Does Microfinance Move the Households Toward Self Employment?

This paper examines the plausible determinants of entrepreneurship, first from literature and then by analyzing a set of variables and their link with occupation selection. It tests its hypothesis by using household level data from Bangladesh. It uses several econometric approaches such as simple logic, linear regression model and multinomial logit model to determine the link between self employment and microfinance participation.

The study reveals that 37 percent of participant households depend on wages as well as self employment and 20 percent depend solely on self employment. Findings include:

• 60 percent of non-participant households depend solely on wages;
• Participant households have a higher likelihood of being self employed or maintaining self employment as well as wages at a time to increase their welfare;
• Relaxation of credit constraints or proliferation of access to credit motivates shifters to move towards self employment solely.

The paper concludes that microfinance directly induces self employment or transfers available working days from day labor to self employment. It also maximizes households’ economic gain such as higher income and savings.