The role of formal, informal, and family credit in the business performance of young entrepreneurs in Benin

Abstract

This research estimated the impact of credit uptake (formal, informal, and family) on youth entrepreneurship performance in Benin using panel data from a World Bank survey on enterprise formalization. To address potential endogeneity and ensure the robustness of results, we employed multiple models and estimation techniques (fixed‐effects and Lewbel approach). Our results showed that, while formal credit was most important for larger firms, smaller firms benefited mainly from flexible (informal or family) credit. The impact of credit uptake was generally higher for female‐owned firms. There were also variations in uptake according to the firm owner's age. The impact of formal credit was relatively higher for older firm owners while informal credit impacted more younger owners. The findings highlight the importance of informal and family credit sources, especially for start‐ups and small firms.