Beg, Borrow or Sell - The Impact of Microcredit on Financial Inclusion

Abstract: Microcredits have alternately been hailed as the future of developing economics and criticised for becoming a one size fits all-solution to complex issues. This paper is an attempt to add to a growing literature on the impact of microcredits on different stakeholders in the developing world. It investigates the role of microcredit in fostering financial inclusion through a minor field study carried out in Botswana during eight weeks at the end of 2016. Our data was gathered through a survey distributed to small- and medium-size enterprises (SMEs) and through interviews conducted with relevant agents in Gaborone. Our thesis strives to provide a descriptive overview of the attitudes of SMEs towards microloans, and supplement this descriptive analysis with a research question on whether microloans can act as a stepping-stone towards financial inclusion, which is analyzed through econometric regressions. We find that attitudes towards microloans are negative, mainly due to the fact that there is a lack of awareness surrounding microloans. Furthermore, our econometric regressions cannot be considered indicative of microloans having a significant effect on financial inclusion, as the results lack robustness. We attribute the lack of awareness to the presence of information asymmetry that creates conditions in which it becomes more rational for SMEs to seek other sources of credit such as banks or informal lenders. For this reason, microcredits do not foster financial inclusion in Botswana. However, it has the potential to do so if attitudes can be improved through initiatives to increase the awareness of microloans amongst SMEs.