IDEAS home Printed from https://ideas.repec.org/p/sol/wpaper/2013-149217.html
   My bibliography  Save this paper

Why does microfinance fail in rural south-India? The social regulation of self-employment

Author

Listed:
  • Isabelle Guérin
  • Bert D'Espallier
  • G. Venkatasubramanian

Abstract

There is now an increasing consensus that the effects of microfinance on self-employment are limited, with two common interpretations. The microeconomic approach suggests that the poor lack the skills, the resources and the motivation to start their own business. The macroeconomic approach argues that local markets are already saturated. In this paper, we use a political economy approach and first-hand data from rural south-India to explore a third explanation: the social regulations of markets. Drawing on a household survey, we find that the vast majority of households do not engage in entrepreneurial activities, despite taking up microfinance loans. We also find that women and lower castes have a significantly lower chance of starting up a business and when they do so, their businesses are smaller, less profitable and concentrated in very specific sectors. We then use qualitative insights related to the fabric and functioning of local economies to illustrate how caste and gender-based social regulations shape local markets, determining who can produce or sell what, to whom, and to some extent at which price. Our paper shows that the most vulnerable households are in fact the least likely to start up a sustainable income-generating activity.

Suggested Citation

  • Isabelle Guérin & Bert D'Espallier & G. Venkatasubramanian, 2013. "Why does microfinance fail in rural south-India? The social regulation of self-employment," Working Papers CEB 13-034, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:2013/149217
    as

    Download full text from publisher

    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/149217/1/wp13034.pdf
    File Function: wp13034
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Grimm, Michael & Knorringa, Peter & Lay, Jann, 2012. "Constrained Gazelles: High Potentials in West Africa’s Informal Economy," World Development, Elsevier, vol. 40(7), pages 1352-1368.
    2. Suresh de Mel & David McKenzie & Christopher Woodruff, 2010. "Who are the Microenterprise Owners? Evidence from Sri Lanka on Tokman versus De Soto," NBER Chapters, in: International Differences in Entrepreneurship, pages 63-87, National Bureau of Economic Research, Inc.
    3. Bhaduri, Amit, 1986. "Forced commerce and agrarian growth," World Development, Elsevier, vol. 14(2), pages 267-272, February.
    4. Sylvia Hale, 1978. "The Politics of Entrepreneurship in Indian Villages," Development and Change, International Institute of Social Studies, vol. 9(2), pages 245-275, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Isabelle Guérin & Bert D'Espallier & G. Venkatasubramanian, 2015. "The Social Regulation of Markets: Why Microcredit Fails to Promote Jobs in Rural South India," Development and Change, International Institute of Social Studies, vol. 46(6), pages 1277-1301, November.
    2. Joshua Wassink, 2018. "Is Local Social Development Associated with Workforce Composition? A Municipal Analysis of Mexico, 1990–2015," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 37(6), pages 941-966, December.
    3. Amin, Mohammad & Islam, Asif, 2015. "Are Large Informal Firms More Productive than the Small Informal Firms? Evidence from Firm-Level Surveys in Africa," World Development, Elsevier, vol. 74(C), pages 374-385.
    4. Maksimov, Vladislav & Wang, Stephanie Lu & Luo, Yadong, 2017. "Reducing poverty in the least developed countries: The role of small and medium enterprises," Journal of World Business, Elsevier, vol. 52(2), pages 244-257.
    5. Rosas, Nina & Acevedo, Maria Cecilia & Zaldivar, Samantha, 2022. "Starting points matter: Cash plus training effects on youth entrepreneurship, skills, and resilience during an epidemic," World Development, Elsevier, vol. 149(C).
    6. Shamsuzzoha & Makoto Tanaka, 2021. "Formalization of manufacturing firms in Bangladesh," Review of Development Economics, Wiley Blackwell, vol. 25(3), pages 1668-1694, August.
    7. Sam Z. Njinyah & Simplice A. Asongu, 2023. "Unregistered Firms, Financial Access and Innovation," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 32(2), pages 307-346, July.
    8. Brian McCaig & Nina Pavcnik, 2015. "Informal Employment in a Growing and Globalizing Low-Income Country," American Economic Review, American Economic Association, vol. 105(5), pages 545-550, May.
    9. Premand, Patrick & Brodmann, Stefanie & Almeida, Rita & Grun, Rebekka & Barouni, Mahdi, 2016. "Entrepreneurship Education and Entry into Self-Employment Among University Graduates," World Development, Elsevier, vol. 77(C), pages 311-327.
    10. Rahman, Aminur, 2014. "Investment climate reforms and job creation in developing countries : what do we know and what should we do ?," Policy Research Working Paper Series 7025, The World Bank.
    11. Saibal Ghosh, 2022. "Firm Performance and Productivity: Is Labour an Obstacle?," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 65(3), pages 709-728, September.
    12. Omar Thiam, 2018. "Le secteur informel en Afrique de l'Ouest : enjeux et perspectives," Post-Print hal-02159695, HAL.
    13. Akay, Alpaslan & Khamis, Melanie, 2011. "The Persistence of Informality: Evidence from Panel Data," IZA Discussion Papers 6163, Institute of Labor Economics (IZA).
    14. Vial, Virginie & Hanoteau, Julien, 2015. "Returns to Micro-Entrepreneurship in an Emerging Economy: A Quantile Study of Entrepreneurial Indonesian Households’ Welfare," World Development, Elsevier, vol. 74(C), pages 142-157.
    15. Michael Kremer & Jonathan Robinson & Olga Rostapshova, 2014. "Success in Entrepreneurship: Doing the Math," NBER Chapters, in: African Successes, Volume II: Human Capital, pages 281-303, National Bureau of Economic Research, Inc.
    16. Lafortune, Jeanne & Pugatch, Todd & Tessada, José & Ubfal, Diego, 2022. "Can interactive online training make high school students more entrepreneurial? Experimental evidence from Rwanda," GLO Discussion Paper Series 1041, Global Labor Organization (GLO).
    17. Benhassine,Najy & Mckenzie,David J. & Pouliquen,Victor Maurice Joseph & Santini,Massimiliano, 2015. "Finding a path to formalization in Benin : early results after the introduction of the entreprenant legal status," Policy Research Working Paper Series 7510, The World Bank.
    18. Damien Girollet, 2024. "Digital divides among microenterprises: Evidence from sub‐Saharan Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(2), pages 1350-1380, March.
    19. Oriana Bandiera & Ahmed Elsayed & Andrea Smurra & Céline Zipfel, 2022. "Young Adults and Labor Markets in Africa," Journal of Economic Perspectives, American Economic Association, vol. 36(1), pages 81-100, Winter.
    20. Karaivanov, Alexander & Yindok, Tenzin, 2022. "Involuntary entrepreneurship – Evidence from Thai urban data," World Development, Elsevier, vol. 149(C).

    More about this item

    JEL classification:

    • J83 - Labor and Demographic Economics - - Labor Standards - - - Workers' Rights
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sol:wpaper:2013/149217. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Benoit Pauwels (email available below). General contact details of provider: https://edirc.repec.org/data/cebulbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.