Credit constraints and productive entrepreneurship in Africa

Arbeitspapier

Limited access of entrepreneurs to credit constrains the creation and growth of private firms. In Africa, access to credit is particularly limited for small and medium enterprises (SMEs) due to unclear property rights and the lack of assets that can be used as collateral. This paper presents a model where firm creation and growth hinge on matching potential entrepreneurs with productive technologies, while firm growth depends on acquired capital. The shortage of collateral creates a binding credit constraint on borrowing by SMEs and hence private sector growth and employment, even though the banking sectors have ample liquidity, as is the case in many African countries. The model is tested using a sample of 20 African countries over the period 2005-09. The empirical results suggest that policies aimed at easing the binding credit constraints (e.g., the depth of credit information and the strength of legal rights pertaining to collateral and bankruptcy) would stimulate productive entrepreneurship and private sector employment in Africa.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 6193

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Entrepreneurship ; Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
• Subject: credit constraints ; productive entrepreneurship ; employment ; policies ; Verschuldungsrestriktion ; Unternehmer ; Kreditsicherung ; Unternehmenswachstum ; Afrika

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Baliamoune-Lutz, Mina ; Brixiova, Zuzana ; Ndikumana, Leonce
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/58479
• URN: urn:nbn:de:101:1-201201104219
• Last update: 10.03.2025, 11:45 AM CET