Search

Using case studies of the bamboo and cinnamon value chains in rural areas of northern Vietnam, this paper contributes to the existing literature by analyzing barriers and suggests conditions under which value chain lending would be an effective tool for improving smallholder farmers’ access to credit. A mixed method using both in-depth interviews with relevant stakeholders and a two-stage Heckman model is employed to explain the existing credit gap. Findings show that in both chains, bank decision-making on lending is typically limited to individual chain actors instead of considering the whole chain. Commercial banks predominately use conventional lending approaches heavily dependent on collateral which typically results in a shortage of credit available to the chain actors. Value chain lending is constrained by weak chain linkages and limited ownership of private bank accounts. Drawing from these cases in Vietnam, the article concludes by arguing that status quo value chain lending in lower-income countries merits considerable rethinking. The lending approaches of banks require innovation to ‘think beyond collateral’ in improving chain cohesion. Multi-stakeholder partnerships are important for successful value chain lending. In addition, farmer-based unions have the potential to address issues of information asymmetry in the credit market.