Fostering Entrepreneurial Activities through Microfinance in Nigeria

Abstract

This paper examines the mechanisms by which microfinance loans foster entrepreneurship using social capital. Our empirical data was gathered through questionnaire survey of 317 active small business borrowers in Nigeria. Two models were considered for this study, social capital as a measure of social network and social capital as a measure of trust among group members were tested. On microfinance and social network on entrepreneurial success our study shows that: a) microloans obtained on group membership platform enhances entrepreneurial success of borrowers; b) further probing of the sex of respondents interacted with relationship with loan officers shows that female respondents perceive their relationship with their loan officers yield better entrepreneurial success. Female borrowers also perceived their group membership as the platform for their entrepreneurial success. On pre-loan training and level of education, we found that borrowers with lower levels of education receiving microloans were more successful in their entrepreneurial activities than borrowers with higher levels of education. In the same vein, borrowers with lower levels of education perceived the relationship with their loan officers enhances their entrepreneurial activities more so than respondents with higher levels of education. c) On trust as a measure of social capital, microloan show positive significant impact on entrepreneurial success. Further probing shows that borrowers with lower levels of education are more trusting of their group members than borrowers with higher education levels and this we believe enhances their entrepreneurial success. Also, borrowers with lower level of education believe that group membership enhance their access to microloan although result obtained is not statistically significant at 5 percent. In the same vein, borrowers with lower education levels perceived their group membership enhance their welfare while borrowers with higher education levels do not. We also observed gender differences in loan access such that female borrowers perceived group membership enhances ability to access loans while male respondents did not see any connection between group membership and loan access. Interacting this with entrepreneurial success resulted in a negative influence which implies that access to loan on the platform of group membership does not enhance entrepreneurial success of the respondents. Furthermore, female borrowers perceive group membership enhances their welfare and have positive impact on their entrepreneurial success but not male borrowers. The result also suggests that female borrowers place more trust on their group members which in turn enhance their entrepreneurial success. Further robust check shows that both models are of good fit and statistically significant at 1 percent. This study thus extends the entrepreneurship literature to microfinance and provides empirical insight into the significance of social capital in facilitating microfinance contribution to business creation and growth.