Advancing Rural Entrepreneurship: Does Microfinancing Matter?

Abstract

This paper examines the effect of microfinance products on the performance of rural businesses in developing economies. The study is survey research that uses multiple regression models with a sample of 228 small businesses from rural communities. Two regression models were developed and tested. The two dependent variables are: profits and sales growth. The four independent variables are: loans, savings, insurance, and education, with five control variables: gender, managerial skills, age, industry, and size. Both regression models are significant (0.000) with adjusted R-squared values > 70%. Thus, the two models are valid predictors of financial performance. The optimal strategy is to get micro-loans, education and insurance, and to have micro-savings. The study extends the literature on the microfinance drivers and other characteristics influencing the development of rural businesses in an emerging market context. The study also serves as a benchmark in utilizing scarce resources for the sustainability and performance of rural businesses. Implications for practice and research for rural entrepreneurs, microfinance institutions, and government as well as limitations and further studies, are discussed.