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 ro...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/01/17196485/access-finance-matter-microenterprise-growth-evidence-bangladesh http://hdl.handle.net/10986/12156 |
| Summary: | 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. |
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