Impacts of Financial Inclusion on Micro-Businesses: Factors Explaining Business Growth

Access to financial markets, digitization, and formality have been identified as key factors associated with firm performance. This paper presents a detailed descriptive analysis of the income gap among a group of micro-businesses (MBs) in Colombia’s Pacific region, examining how various factors relate to this gap. Using data from MBs participating in a program by Foundation WWB Colombia and applying the Oaxaca-Blinder decomposition, the analysis shows that formal MBs owned by men—with stronger financial inclusion and digital skills—tend to generate higher income than their counterparts. Complementary qualitative fieldwork reveals that micro-entrepreneurs often perceive informal credit as more attractive than bank credit due to its easier access and greater payment flexibility. These findings suggest that policies promoting women's empowerment, formalization, digital literacy, and access to financial services may contribute to narrowing these income gaps among MBs in Colombian’s Pacific Region.