting Does finance make a difference? Levine (1997, p. 688) documents that the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth. A growing body .