An autonomous research institute under the Ministry of Finance


Factors Influencing Access to Formal Credit of Unincorporated Enterprises in India: Analysis of NSSO’s Unit-level Data

Publication date

Dec, 2020


NIPFP Working Paper No. 326


Shivani Badola and Sacchidananda Mukherjee


Unincorporated enterprises significantly contribute to India’s GDP and generate large scale employment. Lack of access to formal credit often constrains enterprises to scale up. Understanding factors influencing access to formal credit of unincorporated enterprises is important which may help enterprises to improve performance and become credit worthy. For creditors, present analysis may help to broad base the criteria in selection and disbursement of credit to enterprises. The present paper explores the factors which influence access to formal credit of unincorporated enterprises across states in India. Results show that various operational and economic characteristics influence the access to formal credit. The analysis indicates that size of an enterprise (measured in terms of number of workers, total assets, etc.), gross value added, turnover, maintenance of written and bank account, years of operation, internet usage, female entrepreneur, registration under various acts/authorities, ownership type, enterprise type, type of activities (manufacturing, services or trading), enterprises facing problems, government assistance, state specific variables etc. are statistically significant factors.
Key words: Unincorporated enterprises, outstanding loan liabilities, access to formal credit, informal credit, Probit Model, India
JEL Classification: E44, E51, G20, G21, L53
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