LSE

LJE

Firms, Entrepreneurship & Microfinance

Firms and entrepreneurs, who are at the center of all economic activities and the main actors in the functioning of an economic system, must be vigorously promoted in order to invigorate the economy. Entrepreneurship is vital to the progress and competitiveness of an economy since it stimulates innovation and creativity, introduces new technologies, creates a vast number of jobs, enhances productivity and thus accelerates economic growth. In low-income countries small and medium firms and other small-scale entrepreneurial efforts comprise a large proportion of the business population so the ability of small firms to innovate is crucial in facilitating them to grow and for Pakistan to achieve rapid and sustainable productivity-led economic growth. In relation to this, microfinance which plays an essential role to facilitate this innovation and growth of credit constrained small firms by offering collateral free loans maybe a catalyst in economic development, and hence, in the economic uplift and graduation of poor out of poverty.

Given that firms, entrepreneurship and microfinance are such an integral part of the economy, a lot of work at CREB is concentrated in this domain. Some of this work assesses the nature and extent of innovation in the textile sector, which has long been the mainstay of Pakistan’s industrial base, as well as if in turn, this innovation, especially for younger companies, has been conducive to employment generation and sales growth. Other work, in terms of the surgical- goods sector in Sialkot, investigates if geographical proximity among clustered firms facilitates inter-firm innovation and interactive learning through knowledge spillovers and thus leads to growth. In the same setting, it evaluates the extent to which fixed costs of innovation are a barrier to upgradation of the surgical-goods sector. Similarly, another project examines if the constraint of high-cost of high quality inputs are an obstacle in upgrading the football sector in Sialkot and as a solution, if offering a subsidy for these inputs would spur this upgradation of the sector. It also aims to better understand the technologies within the soccer ball industry and determine the characteristics of the firms that are able to identify and implement new technologies. Other work at the centre conducts annual business confidence surveys to understand the perceptions of the business community regarding the prevailing economic conditions and the level of innovation being done. Also, given the stagnation of industrial growth and exports in Pakistan, researchers at the centre are working alongside policymakers to develop a coordinated industrial strategy in the context of the China Pakistan economic corridor. In terms of microfinance which facilitates the inception and growth of smaller firms and in general the betterment of the poor and other marginalized groups, a randomized control trial is used to compare the effectiveness of micro-savings and micro-loans as a means for households to manage risk and liquidity and explore the role of commitment and reminders in product takeup and repayment. Other randomized control trials, evaluate the socio-economic and welfare impacts of micro-loans to female micro-entrepreneurs which attempts to measure household dynamics faced by borrowers that may act as a constraint on the decision to set up a business. Similarly, in terms deterrents to female led enterprise growth, another experiment investigates demand for consumption agency in married couples from Pakistan. Moreover, other work tries to determine if overcoming barriers related to psychological and social factors, limiting female autonomous decision making and control over resources, combined with microcredit loans, can lead to enterprise creation and improve business outcomes.