Ali, RubabaKhandker, Shahidur R.Samad, Hussain A.2013-01-252013-01-252013-01https://hdl.handle.net/10986/12156In less-developed economies such as Bangladesh, the farm sector is the major source of employment and income, while the rural nonfarm sector provides as an additional source of income. But the rural nonfarm sector increasingly plays an important role in fostering the development of the rural economy. A significant share of this sector is made up of microenterprise activities, which requires investment and access to adequate funds. This paper investigates the role access to finance plays in promoting the efficiency and growth of microenterprise activities. The findings suggest that households engaged in microenterprise activities, in addition to farm and other nonfarm activities, are much better off (in terms of income, expenditure and poverty) than those not engaged in such activities. Fewer than 10 percent of the enterprises have access to institutional finance (formal banks or microcredit), although the rate of return on microenterprise investments is more than sufficient (36 percent per year) to repay institutional loans. The research suggests that credit constraints may reduce the enterprises' profit margin by as much as 13.6 percent per year. As the returns to microenterprise investment are found to be high, microfinance institutions can play a larger role in supporting microenterprise growth in Bangladesh.en-USCC BY 3.0 IGOACCESS TO CAPITALACCESS TO FINANCEACCESS TO FINANCIAL SERVICESACCESS TO LOANSACCOUNTINGACTUAL COSTAFFILIATED ORGANIZATIONSAGRICULTURAL ACTIVITIESAGRICULTURAL ACTIVITYAGRICULTURAL BANKSAGRICULTURAL ECONOMICSAGRICULTUREBANK LOANBANK LOAN GUARANTEESBANK LOANSBIDSBORROWERBORROWINGCAPITAL ASSETSCAPITAL GRANTSCAPITAL STOCKSCAPITALSCOLLATERAL FOR BANK LOANCOMMERCIAL BANKCOMMERCIAL BANK LOANSCOMMERCIAL BANKSCOMMUNITY REINVESTMENTCONSUMER GOODSCONSUMPTION EXPENDITURECORPORATE FINANCECOST OF CAPITALCOST OF RENTCREDIT ACCESSCREDIT CONSTRAINTCREDIT CONSTRAINTSCREDIT MARKETCREDIT PROGRAMCREDIT PROGRAMSCREDITORSDEPOSITORSDEVELOPING COUNTRIESDEVELOPMENT BANKSDEVELOPMENT ECONOMICSDEVELOPMENT POLICYDIMINISHING RETURNSDUMMY VARIABLESDURABLEDURABLE GOODSEARNINGSECONOMETRIC ANALYSISECONOMIC CRISISECONOMIC DEVELOPMENTECONOMIC GROWTHECONOMIC RESEARCHELASTICITYEMPLOYMENT OPPORTUNITIESENTERPRISE GROWTHENTERPRISE OPERATIONSENTREPRENEURSENTREPRENEURSHIPEXOGENOUS VARIABLESEXPECTED RETURNEXPECTED RETURNSEXPENDITUREEXPENDITURESEXTREME POVERTYFARM MACHINERYFEDERAL RESERVEFEDERAL RESERVE BANKFEDERAL RESERVE BANK OF NEW YORKFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIATIONFINANCIAL LITERACYFINANCIAL SECTORFINANCIAL SECTOR DEVELOPMENTFIXED ASSETSFORMAL BANKSFORMAL FINANCIAL INSTITUTIONSGOVERNMENT REGULATIONSGROWTH OPPORTUNITIESGROWTH RATEGROWTH THEORYHOUSEHOLD BUSINESSESHOUSEHOLD INCOMEHOUSEHOLD WEALTHHOUSEHOLD WELFAREHOUSEHOLDSHUMAN CAPITALINCOME GROWTHINDUSTRIALIZATIONINFORMAL LENDERSINFORMAL LOANSINHERITANCEINITIAL INVESTMENTINSTALLMENTSINSTITUTIONAL CREDITINSTITUTIONAL LOANSINTEREST INCOMEINTEREST PAYMENTINTEREST RATEINTEREST RATESINTERNATIONAL BANKINVENTORIESINVENTORYINVESTMENT CLIMATEINVESTMENT DECISIONSLABOR MARKETSLACK OF ACCESSLACK OF COLLATERALLEGAL CONSTRAINTSLENDERLIVING STANDARDLOANLOAN GUARANTEESLOANS FROM FAMILYLOANS FROM FRIENDSLOCAL GOVERNMENTMARGINAL PRODUCTMARGINAL RATE OF RETURNMFIMFISMICRO ENTERPRISEMICRO-ENTERPRISEMICRO-ENTERPRISESMICRO-ENTREPRENEURMICRO-ENTREPRENEURSMICROCREDITMICROENTERPRISESMICROFINANCEMICROFINANCE INSTITUTIONSMICROFINANCE SECTORMONEY LENDERSMONEYLENDERSOPERATING COSTOPPORTUNITY COSTOUTREACHPAWNPAWN SHOPSPENSIONPER CAPITA INCOMEPERSONAL SAVINGSPRODUCTION FUNCTIONPRODUCTIVITYPRODUCTIVITY GROWTHPROFIT MARGINPROFITABILITYPROPERTY RIGHTSRATE OF RETURNRATES OF INTERESTRATES OF RETURNRATES OF RETURNSREAL ESTATERECEIPTREGULATORY AUTHORITYREGULATORY BARRIERSREMITTANCEREPAYMENTREPAYMENT SCHEDULEREPAYMENTSRESOURCE ALLOCATIONRETAIL TRADINGRETURN ON ASSETSROASAFETY NETSAVINGSSELF-EMPLOYMENTSMALL LOANSSOURCE OF INCOMESOURCES OF INCOMESTART-UPSTART-UP CAPITALSTARTUP CAPITALSURPLUS LABORTELECOMMUNICATIONSTELECOMMUNICATIONS EQUIPMENTTRADE SECTORTRADE SECTORSTRADINGTRANSACTIONTRANSACTION COSTSTRANSPORTURBAN AREASVALUE OF ASSETSVARIABLE COSTSVILLAGEVILLAGESVULNERABLE GROUPWORKING CAPITALWorld Bank10.1596/1813-9450-6333