Improving microcredit and firm performance in Jamaica: a case study of the development bank of Jamaica

Abstract

ABSTRACT While micro, small and medium-sized enterprises (MSMEs) have been identified as major economic drivers, they continue to face substantial financial constraints that limit their performance. The Impact Financing Envelope (IFE) of the European Investment Bank (EIB) seeks to improve credit access across developing countries through institutions such as the Development Bank of Jamaica (DBJ). This study sought to examine the ultimate impact of EIB funding through the DBJ on final beneficiaries (MSMEs) in Jamaica. Data was collected from 426 sampled final beneficiaries of the DBJ programme. To estimate the impact of credit received from microfinance institutions on the performance (sales/profits) of MSMEs, we used the instrumental variable (IV) technique, recognising potential endogeneity problems in our variable of interest (credit amount received). We also disaggregate our findings by loan recency, sex, and age of owners. The results generally indicate that the amount of credit obtained is positively associated with the performance of MSMEs. A 1% increase in the credit amount received is associated with a 0.226% increase in firm profits. The effect is lower for female-owned than for male-owned businesses and is significant only for MSMEs whose most recent credit was received within a year of the survey.