The impact of ethnic diversity on microenterprise start-ups

Sefa Awaworyi Churchill and Vinod Mishra

Applied Economics, 2018, vol. 50, issue 40, 4328-4342

Abstract: Until recently, factors determining the decisions made by microfinance institutions (MFIs) to extend loans to business start-ups had not been explored. Recent evidence shows that MFI performance with regard to funds issued for small business start-ups depends on MFI-level characteristics such as profit orientation. We argue that these decisions do not only depend on MFI-specific practices or characteristics, but also on the role ethnic diversity plays. Using data on microfinance lending activities for business start-ups, we examine the impact of ethnic diversity on microenterprise start-ups. Results show that ethnic diversity negatively affects the provision of financial capital for business start-up. Furthermore, results also suggest a negative association between ethnic diversity and the share of female borrowers recorded by MFIs. We examine social networks and outreach as potential channels through which ethnic diversity affects business start-ups.

Date: 2018
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DOI: 10.1080/00036846.2018.1444264

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