IDEAS home Printed from https://ideas.repec.org/a/aaz/sbir01/v6y2022i1pe415.html
   My bibliography  Save this article

Does informal finance matter for micro and small businesses in Africa?

Author

Listed:
  • Mago, Stephen

    (Nelson Mandela University, Faculty of Business and Economic Sciences, Department of Development Studies - Gqeberha - Eastern Cape Province)

  • Sewela Modiba, Florah

    (Nelson Mandela University, Faculty of Business and Economic Sciences, Department of Development Studies - Gqeberha - Eastern Cape Province)

Abstract

Globally, micro and small businesses require finance to support their business activities. Most of them have low profits because of the lack of support from the formal financial system. Micro and small businesses in developing countries have a dire need for financing start-ups and existing business operations. The lack of support from the formal financial system and the government forces them to explore other financial support mechanisms, making it important to investigate alternative financial channels. This paper investigates whether informal finance matters for micro and small businesses. We used a systematic literature review to answer the predetermined research question. Thirty (30) primary studies were surveyed to establish the importance of informal finance for micro and small businesses. The findings show that informal finance is a workable alternative for micro and small businesses. It supports business start-ups, existing businesses and enhances business growth, business owners? livelihoods and livelihoods in their communities. Informal finance models can be improved to work as small business promotion tools. The original value of the paper is based on the use of a systematic literature review to assess whether informal finance matters for micro and small businesses and connect theories with emerging themes. It further contributes to the debates on the importance of informal finance and contributes to future lines of research on informal finance.

Suggested Citation

  • Mago, Stephen & Sewela Modiba, Florah, 2022. "Does informal finance matter for micro and small businesses in Africa?," Small Business International Review, Asociación Española de Contabilidad y Administración de Empresas - AECA, vol. 6(1), pages 415-415, March.
    • Handle: RePEc:aaz:sbir01:v:6:y:2022:i:1:p:e415
    DOI: 10.26784/sbir.v6i1.415
    as

    Download full text from publisher

    File URL: https://doi.org/10.26784/sbir.v6i1.415
    Download Restriction: no
    File URL: https://sbir.upct.es/index.php/sbir/article/view/415/207
    Download Restriction: no
    File URL: https://libkey.io/10.26784/sbir.v6i1.415?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Stella Bvuma & Carl Marnewick, 2020. "Sustainable Livelihoods of Township Small, Medium and Micro Enterprises towards Growth and Development," Sustainability, MDPI, vol. 12(8), pages 1-17, April.
    2. Pengcheng Du & Hua Cheng, 2022. "Banking Competition and Households’ Informal Financing: Evidence from China Household Finance Survey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(2), pages 525-543, January.
    3. Wellalage, Nirosha Hewa & Fernandez, Viviana, 2019. "Innovation and SME finance: Evidence from developing countries," International Review of Financial Analysis, Elsevier, vol. 66(C).
    4. Benedict, Arthur & Kinya Gitonga, Jackline & Serwaa Agyeman, Annette & Tutu Kyei, Baffour, 2021. "Financial determinants of SMEs performance. Evidence from Kenya leather industry," Small Business International Review, Asociación Española de Contabilidad y Administración de Empresas - AECA, vol. 5(2), pages 389-389, September.
    5. Lan Thanh Archer & Parmendra Sharma & Jen-Je Su, 2020. "Do credit constraints always impede innovation? Empirical evidence from Vietnamese SMEs," Applied Economics, Taylor & Francis Journals, vol. 52(44), pages 4864-4880, September.
    6. Bikefe, Grace & Zubairu, Umaru & Araga, Simeon & Maitala, Faiza & Ediuku, Ekanem & Anyebe, Daniel, 2020. "Corporate Social Responsibility (CSR) by small and medium enterprises (SMEs): a systematic review," Small Business International Review, Asociación Española de Contabilidad y Administración de Empresas - AECA, vol. 4(1), pages 16-33, January.
    7. Colin C. Williams & Muhammad S. Shahid, 2016. "Informal entrepreneurship and institutional theory: explaining the varying degrees of (in)formalization of entrepreneurs in Pakistan," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 28(1-2), pages 1-25, January.
    8. Dlamini, T. & Mohammed, M., 2018. "Determinants of choice of credit sources by Eswatini SMEs: A focus on the Agriculture Sector," 2018 Annual Conference, September 25-27, Cape Town, South Africa 284776, Agricultural Economics Association of South Africa (AEASA).
    9. Chunfang Cao & Kam C. Chan & Wenxuan Hou & Fansheng Jia, 2019. "Does religion matter to informal finance? Evidence from trade credit in China," Regional Studies, Taylor & Francis Journals, vol. 53(10), pages 1410-1420, October.
    10. Stefano Bonini & Vincenzo Capizzi, 2019. "The role of venture capital in the emerging entrepreneurial finance ecosystem: future threats and opportunities," Venture Capital, Taylor & Francis Journals, vol. 21(2-3), pages 137-175, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stephen Mago & Florah Sewela Modiba, 2024. "The Regulation and Inequality Nexus in Microfinance and Tourism Sectors," SAGE Open, , vol. 14(2), pages 21582440241, May.

    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. Muhammad Arif & Mudassar Hasan & Ahmed Shafique Joyo & Christopher Gan & Sazali Abidin, 2020. "Formal Finance Usage and Innovative SMEs: Evidence from ASEAN Countries," JRFM, MDPI, vol. 13(10), pages 1-19, September.
    2. Colin C Williams, 2021. "Tackling Undeclared Self-Employment in South-East Europe: from Deterrents to Preventative Policy Measures," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 280-298, July.
    3. Ummi Ibrahim Atah & Safiyya Abubakar Abba, 2020. "An appraisal of venture Capital financing on the growth and development of small and medium scale enterprises in Kumbotso Local government area of Kano State," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 4(11), pages 171-178, November.
    4. 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.
    5. Donbesuur, Francis & Boso, Nathaniel & Hultman, Magnus, 2020. "The effect of entrepreneurial orientation on new venture performance: Contingency roles of entrepreneurial actions," Journal of Business Research, Elsevier, vol. 118(C), pages 150-161.
    6. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668, March.
    7. Manuel Kaiser & Andreas Kuckertz, 2025. "Emotions and entrepreneurial finance: Analysis of venture capitalists’ and business angels’ digital footprints on Twitter," International Entrepreneurship and Management Journal, Springer, vol. 21(1), pages 1-29, December.
    8. Li, Hong-Quan & Yang, Yang & Xue, Feng-Wan & Liu, Zhi-Yi, 2024. "Annual report readability and trade credit financing: Evidence from China," Research in International Business and Finance, Elsevier, vol. 69(C).
    9. Yasar, Burze & Sevilay Yılmaz, Işıl & Hatipoğlu, Nurullah & Salih, Aslıhan, 2022. "Stretching the success in reward-based crowdfunding," Journal of Business Research, Elsevier, vol. 152(C), pages 205-220.
    10. An, Xiaohui & Liang, Jinma & Ye, Xinhai & Wang, Xizhe, 2024. "Independent directors’ duty performance and corporate green innovation," Finance Research Letters, Elsevier, vol. 62(PB).
    11. Aleksandra Gawel & Timo Toikko, 2023. "Quality of Governance and Welfare Generosity as Institutional Predictors of Entrepreneurship: European Perspective," SAGE Open, , vol. 13(4), pages 21582440231, October.
    12. Fernandez, Viviana, 2020. "Innovation in the global mining sector and the case of Chile," Resources Policy, Elsevier, vol. 68(C).
    13. Haider Alvi, Farzad & Ulrich, Klaus, 2023. "Innovation finance ecosystems for entrepreneurial firms: A conceptual model and research propositions," Journal of Business Research, Elsevier, vol. 156(C).
    14. Laura H. Middermann & Lubna Rashid, 2019. "Cross-Country Differences in Entrepreneurial Internationalization Tendencies: Evidence from Germany and Pakistan," Administrative Sciences, MDPI, vol. 9(3), pages 1-17, July.
    15. Skare, Marinko & Gavurova, Beata & Polishchuk, Volodymyr, 2023. "A decision-making support model for financing start-up projects by venture capital funds on a crowdfunding platform," Journal of Business Research, Elsevier, vol. 158(C).
    16. Asuamah Yeboah, Samuel, 2024. "Winning Strategies for Launching a Successful Business in Developing Markets," MPRA Paper 122661, University Library of Munich, Germany, revised 18 Oct 2024.
    17. Usman Ladan & Colin C. Williams, 2019. "Evaluating Theorizations Of Informal Sector Entrepreneurship: Some Lessons From Zamfara, Nigeria," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 24(04), pages 1-18, December.
    18. Esther Salvi & Frank-Martin Belz & Sophie Bacq, 2023. "Informal Entrepreneurship: An Integrative Review and Future Research Agenda," Entrepreneurship Theory and Practice, , vol. 47(2), pages 265-303, March.
    19. Kaidong Yu & Yameng Zhang & Yicong Huang, 2023. "Entrepreneurship at the Bottom of the Pyramid: A Systematic Literature Review," Sustainability, MDPI, vol. 15(3), pages 1-24, January.
    20. Edmund Mallinguh & Christopher Wasike & Zeman Zoltan, 2020. "Technology Acquisition and SMEs Performance, the Role of Innovation, Export and the Perception of Owner-Managers," JRFM, MDPI, vol. 13(11), pages 1-19, October.

    More about this item

    Keywords

    informal finance; financial exclusion; micro and small businesses; systematic literature review; Africa;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    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:aaz:sbir01:v:6:y:2022:i:1:p:e415. 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: Carlos Martinez (email available below). General contact details of provider: https://edirc.repec.org/data/aecaaea.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.