PDF_logo Impact of Access to Credit on Microenterprise Development

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Impact of Access to Credit on Microenterprise Development

Paper No:57

Author:Farah Muneer



The paper addresses three key issues: rate of nancial and economic returns to investment in microenterprises; impact of access to nance on production effciency; and impact of microenterprises on employment. The results show positive average rate of nancial and economic returns. Further, access to credit contributes to increases in labour productivity and total factor productivity. The regression results imply that nancial pro tinitially increases with debt-equity ratio but it does so at a decreasing rate; and beyond a certain point, nancialprot may actually decline. The intensity of employment creation using the hurdle model shows that
having access to credit not only increases the volume of employment, but also increases the number of days of employment. In general, the study supports the hypothesis that access to nance contributes to ourishing of enterprises, employment and nancing agencies’ protability. The critical issue is to develop targeted nancial support mechanism for the microenterprises in view of their wide diversity and complex operational mechanisms. The paper advocates for a comprehensive approach that will combine plausible instruments involving all nancial institutions so that the policies can be implemented in an eective manner.

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