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Is there a Market for Micro-Lending in Industrialized Countries? - Evidence from Germany

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Author Info

  • Alexander S. Kritikos

    ()
    (GfA, Berlin & Europa-Universität Viadrina, Frankfurt (Oder))

  • Christoph Kneiding

    ()
    (GfA, Berlin & Deutsches Mikrofinanz Institut)

  • Claas Christian Germelmann

    ()
    (Universität des Saarlandes, Saarbrücken)

Abstract

In less developed and transition economies, microlending has become an efficient instrument for providing small and micro-businesses with the necessary financial resources to launch operations. In the industrialized countries, with their highly developed banking systems, however, there has been ongoing debate on the question of whether an uncovered demand for microlending services exists - and if so, how large this demand actually is. The present study explores customer preferences for microlending products based on a survey of 213 small and micro-business owners in Germany in the year 2005. Among the entrepreneurs interviewed, 15% reported revolving funding needs and an interest in microloans. We find that potential recipients of microloan products are retail business owners, foreign small business owners, and persons who had previously received private loans. Therefore, incumbent financial institutions as well as lenders entering the market are well advised to use a focused marketing strategy in targeting these specific groups. Furthermore, financial products should feature rapid access to short-term loans combined with personal contacts to loan officers who are able to thoroughly understand the client's business concept. A particularly noteworthy outcome of our study is that 65% of those surveyed financed their first three years of operations without applying for any loan at all. It is thoroughly possible that within this group a latent demand exists which could be unleashed by designing novel microlending products.

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Bibliographic Info

Paper provided by Gesellschaft für Arbeitsmarktaktivierung (GfA) in its series Working Papers with number 0003.

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Length: 33 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:gfa:wpaper:0003

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Related research

Keywords: Microlending; Small Business Finance; Market Research;

References

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  1. J. William Petty & William D. Bygrave, 1993. "What Does Finance Have to Say to the Entrepreneur?," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 2(2), pages 125-137 , Spring.
  2. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  3. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, December.
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  7. Vigenina, Denitsa & Kritikos, Alexander S., 2005. "The individual micro-lending contract: Is it a better design than joint-liability? - Evidence from Georgia," Working Paper Series 2005,10, European University Viadrina Frankfurt (Oder), The Postgraduate Research Programme Capital Markets and Finance in the Enlarged Europe.
  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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  12. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
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  14. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  15. Harhoff, Dietmar & Korting, Timm, 1998. "Lending relationships in Germany - Empirical evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1317-1353, October.
  16. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
  17. Caliendo, Marco & Kritikos, Alexander S. & Wießner, Frank, 2006. "Existenzgründungsförderung in Deutschland: Zwischenergebnisse aus der Hartz-Evaluation," Discussion Papers 253, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  18. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  19. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
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