Improving agricultural value chain financing: A case study of Seng Cu rice chain in Lao Cai province, Vietnam

amily, but they 
did not obatain LUCs yet. As a result, 2-4 
households owned one family LUC together; 
therefore, only one household could use the LUC 
as collateral. In uplands, local farmers had to face 
more credit constraints than lowlanders. In-depth 
interviews with VBARD’s representatives 
showed that lending on upland areas facede 
higher transaction costs, higher natural risks, and 
lower value at the real-estate market. These are 
the reasons why bank officials consider lending 
to upland farmers to be riskier than lending to 
lowland farmers. 
Besides constraints related to collateral, 
social and human capital also became credit 
constraints of many farmers. Both banks, 
VBARD and VBSP, disbursed loans to farmers 
mainly by the lending group method; in which, 
the assessments of local authorities (the leader of 
lending group, the head of the village, the head 
of Mass Organization, and the representative of 
the commune) played a crucial role in screening 
the loans before disbursement and banks’ 
decision-making. Claudio (2017) also indicated 
that lending group assessments led to difficulties 
for bank officers to evaluate applicants (i.e., they 
“look the same”) and to make the right decisions 
on credit disbursement. 
Concerning human capital, which was the 
third factor affecting credit access, lowlanders 
had more advantages than uplanders. For 
example, they had higher educational levels, 
more labour and fewer dependents, more 
diversity of non-farm income, and higher 
available financing as the bank’s requirement 
(Lam et al., 2018). Dufhues (2007) also 
concluded that credit constraints of farmers in 
mountainous areas of Vietnam were linked with 
low/none of the following three types of capital: 
physical (collateral), social (network among their 
community), and human capital (education, 
knowledge, and skills, etc.). The participation of 
VBARD in the chain was able to help remove 
various financial challenges and promote their 
economic performance that was limited and the 
effectiveness that was still low. In doing so, 
VBARD needs to change the mind-set to focus 
more on potential agricultural chains, like the 
Seng Cu rice chain, and assess directly the 
repayment capability of customers through 
reliable information, not just focus on collateral 
as currently. 
To sum up, this study shows that difficult 
banking access (i.e., external financial sources) 
seems to be the biggest obstacle for SC chain 
actors to reach their optimal performance. Thus, 
improving credit access is considered as the entry 
point for breaking the cycle: low investment, low 
Bui Thi Lam et al. (2020) 
https://vjas.vnua.edu.vn/ 723 
productivity, low efficiency, and low 
income/profit. Indeed, financial availability can 
help farmers to optimally apply inputs in terms 
of quantity, quality, and appropriate time. 
Similarly, TPC can also enhance efficiency and 
increase income by expanding farming contracts 
with farmers, purchasing the volume of paddy 
desired, as well as developing marketing 
channels (e-commerce, retailing, and 
wholesaling). For other large buyers, they can 
improve the processing machine system to 
improve SC rice quality and reduce wastage. To 
access banking credit, it is necessary to 
collaborate among relevant actors, including 
chain actors (farmers and agribusinesses), banks, 
and the public sector, which is presented in the 
underlying implications. 
Conclusions and Implications 
Conclusions 
It is a common belief that the right finance at 
the right time contributes to greater efficiency 
and better quality of agricultural products; hence, 
increased incomes of relevant chain participants. 
This is clearly seen in the case of SC rice, where 
almost all chain actors had high financial needs 
but their credit demands had not been met. 
Indeed, they faced financial constraints due to a 
lack of collateral, and the strict risk-avoidance 
strategy of the banks, especially VBARD. 
Overall, 85% of the 160 SC rice producers 
had financial demands, while 71% successfully 
applied for a bank loan with an average amount 
of 26.6 million VND, which was lower than their 
desired amount (41.2 million VND). Lowland 
producers obtained a higher loan size than upland 
producers, 32.2 and 21.1 million VND, 
respectively. Lowlanders have more advantages 
in funding their rice cultivation, not only having 
higher self-financing ability, but also having 
easier access to bank credit and in-kind credit 
provided by enterprises (i.e., input trade credit 
and contract-farming). 
By contrast, upland producers needed both 
short-term credit for commercial inputs and long-
term credit for buying livestock and maintaining 
the irrigation system of their terraced plots. 
Unfortunately, they received smaller credit 
volume than the amount that they desired. They 
often bought livestock, followed by goods for 
consumption, and then, agro-inputs, including 
SC rice seeds. Currently, the home-made inputs 
account for 66% of the production cost; neither 
their investments nor productivity and income 
have improved clearly. Many households were 
worried about how they would repay their debts, 
which implies the non-repayment risk of banks. 
Likewise, TPC, the leading actor in the 
chain, needs more capital to enlarge contracts 
with producers, and consequently increasing 
paddy collected, which would allow them to 
maximize the use of their machines. TPC collects 
fresh paddy and makes payments in the field to 
prevent growers from mixing ordinary rice with 
SC rice and from breaking the contract by side-
selling. The five months from harvest till sale, 
TPC would need 6 billion VND, but they could 
only borrow 2 billion VND. To compensate for 
this deficit, TPC partly fills its financial shortage 
by borrowing money from private lenders who 
charge a much higher interest rate. This does not 
only reduce the profit of TPC, but also keeps the 
benefit of farmers being low. In contrast, the 
small and large collectors face constraints in 
accessing credit to build warehouses and fund 
part of their trade. 
Implications 
An effective value chain financing depends 
on four actors, including: (1) producers; (2) 
agribusinesses; (3) rural banks; and (4) policy-
makers. Therefore, the paper suggests relevant 
recommendations for these key actors as follows. 
To handle difficulties in accessing banking 
credit, farmers’ creditworthiness needs to be 
assessed by banks. To do that, they have to 
improve their repayment capability through their 
appropriate farming practices and financial 
management. Besides this, farmers must comply 
with the contractual agreements signed with 
banks and/or enterprises, especially the term of 
the appropriate loan use. 
To enhance their creditworthiness, 
agribusinesses need to reduce their three existing 
weaknesses by: (i) Standardizing the financial 
reports according to the current regulations; (ii) 
A study on the tax obligations and perceived tax compliance of small and medium enterprises 
724 Vietnam Journal of Agricultural Sciences 
Using more banking service in transactions, 
which allows banks to capture cash flows of 
agribusiness; and (iii) Improving the 
management capability and the effectiveness of 
loan use. 
Rural banks should focus on their legal 
target customers, namely farmers, 
agribusinesses, and agriculture allied activities. 
Rural banks also need to participate in the chain 
and assign credit officer(s) to gather accurate 
information about the main key chain actors and 
to estimate their creditworthiness based on the 
repayment capability of individual actors as well 
as the potential of the whole chain. 
To date, the Vietnamese Government issued 
the Decree No. 98/2018/ND-CP regarding 
incentive policies for value chain linkages among 
farmers, enterprises, and other chain actors. This 
regulation, however, still does not mention the 
participation of rural banks in the chain, 
especially VBARD. Practically, financial 
availability in the chain does not change without 
external funds from banks, and chain actors often 
need credit access to optimize their performance. 
Therefore, we suggest that the public sector 
needs to enact new legal framework that 
requires/encourages the participation of banks in 
the chain. 
Acknowledgments 
The authors would like to thank two 
anonymous reviewers for their careful reading 
and valuable comments on the research topic. 
The analysis expressed here is the authors’ alone. 
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