On operations and marketing in microfinance-backed enterprises: Structural embeddedness and enterprise viability

Abstract

Purpose

Financial inclusion remains one of the most promising avenues to bring about development for the poorest segments of society. A substantial body of work has looked into financial inclusion, especially in terms of microfinance, but much of it has been anecdotal and case-based. There is little scholarship that broadly investigates how microfinance-funded businesses choose to use the loans, especially given the ever-present competition for resources that such businesses face regarding which investment priority to pursue. In addition, the efficacy of these investments in terms of subsequent profitability remains unexplored, and so too does the influence of the entrepreneur’s embeddedness in the local community. The paper aims to discuss these issues.

Design/methodology/approach

This study reports the results from a field investigation of 927 women entrepreneurs who received a microfinance loan from a leading Indian microfinance institution. Logit and OLS regression models are employed in a moderation analysis by way of hierarchical regression.

Findings

Results indicate that access to microfinance increases the likelihood that the enterprise invests in marketing infrastructure and operational scale. In addition, structural embeddedness has a weakening effect on this relationship for operational scale while having a strengthening effect on the relationship for marketing infrastructure. Finally, operational scale is related to enterprise profitability, while marketing infrastructure is not. These findings suggest that embeddedness in the community is associated with the entrepreneur making sub-optimal choices regarding microfinance utilization.

Originality/value

To our knowledge, this is the first study to investigate the simultaneous marketing and operational impacts of microfinance access. It is also the first study to relate these measures to the profitability of the enterprise, especially in the context of structural embeddedness in the network.

Citation

Nilakantan, R., Iyengar, D. and Rao, S. (2019), "On operations and marketing in microfinance-backed enterprises: Structural embeddedness and enterprise viability", International Journal of Physical Distribution & Logistics Management, Vol. 49 No. 5, pp. 514-533. https://doi.org/10.1108/IJPDLM-02-2018-0053