This article examines the link between entrepreneurial motivation and business performance in the French microfinance context. Using hand-collected data on business microcredits from a Microfinance Institution (MFI), we provide an indirect measure of entrepreneurial success through loan repayment performance. Controlling for the endogeneity of entrepreneurial motivation in a bivariate probit model, we find that “necessity entrepreneurs” are more likely to have difficulty repaying their microcredits than “opportunity entrepreneurs”. However, type of motivation does not appear to make a difference to business survival. We test for the robustness of our results using parametric duration models and show that necessity entrepreneurs experience difficulties in loan repayment earlier than their opportunity counterparts, corroborating our initial findings. Our results are also robust to a sharper analysis of motivation, focusing on unemployment (on the necessity side) and non-pecuniary benefits from success (on the opportunity side).
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Sometimes, microfinance institutions do not differentiate between two types of products, since the boundary between the business and the household is not clearly drawn.
In France in the first semester of 2002, almost 36% of all business start-ups were (partly) financed by commercial bank loans (source: authors’ own computations using data from the French National Institute of Statistics and Economic Studies). Furthermore, commercial banks are the main providers of small-business finance, according to Berger and Udell (2002).
Reed et al. (2014) report that MFIs in the industrialized world represent 4.4% of total MFIs reporting to the Microcredit Summit Campaign, serving less then 3% of microfinance clients.
The European Commission defines the microcredit as a loan of up to EUR 25,000 tailored for micro-enterprises employing less than 10 people (91% of all European firms), and unemployed or inactive people who want to go into self-employment but do not have access to traditional banking services.
Kariv and Coleman (2015) show that both types of entrepreneurs are likely to request small loans.
Still, the abundance of subsidies may explain the scarcity of complementary financial products such as microsavings (Cozarenco et al. 2016).
At the European level, the European Investment Fund offers guarantees to microfinance providers through the Employment and Social Innovation (EaSI) Guarantee Instrument. The guarantee rate is up to 80%. At the national level, France Active Guarantee (FAG) offers guarantees up to 70% of the amount of business microcredits and Fonds de Cohésion Sociale and Caritas up to 50% of the amount of personal microcredits. For all these initiatives, cap loss rates apply.
It can also be linked to the notion of passion, which may be related to entrepreneurial motivation (Dalborg and Wincent 2015).
To that extent, the theoretical predictions concerning the link between entrepreneurial motivation and business performance seem to be ambiguous. We formalize this argument in the working paper version of this paper (Bourlès and Cozarenco 2017), in which we adapt the canonical model of Tirole (2006) to account for microcredit specificity and differences between necessity and opportunity entrepreneurs. We show that the probability of success of a business increases in the entrepreneurs’ non-pecuniary benefit from success and decreases in their external opportunity. This result suggests an ambiguous effect of entrepreneurial motivation on business survival.
This can moreover be combined with bootstrapping by the necessity entrepreneurs (Jonsson and Lindbergh 2013).
We thank an anonymous referee for pointing out this issue.
As a consequence, the MFI does not provide dynamic incentives through progressive lending (Armendáriz and Morduch 2010).
The so-called honor loans are subsidized personal loans granted by the French government to start or buy out a business. Their size varies between EUR 2000 and 50,000.
The 3-year survival rate for businesses created in 2010 in PACA region. Source: the French National Institute of Statistics and Economic Studies website, accessed on June 14, 2016.
We thank an anonymous referee for pointing out this issue.
Taylor (1996) suggests a non-linear effect of age on self-employed earnings.
Mimicking a two-step procedure would not lead to consistent parameter estimations, according to Wooldridge (2010).
Given the non-linear relationship, the effect would become negative for individuals older than 80 years old. However, we do not have such observations in our data set.
These public partners generally also provide business development services, explaining the high correlation we observe between the provision of business development services and our “other debts” variable. As the effects of business development services on our dependent variables are less significant than the ones of “other debt,” the latter variable seems to be a better control.
After 24 months, the sample size becomes too small to trigger robust results.
This means that the likelihood to experience repayment problems was 0.48 higher for necessity entrepreneurs than for opportunity entrepreneurs in the subsample in which we delete all the observation with at least three late payments during the first year after credit disbursement.
The drop at m = 12 corresponds to the subsample in which we drop the the highest number of observations.
The 95% confidence interval does not show significant difference between coefficients.
We thank an anonymous referee for pointing out this issue.
These probabilities of default appear particularly large, especially for the microfinance industry where MFIs generally boast very high repayment rates (Armendáriz and Morduch 2010). However, they are generated by our conservative approach assuming that all the borrowers experiencing repayment problems will actually not repay their loan. It is worth reminding that in our sample 43% of individuals had at least three unpaid installments in their credit history.
According to Brabant et al. (2007), the operating cost per borrower (including the application analysis, credit disbursement and follow-up but excluding non-financial services) varies between EUR 735 and EUR 500 per year for licensed MFIs in France.
Acs, Z., & Varga, A. (2005). Entrepreneurship, agglomeration and technological change. Small Business Economics, 24(3), 323–334.
Andersson, J.P., & Wadensjo, E. (2007). Do the unemployed become successful entrepreneurs? A comparison between unemployed, inactive and wage-earners. International Journal of Manpower, 28(7), 604–626.
Armendáriz, B., & Morduch, J. (2000). Microfinance beyond group lending. Economics of Transition, 8(2), 401–420.
Armendáriz, B., & Morduch, J. (2010). The economics of microfinance (2nd edn.) Cambridge: MIT Press.
Armendáriz, B., & Szafarz, A. (2011). On mission drift in microfinance institutions. In B. Armendáriz, & M. Labie (Eds.), The handbook of microfinance (pp. 341–366). Singapore: World Scientific.
Audretsch, D.B., & Thurik, A.R. (2001). What’s new about the new economy? Sources of growth in the managed and entrepreneurial economies. Industrial and Corporate Change, 10(1), 267–315.
Banerjee, A., Karlan, D., & Zinman, J. (2015). Six randomized evaluations of microcredit: introduction and further steps. American Economic Journal: Applied Economics, 7(1), 1–21.
Bates, T. (1990). Entrepreneur human capital inputs and small business longevity. Review of Economics and Statistics, 72(4), 551–559.
Benabou, R., & Tirole, J. (2003). Intrinsic and extrinsic motivation. Review of Economic Studies, 70(3), 489–520.
Bendig, M., Unterberg, M., & Sarpong, B. (2012). Overview of the microcredit sector in the European Union 2010–2011. European Microfinance Network.
Bendig, M., Unterberg, M., & Sarpong, B. (2014). Overview of the microcredit sector in the European Union 2012–2013. European Microfinance Network.
Benz, M., & Frey, B.S. (2008). Being independent is a great thing: Subjective evaluations of self-employment and hierarchy. Economica, 75(298), 362–383.
Berger, A.N., & Udell, G.F. (2002). Small business credit availability and relationship lending: the importance of bank organisational structure. Economic Journal, 112(477), F32–F53.
Bergmann, H., & Sternberg, R. (2007). The changing face of entrepreneurship in Germany. Small Business Economics, 28(2), 205–221.
Bhola, R., Verheul, I., Thurik, R., & Grilo, I. (2006). Explaining engagement levels of opportunity and necessity entrepreneurs. EIM Business and Policy Research, H200610.
Blanchflower, D.G. (2000). Self-employment in OECD countries. Labour Economics, 7(5), 471–505.
Block, J., & Sandner, P. (2009). Necessity and opportunity entrepreneurs and their duration in self-employment: evidence from German micro-data. Journal of Industry, Competition and Trade, 9(2), 117–137.
Block, J.H., & Wagner, M. (2010). Necessity and opportunity entrepreneurs in Germany: characteristics and earnings differentials. Schmalenbach Business Review, 62, 154–174.
Block, J.H., Hoogerheide, L., & Thurik, R. (2011). Education and entrepreneurial choice: an instrumental variables analysis. International Small Business Journal, 31(1), 23–33.
Block, J., Kohn, K., Miller, D., & Ullrich, K. (2015). Necessity entrepreneurship and competitive strategy. Small Business Economics, 44(1), 37–54.
Botti, F., Dagradi, D.L., & Torre, L.M. (2016). Microfinance in Europe: a survey of EMN-MFC members. European Microfinance Network Report 2014–2015.
Bourlès, R., & Cozarenco, A. (2014). State intervention and the microcredit market: the role of business development services. Small Business Economics, 43(4), 931–944.
Bourlès, R., & Cozarenco, A. (2017). Entrepreneurial motivation and business performance: evidence from a French micronance institution. AMSE working paper 2017-01.
Brabant, M., Dugos, P., & Massou, F. (2007). Rapport sur le microcrédit. Inspection Générale des Finances.
Cleves, M.A., Gould, W.W., Gutierrez, R.G., & Marchenko, Y. (2010). An introduction to survival analysis using stata. College Station: Stata Press.
Cox, D.R. (1992). Regression models and life-tables (with discussion). Journal of the Royal Statistical Society: Series B, 34, 187–220.
Cozarenco, A. (2015). Microfinance institutions and banks in Europe: the story to date. Working Papers CEB Nb. 15, Université Libre de Bruxelles.
Cozarenco, A., & Szafarz, A. (2016). Microcredit in industrialized countries: unexpected consequences of regulatory loan ceilings. Working Papers CEB Nb. 16, Université Libre de Bruxelles.
Cozarenco, A., Hudon, M., & Szafarz, A. (2016). What type of microfinance institutions supply savings products? Economics Letters, 140, 57–59.
Dalborg, C., & Wincent, J. (2015). The idea is not enough: the role of self-efficacy in mediating the relationship between pull entrepreneurship and founder passion—a research note. International Small Business Journal, 33(8), 974– 984.
De Visme, N. (2016). Poursuite de la baisse de l’ICDC au 1er trimestre 2016. Statistiques, Etudes et Evaluations de Pôle Emploi Nr. 16.022.
Delvaux, G. (2016). Montant de l’allocation chômage versée aux demandeurs d’emploi indemnisés par l’assurance chômage: Situation au 30 septembre 2015. Statistiques, Etudes et Evaluations de Pôle Emploi Nr. 16.028.
D’Espallier, B., Hudon, M., & Szafarz, A. (2013). Unsubsidized microfinance institutions. Economics Letters, 120(2), 174–176.
Duflo, E. (2010). Microcrédit, miracle ou désastre? Le Monde.
European Commission. (2012). Report from the Commission to the European Parliament and the Council (on the application of Directive 2006/48/EC to Microcredit) Brussels, 18:12:2012.
Eurostat. (2015). Statistiques structurelles sur les entreprises - vue d’ensemble. Données de janvier 2015.
Gilad, B., & Levine, P. (1986). A behavioral model of entrepreneurial supply. Journal of Small Business Management, 24(4), 45–54.
Hamilton, B.H. (2000). Does entrepreneurship pay? An empirical analysis of the returns to self-employment. Journal of Political Economy, 108(3), 604–631.
Heckman, J.J. (1979). Sample selection bias as a specification error. Econometrica, 47(1), 153–161.
Hudon, M., & Traça, D. (2011). On the efficiency effects of subsidies in microfinance: an empirical inquiry. World Development, 39(6), 966–973.
Hundley, G. (2001). Why and when are the self-employed more satisfied with their work? Industrial Relations: A Journal of Economy and Society, 40(2), 293–316.
Jaouen, A., & Lasch, F. (2015). A new typology of micro-firm owner-managers. International Small Business Journal, 33(4), 397–421.
Jayawarna, D., Rouse, J., & Kitching, J. (2013). Entrepreneur motivations and life course. International Small Business Journal, 31(1), 34–56.
Jonsson, S., & Lindbergh, J. (2013). The development of social capital and financing of entrepreneurial firms: From financial bootstrapping to bank funding. Entrepreneurship Theory and Practice, 37(4), 661–686.
Kariv, D., & Coleman, S. (2015). Toward a theory of financial bricolage: the impact of small loans on new businesses. Journal of Small Business and Enterprise Development, 22(2), 196–224.
Kirkwood, J. (2009). Motivational factors in a push-pull theory of entrepreneurship. Gender in Management: An International Journal, 24(5), 346–364.
Korunka, C., Frank, H., Lueger, M., & Mugler, J. (2003). The entrepreneurial personality in the context of resources, environment, and the startup process—a configurational approach. Entrepreneurship Theory and Practice, 28(1), 23–42.
Lange, T. (2012). Job satisfaction and self-employment: autonomy or personality? Small Business Economics, 38(2), 165–177.
Millán, J.M., Congregado, E., & Román, C. (2012). Determinants of self-employment survival in Europe. Small Business Economics, 38(2), 231–258.
Morduch, J. (1999). The role of subsidies in microfinance: evidence from the Grameen Bank. Journal of Development Economics, 60(1), 229–248.
Naudé, W. (2010). Entrepreneurship, developing countries, and development economics: new approaches and insights. Small Business Economics, 34(1), 1–12.
Newman, A., Schwarz, S., & Borgia, D. (2014). How does microfinance enhance entrepreneurial outcomes in emerging economies? The mediating mechanisms of psychological and social capital. International Small Business Journal, 32(2), 158–179.
Oberschachtsiek, D. (2012). The experience of the founder and self-employment duration: a comparative advantage approach. Small Business Economics, 39(1), 1–17.
Reed, L., Marsden, J., Ortega, A., Rivera, C., & Rogers, S. (2014). Resilience: the state of the microcredits summit campaign report. The Microcredit Summit Campaign.
Reynolds, P., Bosma, N., Autio, E., Hunt, S., De Bono, N., Servais, I., Lopez-Garcia, P., & Chin, N. (2005). Global entrepreneurship monitor: data collection design and implementation 1998–2003. Small Business Economics, 24(3), 205–231.
Roszbach, K. (2004). Bank lending policy, credit scoring, and the survival of loans. Review of Economics and Statistics, 86(4), 946–958.
Schoenfeld, D. (1981). The asymptotic properties of nonparametric tests for comparing survival distributions. Biometrika, 68(1), 316–319.
Shahriar, A.Z.M., Schwarz, S., & Newman, A. (2016). Profit orientation of microfinance institutions and provision of financial capital to business start-ups. International Small Business Journal, 34(4), 532–552.
Stephan, U., Hart, M., Mickiewicz, T., & Drews, C.-C. (2015). Understanding motivations for entrepreneurship. BIS Research Paper 212.
Taylor, M.P. (1996). Earnings, independence or unemployment: why become self-employed? Oxford Bulletin of Economics and Statistics, 58(2), 253–266.
Tchetgen Tchetgen, E.J., Walter, S., Vansteelandt, S., Martinussen, T., & Glymour, M. (2015). Instrumental variable estimation in a survival context. Epidemiology, 26(3), 402–410.
Tirole, J. (2006). The theory of corporate finance. Princeton: Princeton University Press.
Wagner, J. (2005). Nascent necessity and opportunity entrepreneurs in Germany evidence from the Regional Entrepreneurship Monitor (REM). University of Lüneburg Working Paper Series in Economics Nr 10.
Wennekers, S., & Thurik, R. (1999). Linking entrepreneurship and economic growth. Small Business Economics, 13(1), 27–56.
Wooldridge, J.M. (2010). Econometric analysis of cross section and panel data. Cambridge: MIT Press.
The authors would like to thank Mohamed Belhaj, Olivier Chanel, Dominique Henriet, Xavier Joutard, Frank Lasch, Bernard Sinclair-Desgagné, Roy Thurik, and Peter van der Zwan for useful comments and discussions; and Marjorie Sweetko for English language revision. The authors are grateful to Colette Grunenberger for research assistance.
Anastasia Cozarenco benefited from LabEx “Entrepreneurship” (University of Montpellier, France) funding. This “laboratory of excellence” is funded by the French government in recognition of high-level research initiatives in the human and natural sciences.
About this article
Cite this article
Bourlès, R., Cozarenco, A. Entrepreneurial motivation and business performance: evidence from a French Microfinance Institution. Small Bus Econ 51, 943–963 (2018). https://doi.org/10.1007/s11187-017-9961-8
- Opportunity and necessity entrepreneurs
- Business microcredit
- Loan repayment
- Business survival