Assessing the Need for Microenterprises in Mexico to Borrow Start-Up Capital

The authors state that the role of credit as seed capital among microenterprises is an important economic and public policy issue in Mexico as 53.4% of those employed work in these enterprises. To analyze empirically the factors related to the need for borrowed seed capital, the authors used the profit model for discreet choice and obtained the following results:

• Need for borrowed seed capital decreases with increasing levels of schooling and age of the owner;
• Female microenterprise owners are more likely to need outside start-up capital;
• Majority of those needing start-up capital for enterprises either cannot find salaried employment or have been fired from one;
• People with more business experience have more personal wealth;
• Number of paid employees is positively related to the need for borrowed seed capital.

The authors conclude with the following policy implications:

• Interventions by monetary or fiscal policy makers have a limited desired effect in the increasingly integrated global economies;
• Macro-level policy measures that aim to equalize the cost of start-up capital across formal and informal sectors, are a fundamental requirement in establishing an economic environment that promotes growth.