Social capital of non-resident family members and small business financing: Evidence from an Indian state

Abstract

Purpose

The purpose of this paper is to investigate the impact of social capital of non-resident family members on small business debt financing. Recent literature in entrepreneurship suggests that small businesses can borrow social capital to improve their access to debt financing.

Design/methodology/approach

Micro-entrepreneurs from India were interviewed regarding their ability to raise capital from family members as well as their relationship with banks and politicians.

Findings

The survey indicates that small business entrepreneurs are able to borrow social capital from non-resident Indians. Results also suggest that these small businesses are more likely to be connected to banks and politicians facilitated by their non-resident family members, which not only improves micro-entrepreneurs’ access to debt financing but also reduces their cost of borrowing.

Research limitations/implications

This is a co-relational study that investigates the association between social capital of non-resident family members and small business debt financing. There is not necessarily a causal relationship between the two. The findings of this study may only be generalized to firms similar to those that were included in this research.

Originality/value

This study contributes to the literature on the factors that improve the access to small business debt financing. The findings may be useful for financial managers, investors, financial management consultants, entrepreneurs, and other stakeholders.

Citation

Gill, A., Maung, M.T. and Chowdhury, R.H. (2016), "Social capital of non-resident family members and small business financing: Evidence from an Indian state", International Journal of Managerial Finance, Vol. 12 No. 5, pp. 558-582. https://doi.org/10.1108/IJMF-01-2015-0001