How greater freedom empowers entrepreneurs and expands access to credit
Access to credit plays a crucial role for small and medium enterprises (SMEs), which account for 90 percent of businesses globally and generate over 50 percent of employment. However, barriers such as high collateral requirements, discriminatory lending practices, and borrower discouragement—especially among women-led firms—hinder their growth. Evidence from firm-level data in the World Bank Enterprise Surveys and the Atlantic Council’s Freedom Index reveals a strong link between freedom—spanning economic, legal, and political dimensions—and borrower discouragement. In high-freedom environments, borrower discouragement rates drop to 17 percent, while they reach nearly 48 percent in low-freedom settings.
Among these dimensions, legal freedom stands out as the most influential. Strong legal frameworks that protect property rights, enforce contracts, and combat corruption instill confidence in entrepreneurs and encourage credit-seeking behavior. The impact of these factors is particularly significant for SMEs and women-led businesses in low- and middle-income countries, where financial systems remain underdeveloped. Economic deregulation and transparent financial markets improve access to credit, while gender-sensitive policies—such as targeted financial education and credit guarantees—help mitigate the systemic biases that female entrepreneurs encounter.
Global case studies of successful policy interventions offer valuable lessons. New Zealand’s robust property rights framework, Singapore’s pro-business environment, and Kenya’s M-Pesa platform illustrate how strategic reforms can empower entrepreneurs and bridge credit gaps. These initiatives demonstrate that fostering freedom reduces borrower discouragement and drives inclusive economic growth.
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The Freedom and Prosperity Center aims to increase the prosperity of the poor and marginalized in developing countries and to explore the nature of the relationship between freedom and prosperity in both developing and developed nations.
Image: Mumbai, India—Women take part in a financial seminar at the Mumbai branch of Bharatiya Mahila Bank in the western Indian city on Nov. 29, 2014.