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Entrepreneurial Choice of Investment Capital for House-Based Industries: A case study in West Bengal

Author

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  • Shrabani Mukherjee

    (Madras School of Economics)

Abstract

The lack of access to formal credit at affordable cost (effective interest) is the most critical constraint faced by the rural entrepreneurs to get involved in productive profitable business activities. This study explores the causes behind the widespread existence of informal credits as investment capital for small house-based business. Based on a primary survey on house based industrial owners in back ward areas of West Bengal it tries to capture the binding constraints in decision process for entrepreneurs to obtain their investment capital from subsidized formal credit market. A binary probit confirms imperfect substitutability between formal and informal credit in investment decision and an ordered probit analysis claims that huge complexity in lending process of formal sector becomes major restraint to access the institutional credit and thus makes the formal credit costlier than alternative sources to use it for industrious purposes.

Suggested Citation

  • Shrabani Mukherjee, 2015. "Entrepreneurial Choice of Investment Capital for House-Based Industries: A case study in West Bengal," Working Papers 2015-097, Madras School of Economics,Chennai,India.
    • Handle: RePEc:mad:wpaper:2015-097
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    More about this item

    Keywords

    Formal Credit; Informal Credit; Entrepreneurial Decision; Ordered Probit Analysis;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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