Encouraging Entrepreneurship: Microfinance, Knowledge Support, and the Costs of Operating in Institutional Voids
Thunderbird International Business Review, Vol. 55, Issue. 5, pp. 545-562, 2013
20 Pages Posted: 21 Aug 2013 Last revised: 8 Mar 2014
Date Written: 2013
This study focuses on the supplemented strategies of micro-finance institutions (MFIs), in which the MFI offers non-financial services, such as entrepreneurship related knowledge, in addition to financial services to impoverished borrowers at the bottom of the pyramid (BoP). We examine two contextual factors — foreign direct investment (FDI) and loan defaults — to better understand the relationship between providing knowledge support to encourage entrepreneurship and costs of operating at the BoP for MFIs. In contexts where FDI is low and loan defaults are high, providing knowledge support to encourage entrepreneurship aggravates the MFI's costs of operating at the BoP. However, in contexts where FDI is high and loan defaults are low, providing knowledge support to encourage entrepreneurship among impoverished borrowers does not aggravate the MFI's costs of operating at the BoP. Hence, in emerging markets where governments welcome FDI and curb loan defaults, MFIs can viably support entrepreneurship among the poor.
Keywords: emerging markets, entrepreneurship, foreign direct investment, institutional voids, knowledge, micro-finance
JEL Classification: A13, M13, M14, F3, O19, L1, L3, I3, E6, F21, F3, G2, N2, Q17, D83, L15
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