Determinants of growth for the informal sector micro-enterprises: an empirical study in India

Abstract

Informal sector enterprises constitute about 50 per cent of informal sector employment. If these enterprises can grow then poverty can be impacted substantially. Microcredit was visualized as a support to help micro-enterprises generate income and impact poverty. Studies across the globe suggest that the impact created by microcredit is not substantial. This mixed-method, two-phase study aims to identify the reason for lack of impact. Findings of the first phase exploratory study suggest that there are a few determinants of growth which are as critical as credit for growth. These determinants are market location, value chain, gender of the entrepreneur, investment, cluster, and entrepreneurship of the entrepreneur. In Phase 2 these determinants are confirmed through multinomial regression of data from a larger sample size in a different location. Credit is the control variable. All determinants except entrepreneurship are statistically significant in explaining the role of these determinants in the growth of micro-enterprises. These findings can inform policy about the components of enabling conditions for micro-enterprises.