Microfinance and Growth of MSMEs: The Moderating Role of Entrepreneurial Thrust

Abstract

The main objective of the study is to investigate the role of entrepreneurial thrust in the relationship between growth in microfinance and growth of micro, small and medium enterprises (MSMEs). A panel of 15 countries from 2004 to 2013 is investigated in the analysis. Microfinance index is developed by using PCA and impact of microfinance index is examined on growth of MSMEs along with other dimensions of microfinance. The study documented that in isolation microfinance may not increase growth of MSMEs but if a borrower possess entrepreneurial thrust then growth in MSMEs is evident. Entrepreneurial thrust plays a role of catalyst in the relationship. Furthermore role of entrepreneurial thrust in growth of MSMEs is found to be more important than role of growth in microfinance itself. It is also established that in the presence of entrepreneurial thrust if even small loans are given to the borrowers then it leads to increase in business activities. It is concluded that microfinance may be a better tool to alleviate poverty but for creating new enterprises entrepreneurial thrust is found to be a prerequisite. In absence of entrepreneurial thrust microfinance may not be workable. Keywords: Microfinance, Entrepreneurial Thrust, MSMEs Growth.