IV-9. “Study of the Surplus Funds of Rural Credit Unions in Southeast Asia: Toward Integration of Rural Savings into National Financial Markets” (H30 FY2018)

  • Project Leader : Ohno Akihiko (Aoyama Gakuin University, School of International Politics and Economics)
  • Collaborators : Sakata Shozo (IDE-JETRO, Bangkok Research Center)
  • : Suda Toshihiko (Daito Bunka University, Faculty of International Relations)
  • : Sakane Yoshihiro (Hiroshima Shudo University, Faculty of Commerce)
  • : Pham Bao Duong (Vietnam National University of Agriculture, Faculty of Economics and Rural Development)
  • : Chansathith Chaleunsinh (Research consultant (self-employed))
  • : Fujita Koichi (Kyoto University, Center for Southeast Asian Studies)

Outline of Research

Numerous studies have revealed that the poor in developing countries do have monetary surplus, albeit in limited amounts. This emphasizes the role of commercial financial intermediaries between cash-surplus and cash-deficient households through the provision of savings services. Credit unions are prime examples of financial institutions that mobilize savings. Such institutions, however, often have excess funds when the rural credit markets created by the credit union are segregated not only from those created by other credit unions, but also from formal financial markets. The Japanese pre-war experience of credit unions serves as reference on the integration of rural financial markets into nationwide ones. In Japan, market integration with respect to excess funds was pursued by organizing segregated rural credit markets (horizontal integration) and aligning rural credit markets with formal financial markets (vertical integration). We intend to investigate the contrasting evolutionary paths of Japanese credit unions and the rural savings institutions of Laos, Vietnam, and Indonesia in order to identify the factors that facilitate integration of markets.


Creating rural financial markets has been a challenging policy intervention for decades in developing countries. While the literature on rural financial markets has paid significant attention to poverty alleviation, there has been little discussion on the integration of rural credit markets into nation-wide financial markets. Credit unions based on the savings-first principle can be an effective device to integrate rural and urban financial markets. We intend to examine the factors that facilitate such an integration by means of comparative institutional analysis.

Managing excess funds is a critical task for credit unions and is most often solved in the following three ways: (1) lowering the lending interest rate; (2) increasing the demand for loans; and (3) linking excess funds with loan demands outside the credit union in a creditable way. As to the third option, it should be noted that credit unions are usually not equipped with an inter-group coordination mechanism as the credit union is a within-a-village institution.

We offer three major perspectives for our research: (1) The management of the credit union is deeply embedded in the social relations of agrarian societies. In Japan, it was the landlord class that exercised the critical initiative to establish and manage credit unions. A major portion of the internal funds of Japanese credit unions at the early stage was share capital supplied primarily by the wealthier strata of the agrarian society—mostly landlords. If such a class is non-existent or does not provide funds, support from a third-party body such as an NGO or a government agency is very much required for managing and monitoring credit unions. (2) The purposes of loan demand vary from insurance against idiosyncratic risks, primarily in the poor areas, to investment in agriculture, primarily in irrigated areas. It follows that distinct devices are installed within credit unions to deal with different loan demands in different areas. Special emphasis should be placed on an insurance mechanism for credit unions in economically disadvantaged or undeveloped areas. (3) An external institution should be established to coordinate excess funds; otherwise, an excess-funds issue could jeopardize the credit union, particularly if the credit union that is a within-a-village institution is not equipped with an inter-group coordination mechanism.

As mentioned, differences in agrarian structures are likely to affect the performance of credit unions. We explicitly consider indigenous factors in examining the financial market integration.

Branch office of Agribank, Tay Binh Province, Vietnam

Interview at AgriBank office, Tay Binh Province