Does Microcredit Improve Rural Households’ Social Network? Evidence from Vietnam

Although microcredit targets both financial and, more importantly, social returns, it is unclear in existing literature that whether participating in microcredit programs fosters social network. Filling this gap, this study aims to quantitatively test whether microcredit improves the social network of rural households in Vietnam. Specifically, with microcredit borrowing to fund its family business, a representative household is engaged in a two-stage decision problem, namely to first choose a social network and then consumption to maximise its lifetime utility. Utility maximisation yields an optimal social network as a function of microcredit borrowing, which is estimated using the VARHS dataset from 2008 to 2016 in Vietnam. We find that microcredit improves both rural household’s social network quality and size.