Academic journal article International Journal of Entrepreneurship

Impact of Microfinance on Entrepreneurial Activty in Emerging Economies: Panel Data from Argentina, Brazil, Colombia & South Africa

Academic journal article International Journal of Entrepreneurship

Impact of Microfinance on Entrepreneurial Activty in Emerging Economies: Panel Data from Argentina, Brazil, Colombia & South Africa

Article excerpt

INTRODUCTION

Since the early 1970s, microfinance has been extended to impoverished citizens of emerging economies so they can start or grow their own microenterprises and lift themselves out of poverty. In recent years, the gross loan portfolio balances of microfinance institutions (MFIs) around the world have grown to over $13 billion (www.worldwatch.org). Microfinance is defined as "small-scale loans of $70 to $100 that are accessible to the very poor" (Woodworth, 2000, p. 20). Because impoverished individuals typically lack collateral and the magnitude of their borrowing is relatively limited, MFIs often lend money to groups of villagers who in essence co-sign for one another or rely on peer pressure as a form of "collateral" to achieve repayment rates that encourage MFI sustainability. Nevertheless, the ability of MFIs to continue to attract government and private funding is becoming more challenging as funding sources want reassurance that microfinance is accomplishing its objectives. Consequently, MFIs need conclusive evidence that microfinance encourages sustainable entrepreneurial activity.

Not surprisingly, many studies have been conducted to investigate the impacts of microfinance at various levels of analysis including the individual, household, enterprise and community. Most are case studies of individual or regional groups of MFIs. We contribute to this area of research by empirically investigating the relationship between microfinance and entrepreneurial activity using panel data from four emerging economies--Argentina, Brazil, Colombia and South Africa. According to Mixmarket.org, microfinance institutions (MFIs) in Argentina have a little over 39,000 active borrowers and $40.4 million (2010 USD) in outstanding loans. Brazilian MFIs have outstanding loans of $1.4 billion (2010 USD) with over 950,000 active borrowers while their counterparts in Colombia loaned over $4 billion (2010 USD) to 1.5 million active borrowers. South African MFIs had 4,176 active borrowers with $1.6 billion in outstanding loans in 2010 (www.mixmarket.org). The Global Entrepreneurship Monitor (GEM) research program collects survey data each year on entrepreneurial activity from multiple countries. Argentina reported high rates of early-stage entrepreneurial activity among efficiency driven economies in the 2009 GEM Global Report. According to GEM's 2010 Global Report, Brazil showed the greatest amount of entrepreneurial activity among efficiency-driven Latin American economies. GEM 2008 data on Colombia shows that this country has one of the highest levels of early-stage entrepreneurship in the world. South Africa, on the other hand, has shown very low levels of entrepreneurship relative to efficiency driven economies (www.gemconsortium.org). We seek to investigate the effect of microfinance on entrepreneurial activity in emerging economies.

We organize the remainder of this paper in the following manner: In the next section we review segments of the microfinance and entrepreneurship literatures pertinent to our study and present our hypotheses. We then describe our data, identify data sources, and discuss our analytical techniques. Next, we share and explain the results of our hypotheses tests as well as their implications for scholarship, practice and policymaking. To conclude we discuss our study's contributions, identify its limitations, and offer suggestions for future research.

LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

MICROFINANCE AND ENTREPRENEURIAL ACTIVITY

According to the environment for entrepreneurship literature, access to financial capital, such as microfinance, is a critical impetus for entrepreneurial activity (Bruno & Tyebjee, 1982). Many microfinance impact studies investigate individual MFIs or groups of MFIs in a region or country. For example, Copestake, Bhalotra & Johnson (2001) found that Zambian microenterprises that were MFI clients experienced greater increases in profits than non-client businesses. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.