The impact of technology on access to credit: A review of loan approval and terms in rural Vietnam and Thailand

Abstract

The acceleration of economic digitalisation has been immense in recent years and coupled with the rapid development of technology-augmented finance. However, less understood is how such technology-augmented finance has impacted access to credit within rural contexts of developing economies. Using household-level survey data, our results provide novel evidence of a negative relationship, on average, between rural households’ access to credit as measured by loan approvals, and internet access. More specifically, use of internet in rural areas of the countries under analysis reduces the chance of accessing credit by up to 65%. Moreover, when we further investigate loan terms, our findings indicate that internet users get six-month shorter loan durations and have a lower interest cost of borrowing of up to 1.2%. The results for loan approval rates are persistent for formal loans and for nations at a lower stage of economic development, i.e., only within the less developed Vietnamese rural context. Our findings provide richer insights into the impact of information and telecommunication technologies (ITC) on access to finance in developing countries characterised by significant proportions of rural areas affected by severe information asymmetry-related issues that may be amplified or reduced by increased internet connectivity. Our results carry important policy implications. On the demand side, they highlight the need to ensure that government initiatives should aim to better educate rural borrowers in relation to financial literacy and credit choices. On the supply side, our findings urge the need to introduce policies for formal lenders targeted towards the reduction of the information asymmetries pervasive in rural areas.