Do rural areas in the USA need microfinance?Some early evidence from the Community Reinvestment Act data

Hicks, Michael J.
April 2004
Journal of International Banking Regulation;Apr2004, Vol. 5 Issue 3, p243
Academic Journal
The relatively strong functioning of capital markets at the national level challenges the efficacy of micro finance programmes in the USA. Despite this, these programmes have enjoyed considerable appeal in the USA. Whether or not there is widespread failure of traditional lending practices to impact small business is therefore an important question. This research uses the recently released Community Reinvestment Act (CRA)data on county-level loans to small businesses to model the impact of traditional loan activities on small business. A standard augmented neoclassical growth model with spatial autocorrelation term is employed to evaluate the impact of lending in West Virginia from 1996--98. Among the key findings of this research is that traditional small business loan activity does not affect the share of employment in micro enterprise (firms with fewer than five employees). Loans of less than $100,000 do affect the employment share of firms with between five and nine employees. These results imply that traditional lending practices are not affecting entrepreneurs and micro enterprise. This suggests that non-traditional lending practices may be needed to satisfy lending needs of firms in this category.


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