The influence of microcredit on the business survival of micro-entrepreneurs in France: Crowding-in or crowding-out?

Abstract

Microcredit is becoming an increasingly important financing tool in developed countries. However, its influence on entrepreneurship in these contexts remains under explored. Drawing on research on the motivations of micro-entrepreneurs, we propose that the impact of microcredit provision on business survival can be both positive (crowding-in effect) and negative (crowding-out effect). Analysing data from over 36,000 French micro-entrepreneurs, we find that, overall, microcredit provision has no significant effect on business survival. However, this effect masks two opposing relationships reflecting motivational differences: Opportunity-motivated entrepreneurs with microcredit are more likely to sustain their businesses compared to their counterparts without microcredit, while the effect is negative for necessity-motivated entrepreneurs. These findings contribute to research in microfinance and micro-entrepreneurship, offering practical implications for the design of microcredit programmes in developed countries. Our study highlights the heterogeneous impact of microcredit and underscores the importance of tailoring policies to the diverse needs and motivations of entrepreneurs.