Does Access to Finance Matter in Microenterprise Growth? Evidence from Bangladesh

In less-developed economies such as Bangladesh, the farm sector is the major source of employment and income, while the rural nonfarm sector provides as an additional source of income. But the rural nonfarm sector increasingly plays an important role in fostering the development of the rural economy. A significant share of this sector is made up of microenterprise activities, which requires investment and access to adequate funds. This paper investigates the role access to finance plays in promoting the efficiency and growth of microenterprise activities. The findings suggest that households engaged in microenterprise activities, in addition to farm and other nonfarm activities, are much better off (in terms of income, expenditure and poverty) than those not engaged in such activities. Fewer than 10 percent of the enterprises have access to institutional finance (formal banks or microcredit), although the rate of return on microenterprise investments is more than sufficient (36 percent per year) to repay institutional loans. The research suggests that credit constraints may reduce the enterprises' profit margin by as much as 13.6 percent per year. As the returns to microenterprise investment are found to be high, microfinance institutions can play a larger role in supporting microenterprise growth in Bangladesh.

Bibliographic Details

Main Authors:	Ali, Rubaba, Khandker, Shahidur R., Samad, Hussain A.
Language:	English en_US
Published:	World Bank, Washington, DC 2013-01
Subjects:	ACCESS TO CAPITAL, ACCESS TO FINANCE, ACCESS TO FINANCIAL SERVICES, ACCESS TO LOANS, ACCOUNTING, ACTUAL COST, AFFILIATED ORGANIZATIONS, AGRICULTURAL ACTIVITIES, AGRICULTURAL ACTIVITY, AGRICULTURAL BANKS, AGRICULTURAL ECONOMICS, AGRICULTURE, BANK LOAN, BANK LOAN GUARANTEES, BANK LOANS, BIDS, BORROWER, BORROWING, CAPITAL ASSETS, CAPITAL GRANTS, CAPITAL STOCKS, CAPITALS, COLLATERAL FOR BANK LOAN, COMMERCIAL BANK, COMMERCIAL BANK LOANS, COMMERCIAL BANKS, COMMUNITY REINVESTMENT, CONSUMER GOODS, CONSUMPTION EXPENDITURE, CORPORATE FINANCE, COST OF CAPITAL, COST OF RENT, CREDIT ACCESS, CREDIT CONSTRAINT, CREDIT CONSTRAINTS, CREDIT MARKET, CREDIT PROGRAM, CREDIT PROGRAMS, CREDITORS, DEPOSITORS, DEVELOPING COUNTRIES, DEVELOPMENT BANKS, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DIMINISHING RETURNS, DUMMY VARIABLES, DURABLE, DURABLE GOODS, EARNINGS, ECONOMETRIC ANALYSIS, ECONOMIC CRISIS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC RESEARCH, ELASTICITY, EMPLOYMENT OPPORTUNITIES, ENTERPRISE GROWTH, ENTERPRISE OPERATIONS, ENTREPRENEURS, ENTREPRENEURSHIP, EXOGENOUS VARIABLES, EXPECTED RETURN, EXPECTED RETURNS, EXPENDITURE, EXPENDITURES, EXTREME POVERTY, FARM MACHINERY, FEDERAL RESERVE, FEDERAL RESERVE BANK, FEDERAL RESERVE BANK OF NEW YORK, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIATION, FINANCIAL LITERACY, FINANCIAL SECTOR, FINANCIAL SECTOR DEVELOPMENT, FIXED ASSETS, FORMAL BANKS, FORMAL FINANCIAL INSTITUTIONS, GOVERNMENT REGULATIONS, GROWTH OPPORTUNITIES, GROWTH RATE, GROWTH THEORY, HOUSEHOLD BUSINESSES, HOUSEHOLD INCOME, HOUSEHOLD WEALTH, HOUSEHOLD WELFARE, HOUSEHOLDS, HUMAN CAPITAL, INCOME GROWTH, INDUSTRIALIZATION, INFORMAL LENDERS, INFORMAL LOANS, INHERITANCE, INITIAL INVESTMENT, INSTALLMENTS, INSTITUTIONAL CREDIT, INSTITUTIONAL LOANS, INTEREST INCOME, INTEREST PAYMENT, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INVENTORIES, INVENTORY, INVESTMENT CLIMATE, INVESTMENT DECISIONS, LABOR MARKETS, LACK OF ACCESS, LACK OF COLLATERAL, LEGAL CONSTRAINTS, LENDER, LIVING STANDARD, LOAN, LOAN GUARANTEES, LOANS FROM FAMILY, LOANS FROM FRIENDS, LOCAL GOVERNMENT, MARGINAL PRODUCT, MARGINAL RATE OF RETURN, MFI, MFIS, MICRO ENTERPRISE, MICRO-ENTERPRISE, MICRO-ENTERPRISES, MICRO-ENTREPRENEUR, MICRO-ENTREPRENEURS, MICROCREDIT, MICROENTERPRISES, MICROFINANCE, MICROFINANCE INSTITUTIONS, MICROFINANCE SECTOR, MONEY LENDERS, MONEYLENDERS, OPERATING COST, OPPORTUNITY COST, OUTREACH, PAWN, PAWN SHOPS, PENSION, PER CAPITA INCOME, PERSONAL SAVINGS, PRODUCTION FUNCTION, PRODUCTIVITY, PRODUCTIVITY GROWTH, PROFIT MARGIN, PROFITABILITY, PROPERTY RIGHTS, RATE OF RETURN, RATES OF INTEREST, RATES OF RETURN, RATES OF RETURNS, REAL ESTATE, RECEIPT, REGULATORY AUTHORITY, REGULATORY BARRIERS, REMITTANCE, REPAYMENT, REPAYMENT SCHEDULE, REPAYMENTS, RESOURCE ALLOCATION, RETAIL TRADING, RETURN ON ASSETS, ROA, SAFETY NET, SAVINGS, SELF-EMPLOYMENT, SMALL LOANS, SOURCE OF INCOME, SOURCES OF INCOME, START-UP, START-UP CAPITAL, STARTUP CAPITAL, SURPLUS LABOR, TELECOMMUNICATIONS, TELECOMMUNICATIONS EQUIPMENT, TRADE SECTOR, TRADE SECTORS, TRADING, TRANSACTION, TRANSACTION COSTS, TRANSPORT, URBAN AREAS, VALUE OF ASSETS, VARIABLE COSTS, VILLAGE, VILLAGES, VULNERABLE GROUP, WORKING CAPITAL,
Online Access:	http://documents.worldbank.org/curated/en/2013/01/17196485/access-finance-matter-microenterprise-growth-evidence-bangladesh https://hdl.handle.net/10986/12156
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