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Financing new entrepreneurship: Credit or microcredit?

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  • Al-Azzam, Moh’d
  • Charfeddine, Lanouar

Abstract

Building on the theory of information asymmetry, we investigate the impact of conventional banking versus the impact of microfinance on new entrepreneurship. We use a panel dataset collected from 49 developing countries between 2003 and 2018 and apply a random effects linear regression model with endogenous sample selection. We show, among other results, that conventional banking has no direct impact on new entrepreneurship. In contrast to conventional banking, microfinance appears to promote the growth of new entrepreneurship. However, as the conventional banking sector grows, the positive impact of microfinance on new entrepreneurship diminishes.

Suggested Citation

  • Al-Azzam, Moh’d & Charfeddine, Lanouar, 2022. "Financing new entrepreneurship: Credit or microcredit?," Economics Letters, Elsevier, vol. 216(C).
    • Handle: RePEc:eee:ecolet:v:216:y:2022:i:c:s0165176522002014
    DOI: 10.1016/j.econlet.2022.110634
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    References listed on IDEAS

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    1. David N Margolis, 2014. "By Choice and by Necessity: Entrepreneurship and Self-Employment in the Developing World," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 26(4), pages 419-436, September.
    2. Robert Cull & Asli Demirgüç-Kunt & Jonathan Morduch, 2009. "Microfinance Meets the Market," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 167-192, Winter.
    3. Imai, Katsushi S. & Arun, Thankom & Annim, Samuel Kobina, 2010. "Microfinance and Household Poverty Reduction: New Evidence from India," World Development, Elsevier, vol. 38(12), pages 1760-1774, December.
    4. Zografia Bika & Madina Subalova & Catherine Locke, 2022. "Microfinance and Small Business Development in a Transitional Economy: Insights from Borrowers’ Relations with Microfinance Organisations in Kazakhstan," Journal of Development Studies, Taylor & Francis Journals, vol. 58(1), pages 183-203, January.
    5. Thai, Mai Thi Thanh & Turkina, Ekaterina, 2014. "Macro-level determinants of formal entrepreneurship versus informal entrepreneurship," Journal of Business Venturing, Elsevier, vol. 29(4), pages 490-510.
    6. repec:hal:pseose:hal-01060265 is not listed on IDEAS
    7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    8. Abhijit Banerjee & Esther Duflo & Rachel Glennerster & Cynthia Kinnan, 2015. "The Miracle of Microfinance? Evidence from a Randomized Evaluation," American Economic Journal: Applied Economics, American Economic Association, vol. 7(1), pages 22-53, January.
    9. Dean S. Karlan & Jonathan Zinman, 2008. "Credit Elasticities in Less-Developed Economies: Implications for Microfinance," American Economic Review, American Economic Association, vol. 98(3), pages 1040-1068, June.
    10. Christian Ahlin, 2020. "Group lending, matching patterns, and the mystery of microcredit: Evidence from Thailand," Quantitative Economics, Econometric Society, vol. 11(2), pages 713-759, May.
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    Cited by:

    1. Johanna Pangeiko Nautwima & Asa Romeo Asa & Sulaiman Olusegun Atiku, 2023. "Testing Unemployment–Entrepreneurship Nexus in Namibia Using the Schumpeterian Approach," Sustainability, MDPI, vol. 15(18), pages 1-15, September.
    2. Ablam Estel Apeti & Jean-Louis Combes & Eyah Denise Edoh, 2023. "Entrepreneurship in developing countries: can mobile money play a role?," Working Papers hal-04081304, HAL.
    3. Lanouar Charfeddine & Mohamed Ismail Umlai & Mazen El-Masri, 2024. "Impact of financial literacy, perceived access to finance, ICT use, and digitization on credit constraints: evidence from Qatari MSME importers," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-37, December.

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    More about this item

    Keywords

    Early stage entrepreneurship; Asymmetric information; Microfinance; Conventional banking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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