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Microenterprise approach is increasingly acknowledged and policy based approach that recognizes micro
entrepreneurs as the core of the informal sector, which needs to be assisted to start at entrepreneur level or to
become growing, self-sustaining businesses to signify its contribution to economic growth and development in
the global south. This study investigated the existence, effects of credit constraints and the determinants of
entrepreneurial engagement choice taking a sample of 300 micro entrepreneurs who reside in underserved
settlements in Sri Lanka. Accordingly, whether the entry choice is constrained by the availability of credit is
empirically examined in a multivariate setting, applying discrete choice model on the conceptual basis of the
theory of occupational choice. It was found a positive correlation between wealth and the probability of starting
a business which implies that initial wealth determines the amount of capital required for business startups thus
providing evidence of financial constraints. Initial wealth, education, tradition, trained or parent’s occupation and
previous employment reported as important predictors on the probability of starting a business as a self
employed or entrepreneur compared to subsistence activities. This study provides useful insights for policy
makers to plan their activities to promote entrepreneurship in the urban informal sector in the country rather than
formulating ad-hoc policies to provide fixed financial assistances on mis specified targets.
