The social regulation of markets: Why microcredit fails to promote jobs in rural South India

There is growing evidence that microcredit does little to support self-employment. Two main explanations are typically emphasized. From a microeconomic perspective, the poor have been argued to lack the skills, resources and motivation to start their own businesses. From a macroeconomic perspective, local markets are often saturated. In this paper, we use first-hand data from rural South India to explore a third explanation focussing on the social regulation of markets. Drawing on a household survey, we show that self-employment and microcredit are uncorrelated, and that women and lower castes have a significantly lower chance of starting up a business. The businesses they do start tend to be smaller, less profitable and based in very specific sectors. Our qualitative insights into the workings of local economies show that caste and gender-based social regulations influence local markets determining who can produce or sell what, to whom, and at what price. We observe that real markets are affected by power relations and structured through social institutions rather than being the sum of interactions between free and competitive individuals. These findings show the importance to integrate self-employment programmes into broader policies for transforming the social regulation of markets and for eradicating discrimination against women and lower castes.