Credit Constraints & Productive Entrepreneurship in Africa

Mina Baliamoune, Zuzana Brixiová Schwidrowski and Leonce Ndikumana

No wp1025, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: 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.

Keywords: credit constraints; productive entrepreneurship; employment, policies (search for similar items in EconPapers)
JEL-codes: D24 G21 L26 (search for similar items in EconPapers)
Pages: pages
Date: 2011-12-01
New Economics Papers: this item is included in nep-afr, nep-dge, nep-ent and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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