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Microfinance, entrepreneurship and institutional quality

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  • Malavika Nair
  • Martha Njolomole

Abstract

Purpose - The purpose of this paper is to consider the success and failure of microfinance institutions in generating economic growth over the past 30 years and propose a dual criterion of evaluation. Design/methodology/approach - It surveys the empirical literature on microfinance and finds that while there has been small and localized success in various countries in improving access to credit, at the same time there has been a broader failure to generate economic growth. The authors argue that this broader failure should be viewed from the viewpoint of institutional failure or the lack of supporting institutions such as private property rights and stable rule of law within developing countries. Findings - Using Baumol’s (1968) theory of entrepreneurship, the authors argue that the broader failure of microfinance is a case of poor institutional quality leading to unproductive or even destructive entrepreneurship rather than productive entrepreneurship. The paper also suggests a link between the literature criticizing foreign aid and this view on microfinance. Originality/value - The paper provides a survey of the empirical literature on micro finance as well as a novel framework that aids in understanding both the localized small-scale success as well as broader failure to generate economic growth.

Suggested Citation

  • Malavika Nair & Martha Njolomole, 2020. "Microfinance, entrepreneurship and institutional quality," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing Limited, vol. 9(1), pages 137-148, January.
  • Handle: RePEc:eme:jepppp:jepp-07-2019-0061
    DOI: 10.1108/JEPP-07-2019-0061
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    Cited by:

    1. Mª Celia López-Penabad & José Manuel Maside-Sanfiz & Yousif Agha & Ana Iglesias-Casal, 2024. "Microfinance Institutions and Corporate Social Responsibility. A scientometric study," Future Business Journal, Springer, vol. 10(1), pages 1-25, December.
    2. 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.

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    More about this item

    Keywords

    Microfinance; Entrepreneurial action; Institutional quality; E02; G21; O17; O43; P42;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P42 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices

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