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After Operation Protective Edge, many businesses in the South will be looking for credit to shore up their financial standing. A new study by BGU researchers finds that micro-business entrepreneurs tend to lack information about the existence of business credit funds, so they are unable to avail themselves of available sources of credit. Micro-business owners also suffer from a lack of information about managing their finances, particularly with regard to the procedures required to obtain loans. Even well-educated business owners who started their businesses while they were still employees are often unaware of credit opportunities available to them. Thus, both lack of information about available credit and lack of information about managing the businesses' finances may lead to the failure of the micro-businesses.
Since micro-businesses located in the geographical and socio-economic periphery are expected to experience greater difficulties in obtaining credit, the research was conducted using businesses that fit these criteria. The study is based on field data obtained through questionnaires addressed to 101 owners of micro-businesses from the Beer-Sheva peripheral region in southern Israel.
The findings of the study by Mirit Hassman and her advisers Prof. Dafna Schwartz and Prof. Rafi Bar-El (pictured above) indicate the importance of the credit supply to microbusinesses. More than a quarter of them experience difficulties in obtaining the credit they need, with the result that businesses located in remote or peripheral areas or businesses with higher revenues suffer from greater financial and credit difficulties. The results also indicate that the micro-businesses population is quite heterogeneous. Such a varied group often needs tailor-made finance solutions based on their degree of opportunity and the fact that many of them are often operated from entrepreneurs' homes. Businesses that are less 'opportunity driven' and businesses that are less 'home based' face greater credit obstacles.
As for the issue of credit supply, Hassman and her advisers from the Guilford Glazer Faculty of Business and Management, hypothesized that banks have limited access to the information necessary for assessing the risk in micro-enterprise loans. As a result, the banks adopt a conservative approach and restrict access to credit, even for businesses that would have been considered loan worthy by purely economic considerations.
Given these findings, the researchers recommend that the supply of credit to microenterprises be expanded, and that measures be taken to increase awareness among micro-businesses of the existence of credit funds and the procedures for applying for them. Furthermore, simple credit-management tools should be mentored to micro-business owners, and operations of the micro-credit market should be made more transparent. At the same time, banks should develop indexes that will allow them to assess micro-loan risk levels accurately.
