Returns to Capital and MSE Management Consulting in Ghana

There are a number of development organizations in Ghana that provide services to micro and small enterprises (MSEs) seeking to expand their operations.  However, as there are few rigorous evaluations of entrepreneurial development programs, IPA is working with local consultants to undertake a rigorous study aimed at understanding the key factors that prevent MSE entrepreneurs from developing and expanding their businesses as well as identifying the value of providing consulting services to them. 
 
Policy Issue:
Microenterprises and small enterprises make up a large portion of employment in the developing world. As an alternative to employment in large firms in formal sectors, small enterprises create opportunity for the poor with few resources.  Despite implications for public policy, little is understood about the constraints of these small enterprises. It is unclear which factors prevent small businesses from expanding and employing more workers. This study focuses on two possible constraints, capital and business acumen, in assessing the potential for small business growth.
 
Context of the Evaluation:
In Ghana businesses of less than 99 workers (commonly called small or medium enterprises), employ around 66% of the nation’s work force[1].  These businesses are diverse in product offerings, ranging from agricultural produce to crafts to tourism services.  
 
Ernst and Young, a professional services firm, works in assurance, tax, transaction, advisory services and strategic growth markets.  Around the globe, Ernst and Young works with a range of organizations to provide consulting services, in this case tailors in Ghana. The entrepreneurs participating in the study were diverse: 57% of them were female, they came from 26 different ethnic groups, and spoke 12 different languages at home.  The businesses they operated were in general very small- all had less than 5 employees, and 35% of them had no employees at all.
 
Description of Intervention:
IPA partnered with Ernst and Young to offer business consulting services to small businesses in the city of Accra. Out of a group of 157 tailors, 77 were randomly selected to receive one year of free consulting services while the others served as a comparison group.  Four consultants from Ernst and Young met with twenty tailors each between February 2009 and February 2010.  Each tailor received an average of ten hours of consulting over the course of the intervention, with the consultants visiting each tailor two to three times per month. All tailors received thirteen training modules on topics like record keeping, time management, and costing, in addition to individualized mentorship.  After six months, a randomly selected38 tailors who were receiving the consulting and 36 additional tailors in the comparison group were awarded a grant of 200 Ghana Cedi (about $133 US) to invest in their businesses.  Eight rounds of surveys were administered to measure the impact of the consulting services, the cash investment, and the combination of the two.
 
Results and Policy Lessons:
Results forthcoming.
 

[1]Kozak, Marta “Micro, Small, and Medium Enterprises: A Collection of Published Data,” http://rru.worldbank.org/Documents/other/MSMEdatabase/msme_database.htm.

Providing Business Mentoring to Micro-, Small- and Medium-sized Enterprises (SMEs) in Mexico

Many public and private programs exist with the goal of helping MSMEs succeed and become more productive and competitive. However, there is little rigorous evidence of the impact of these programs. IPA is collaborating with the Institute for the Competitiveness and Productivity of Puebla (IPPC), an independent state government agency, to evaluate their MSME mentoring program.

Policy Issue: 

Microfinance has provided many businesses with access to investment capital, but few microenterprises make the jump to a small or medium size operation, and begin providing jobs for other laborers.  While much of the discussion surrounding access to finance has centered on providing services to microenterprises, SMEs are often seen as the “missing middle” in developing economies.  They are likely too large to be interested in typical microfinance loans, but may be too small to access other sources of capital. SMEs also face competition from larger enterprises, and may lack the management capacity to take advantage of market opportunities.  Addressing the factors that constrain SME growth could have important effects on long-run economic growth and employment.  Many public and private programs already exist with the goal of helping SMEs succeed and become more productive and competitive but little is known about the impact of such mentoring programs on employment generation, firm productivity, and profitability.

Context of the Evaluation: 

This study takes place in the state of Puebla, Mexico, which is made up of urban Puebla City and other semi-urban and semi-rural surrounding areas to the east of Mexico City. While Puebla is home to some larger scale industry, a great majority of the economic entities there can be categorized as small and medium enterprises, engaging in small scale manufacturing or the provision of services.

Details of the Intervention: 

Researchers collaborated with the Institute for the Competitiveness and Productivity of Puebla (IPPC), a state agency that works with small and medium-sized enterprises to provide training and mentoring services, to identify beneficiaries of the program. The study included 450 owners of small and medium-sized businesses in the Puebla area who showed interest in obtaining mentoring services. Of the 450 sample firms, 150 were randomly selected to receive consulting and mentoring services offered through the IPPC, as well as a subsidy intended to support business operations. Mentors worked with the firms, consulting on a variety of topics relevant to business development.  Though the interactions between mentors and firms was unscripted and varied based on the needs of individual businesses, mentors provided guidance and support with respect to goal planning, business strategy, human resources solutions, and market analysis, in addition to discussing other strategies for how to increase profitability.

Results: 

Results forthcoming.

Returns to Consulting for SMEs

Policy Issue:

Small businesses are often believed to serve as engines for innovation, employment and social mobility, due to their flexibility in responding to new opportunities and their potential for rapid growth. In developing countries, SMEs make up a particularly large part of the economy, yet data suggests that very few small enterprises in developing countries grow into larger businesses. Human capital constraints on growth might be even more severe than financial constraints if having adequate managerial skills in place is a prerequisite for accessing other resources. However, the market for business skills training is prone to under-investment. Young people and new market entrants are often credit constrained from investing in their own training--even though it would be privately and socially efficient. Second, a perception exists that managerial skills must be learned through experience, rather than taught. These forces lead to an under-investment in business skills training. This pilot study will look at the various constraints hindering SME growth and evaluate whether graduate business students providing consulting services to small business can be an effective conduit for skill transfer.

For additional information on current SME Initiative projects, click here.

Context of the Evaluation:

This study is implemented in metro Manila, an area with a large population of small and medium enterprises (SMEs). Within Makati, the sub-district of Manila where this study takes place, there are over 26,000 businesses registered with the local government. Many of these are SMEs spanning a range of industry sectors, including retail, services, manufacturing, real estate, finance and consulting, trading and wholesale.  

Description of Intervention:

This study evaluates the impact of business skills training offered to owners and managers of SMEs.  Prior to the baseline survey, qualitative interviews were conducted with a sample of businesses meeting basic criteria (at least two years in operation, revenue between one and fifteen million Philippine Pesos, and operating in the retail, services (including restaurants/bars), manufacturing, trading and wholesale sectors).  These interviews included open-ended questions on what the business does, its operations, and its key constraints to growth.  The purpose of the interviews was to gather information on the specifics constraints affecting SMEs, including problems related to cash flow management, suppliers, clients, marketing, access to credit, human resources, and regulations.  The interview also recorded if the business's owner/manager would be interested in receiving free consulting provided by graduate students at the Asian Institute of Management (AIM).

The baseline survey was conducted with those businesses that expressed interest in the consulting and also indicated they were available for the duration of the consulting course.  Implemented in September 2011, the baseline collected data on business operations, human resources, marketing, revenue and costs, and access to and use of financial services, including credit. After the baseline, 25 businesses were randomly selected to receive consulting services while 60 businesses served as a comparison.

Over the course of two months, business owners/manages in the treatment group met regularly with two student consultants from AIM who were assigned to work with them. Meetings occurred approximately every two weeks at the business location and lasted for a few hours. Through these meetings, AIM student-consultants learned about the business and its operations and the business owners/managers discussed the constraints facing their business and the areas needing consulting assistance. The student-consultants then worked with the business owners/managers to develop strategies for addressing their key constraints.

The AIM students were concurrently enrolled in a course at AIM devoted to consulting for SMEs, and course assignments guided their work with the businesses. The students conducted assessments of business performance and submitted recommendations for improvements in the problem areas previously identified with the clients. They then worked with the business owner/manager to implement the recommendations.

Managers and owners of businesses in the treatment group also had the opportunity to attend a workshop provided by the AIM students, which presented specialized topics related to best practices for SMEs and also served as a networking opportunity with other entrepreneurs and small business owners in the area.

Surveys of both the treatment and comparison groups about six and 12 months after the initial training will help to determine if the consulting services helped business to improve operations, increase profits, and expand access to credit.

Results and Policy Lessons:

Results forthcoming.

Greg Fischer, Dean Karlan

The Impact of Secured Transactions Reform on Access to Capital for Small and Medium Enterprises in Colombia

Policy Issue: 
Small and medium enterprises (SMEs) are thought to be an important source of innovation and employment in developing countries due to their flexibility in responding to new market opportunities and their potential for growth. However, entrepreneurs face a number of barriers to expanding their businesses and employing more workers, including limited access to credit and other financial services. For many firms, especially small and medium enterprises, collateral requirements are often an obstacle for getting access to finance. Banks usually require potential borrowers to provide collateral such as land or real estate, and will not accept collateral in the form of movable assets such as vehicles, machinery, or inventory, which SMEs are more likely to own. This mismatch prevents entrepreneurs from applying for and receiving formal loans. Banks may be unwilling to accept movable assets as collateral if there is no legal framework to govern and enforce this type of lending or if they lack knowledge on how to conduct movable asset-based lending. It is possible that regulatory reform providing such legal framework will encourage banks to adopt movable asset-based lending, helping SMEs access much-needed credit to expand and grow. Additional research is needed to understand how such programs should be designed and to what extent such regulatory reform actually expands access to credit for individual firms.
 
Context of the Evaluation: 
While Colombia has made a lot of progress in recent years in increasing access to finance for SMEs, entrepreneurs still report that access to finance is among the largest constraints to operating their businesses.1 According to the 2010 World Bank Enterprise Surveys, over 41 percent of firms in Colombia identified access to finance as a major constraint to operating their businesses, which is roughly ten percentage points higher than the average for the Latin America and Caribbean region. At the same time, prior to 2013, Colombia had no legal framework to govern the use of moveable assets as collateral, which restricted the ability of SMEs to take out loans secured with movable collateral. 
 
The Colombian government, with support from the International Finance Corporation (IFC), an international development organization that focuses exclusively on the private sector, is introducing a new Secured Transactions Reform, which will provide a legal framework for the use and enforcement of movable collateral. The hope is that, by reducing the risk that banks face in accepting movable property as collateral, the reform will allow SMEs to use vehicles, industrial equipment, inventory, and other movable assets as collateral for their loans.
 
Details of the Intervention: 
In order to understand whether the Secured Transactions Reform has an impact on firm-level outcomes such as sales and employment, researchers will assign a randomly selected group of firms to receive extra encouragement to apply for loans under the new regulation. Out of a sample of 1000 SMEs across three Colombian metropolitan areas (Bogotá, Cali, and Medellín), 500 firms will be randomly selected to receive additional information and encouragement to apply for a loan secured with movable collateral. 
 
The remaining 500 firms will serve as the comparison group. 
 
Results and Policy Lessons: 
Project ongoing. Results forthcoming. 
 

1Enterprise Surveys, “Colombia (2010),” The World Bank. http://www.enterprisesurveys.org/Data/ExploreEconomies/2010/colombia

Antoinette Schoar

Evaluation of Female Supervisor Effectiveness in the Bangladesh Garments Sector

In recent years, the ready-made garment sector has experienced rapid growth in Bangladesh. While overall, most of these new jobs have gone to women, few of them have been in management. At the same time, firms are under pressure to increase productivity. Researchers are exploring whether a vocational training program can successfully improve productivity and help women advance into management. 
 
Note: This is not a fully randomized controlled trial.
 
Policy Issue:
Evidence suggests that the creation of secure, salaried jobs leads to a growing middle class and reduced poverty.[1] Increasing the productivity of medium and large-scale firms is thought to be one of the best ways to create these stable employment opportunities. As a result, policymakers and firms are both interested in programs that can improve productivity. A barrier to enhanced productivity is limited managerial expertise. Underperformance by management may arise from a lack of training or from failure to select the right managers. This study looks at the role of these two perceived constraints to productivity by evaluating the impact a vocational training program that prepares mostly female workers in the Bangladesh ready-made garment industry to become supervisors.
 
Context of the Evaluation:
The study examines the ready-made garment sector in Bangladesh, a sector that has historically played a crucial role in the early phases of the industrialization process. With labor costs rising in China, international buyers are increasingly sourcing from other countries. This has led to rapid growth of garment exports and employment in Bangladesh, with sector employment nearly doubling between 2002 and 2012.[2] However, pressure from foreign governments and multinational organizations to increase wages and improve working conditions could put the industry at risk if productivity levels do not also rise.
 
Skilled management could play a key role in increasing productivity. But factories may be reluctant to pay for training out of fear that workers will leave to work for a competitor, while low-wage workers may not have the money to pay for formal training outside of work.
 
Most of the recently created jobs have gone to women; about 80 percent of machine operators in the ready-made garment industry in Bangladesh are female. However, only about 5 -10 percent of supervisors are women.[3] It is possible that this limits communication and leads to quality defect and delays. Reducing this gender disparity could play an important role in increasing productivity.
 
Description of Intervention:
This project provided the GIZ Operator to Supervisor Training Program, which trains sewing machine operators to become line supervisors, to evaluate the impact of the training on female versus male participants and the effectiveness of female trainees who are promoted to supervisory roles. The program consists of 36 day-long training sessions held over a period of six weeks covering a variety of production, social, and leadership topics.
 
Seventy-seven factories agreed to participate in the training. Each factory was offered a number of spaces in the training session reserved for female and male workers to allow for comparison of outcomes across genders. The trainings were highly subsidized to incentivize factories to participate.
 
A baseline survey conducted with managers measured organizational and business practices. Additional surveys were conducted with training participants, workers nominated for but not (randomly) selected for training, and a sample of randomly-selected machine operators at three points in time: before the training, and four and ten months after training. Survey respondents also participated in a number of trust and communication exercises to measure effects of the program on collaboration between workers and supervisors. Detailed production level data was gathered in each factory throughout the study to measure the impact of the program on productivity, quality defects, working hours, and other productivity-related measures.
 
 
Results and Policy Lessons
Project ongoing. Results forthcoming. 
 

[1] Banerjee, Abhijit V., and Esther Duflo. "What is middle class about the middle classes around the world?." The journal of economic perspectives: a journal of the American Economic Association 22, no. 2 (2008): 3.
[2] Bangladesh Garment Manufacturers and Export Association (BGMEA), accessed September 24, 2014 http://www.bgmea.com.bd/chart/number_of_employment_in_garment#.U72ojfldX8o
[3] Gender ratios are based on factories participating in the first phase of this project.

Evaluating the Impact of Business Registration in Malawi

Millions of people in developing countries work in the informal sector, and in many countries there are significant barriers to registering one’s business and entering the formal sector. In this study, researchers are carrying out a randomized evaluation in Malawi to measure the impact of formalization on the business performance of micro-, small and medium enterprises (MSMEs).

Policy Issue:

Businesses in the informal sector typically grow more slowly, have poorer access to credit, and employ fewer workers than those in the formal sector.Household and business resources also tend to be strongly intertwined for those in the informal sector, resulting in the depletion of working capital. Bringing more businesses into the formal sector, which begins with business registration, may have numerous benefits, such as the ability to open a business bank account, acquire an export license, access business bank loans, and become eligible for government programs. This study assesseswhether becoming formal improves enterprise performance. It aims to determine if the benefits of business registration outweigh the costs, if both male and female-owned enterprises gain equally from registration, and if business bank accounts add value to formalization by helping business owners separate business from household money.

Context of the Evaluation:

In Malawi, the informal sector represents 93 percent of the non-farm small-scale enterprises.[1] Businesses in Malawi have faced significant barriers to formalization in the past. Malawi is streamlining its registration process to increase the registration rate amongst MSMEs. The Business Registration Impact Evaluation (BRIE) is a direct response to the interest of the Government of Malawi in evaluating whether or not business registration improves business performance. If a positive impact is detected in this study, the government plans to use the results of this study to promote registration. If no impact is identified, it plans to identify the corresponding bottlenecks that affect enterprise performance.

Details of the Intervention:

This study evaluates the impact of formalization—through business registration, tax registration, and business savings accounts—on enterprise performance.Participants consist of 3,000 informal MSMEs located in Blantyre and Lilongwe, the major commercial cities in Malawi. The study is being conducted over a four year period.

All 2,250 firms in the treatment groups are being offered free registration with the Department of the Registrar General (DRG) – which is the main step to firm formalization in Malawi. A random group of 300 firms is also being offered to register for taxes and obtain a tax identification number from the Malawian Tax Authority, allowing the researchers to test the additional value, if any, of this step in the formalization process. The remaining 1,200 firms in the treatment group were invited to information sessions by a local bank on the benefits of separating business from household money and offered business savings accounts. In short, the firms were randomly assigned to one of the following groups:

1)    Offered free business registration only (750 firms)

2)    Offered free business registration and tax registration (300 firms)

3)    Offered free business registration, invited to information sessions, and offered business savings accounts (1,200 firms)

4)    Comparison group – no intervention (750 firms)

The team is collecting extensive data over a four-year period to estimate the impact of the various interventions on business expansion, access to finance, and productivity of MSMEs. The outcomes of interest include measures of firms’ financial performance, investments in the business, survival rates, number and skill composition of employees, access to finance, number of customers, and harassment levels.

 
Results and Policy Lessons:

Results forthcoming.

The Impact of Credit Constraints on Exporting Firms

Improving access to credit is thought to help small- and medium- sized businesses participate in international trade, but existing evidence on the link between financing and exportation is mixed. This study evaluated the impact of credit constraints on exporting firms by examining two policy changes in India—one in 1998 that extended subsidized credit to businesses, and another in 2000 that revoked the subsidized credit for a portion of these businesses. Results showed that the 1998 credit expansion increased borrowing and improved export earnings for newly eligible businesses, and that businesses continued to borrow and earn more from exporting even after the subsidized credit was revoked.

Policy Issue:

Exportation is widely considered to be an important way for small and medium enterprises (SMEs) in developing countries to expand their markets, scale up production, acquire new technology, and mitigate risk. In many developing countries, the banking sector tends to under-lend to SMEs, meaning that businesses would be able to make additional profit if they could access more credit. This financing constraint is thought to be a possible barrier to increased exportation, as well as a constraint to SME growth in general. For this reason, governments in some developing countries work to promote SME financing through various reforms and interventions. However, there is mixed evidence on the link between access to finance and the propensity to export.[1] This study aims to shed light on the causal relationship between financing and exportation by looking at the impact of changes in the availability of subsidized loans to SMEs in India.

Note: This study is not a randomized controlled trial.

 
Context of the Evaluation:

The banking sector in India is largely dominated by public sector banks, which are corporate banks in which the government is the majority shareholder. Seventy eight percent of total deposits are collected by public banks, and 77 percent of total loans and advances are made by these banks. Until 1997, the Reserve Bank of India intensely regulated the amount of financing offered by banks, and they continue to be involved in determining bank lending policies. These rigid banking policies are thought to be one of the reasons that banks in India lend less than the amount that businesses would use to maximize profit.

In addition to the rigid policies discussed above, two other characteristics of the Indian banking sector are thought to cause under-lending. First, banks in India are slow to respond to changes in lending patterns, so banks will not necessarily start lending to certain types of firms even if recent data suggests that it would be profitable. Second, because the public sector is the majority shareholder of most banks in India, bank employees are considered public servants, and are therefore held to strict anti-corruption laws. Research shows that the fear of being prosecuted significantly reduces lending.[2]

To promote lending to the agriculture sector and small scale industries, sectors that the Indian government considers priorities, all banks in India are required to lend 40 percent of their credit at a subsidized rate to these sectors. Prior to 1998, small-scale industries were considered firms with investments below 6.5 million rupees. In January 1998, the cut off was raised, making larger firms suddenly eligible for subsidized credit. In January 2000, the 1998 reform was partially undone when the cut off was lowered again.

 
Details of the Intervention:

To measure the impact of increasing the amount of available credit on SMEs, researchers used the policy changes in 1998 and 2000 as the basis for a natural experiment.Data from the Center for Monitoring Indian Economy on 1000 firms in the manufacturing sector in India was used to assess changes in the international trade habits of exporting businesses when they were made eligible for credit subsidies and when those subsidies were revoked.

For the years 1999 and 2000, all new firms that became eligible for the subsidy formed the treatment group, while from 2001 to 2006 all firms that lost their eligibility formed the treatment group. Firms that were not affected by these policy changes were considered the comparison group in this evaluation.

 
Results and Policy Lessons:

Results show that the firms affected by the 1998 policy change were credit constrained. The rate of short-term bank credit for newly eligible firms increased by 18 percent and total bank borrowing increased by about 20 percent. Borrowing from other sources also increased, meaning that firms were taking advantage of more credit rather than substituting other sources of credit with subsidized credit.

The availability of credit for newly eligible firms led to a 22 percent increase in export earnings for these businesses. This supports the view that increased access to credit can cause higher levels of exportation. The study further shows that there is a positive relationship between exportation and firm growth and financial health.

The policy reversal in 2000 had little to no effect on bank borrowing and export earnings for the firms whose eligibility was revoked. This supports the view that the Indian banking sector tends to under-lend, since the increased credit access granted to the newly eligible firms in 1998 allowed these firms to grow rapidly. Given the positive performance of these firms, the banks had no reason to reduce their credit limit when the policy was reversed in 2000 and firms continued to borrow at the market interest rate.

It is important to note that while the 1998 policy change increased borrowing for newly eligible firms, it decreased borrowing for small firms that were already eligible for subsidized credit and larger firms that never qualified. Hence, the policy change resulted in a reallocation of credit from these firms to the newly eligible firms.

 


[1] Paravisini, Daniel, Veronica Rappoport, Philipp Schnabl, and Daniel Wolfenzon.Dissecting the effect of credit supply on trade: Evidence from matched credit-export data. No. w16975. National Bureau of Economic Research, 2011.

Bridges, Sarah, and Alessandra Guariglia. "Financial constraints, global engagement, and firm survival in the United Kingdom: evidence from micro data." Scottish Journal of Political Economy 55, no. 4 (2008): 444-464.

[2] Banerjee, Abhijit V., Shawn Cole, and Esther Duflo. "Bank financing in India." (2003).

 

Empowerment and Livelihood for Adolescents in Sierra Leone

Adolescent girls living in low-income settings may be trapped in a vicious cycle that prevents them from attaining employment and achieving better health outcomes and reproductive autonomy. Researchers will evaluate the impact of a program in Sierra Leone that aims to address this problem by bundling health education, vocational skills training, and micro-credit. They will evaluate the impact of these programs components, together and individually, on girls’ economic activity, engagement in sexual and risky behaviors, and future goals.

Policy Issue:

Adolescent girls in low income countries appear to be trapped in a vicious circle where low skills and poor labor market opportunities make girls turn to (often older) men for financial support; this increases the chances of childbearing that, in turn, further reduces the chances of acquiring useful skills and future labor force participation. In previous research in Uganda, researchers found that a combination of health education and vocational skills training can break the vicious circle. This study aims to assess where the causal chain starts, namely, whether it is the lack of health education, skills, or credit that keeps adolescent girls trapped in the vicious cycle of high fertility and low labor force participation.

 
Context of the Evaluation:

In Sierra Leone, teenage pregnancy and early childbearing are pervasive: of all pregnancies, 34 percent occur amongst teenage girls (SLDHS 2008) and 40 percent of maternal deaths occur as a result of teenage pregnancy (MICS 2010). In 2013, the Government of Sierra Leone launched a Strategy for the Reduction of Teenage Pregnancy, which aims to reduce the adolescent fertility rate by 4 percentage points by 2015. As part of this strategy, the government has partnered with UNICEF and BRAC to implement the Empowerment and Livelihood for Adolescents (ELA) program. BRAC is implementing the ELA program in six countries globally. In Africa, the program has already been implemented and evaluated in South Sudan, Tanzania, and Uganda.

 
Details of the Intervention:

Researchers designed a randomized evaluation, which is being implemented by IPA, to evaluate the impact of the ELA program and its various components on girls’ economic activity, engagement in sexual and risky behaviors, and aspirations. In addition, they will assess if the program affected girls who did not participate in the program but have social ties with those who had. 

The program operates from adolescent development centers, or “clubs,” staffed by BRAC trained mentors, who are older adolescent girls from the same communities. Researchers will evaluate the following three program components, together and individually:

  • Health education ("life skills training") which is mostly delivered by trained mentors, covers the following topics: sexual and reproductive health, early pregnancy, menstruation and menstrual disorders, leadership among adolescents, gender, sexually transmitted infections, HIV/AIDS, family planning, gender-based violence, and adolescent responsibility within the family and community. Group learning is encouraged through participatory classroom trainings. In addition, the girls receive issue-based sexual and reproductive health training from the BRAC Health Program. Girls aged 13-24 can participate in the health education training.
  • Vocational (“livelihood”) training covers the skills required to engage in different income generating activities and financial literacy. Girls can choose to receive training in hairdressing, tailoring, animal husbandry, or agriculture. The training lasts about a month and is delivered by local service providers in Sierra Leone. The financial literacy module covers topics such as budgeting, financial services, financial negotiations, and accounting. Following successful completion of training, trainees receive input supplies to start their chosen business activity. To prevent school dropout, only girls aged 17-24 are eligible for training.
  •  Microcredit  Eligible girls who are engaged in a self-employment activity will be offered credit of up to US$100 to finance their business. The loan duration will be one year with an annual interest rate of 25 percent and weekly repayments. Girls aged 17-24 are eligible for credit.

Participants will be randomly assigned to one of the following four groups, each consisting of 50 villages and 1,400 adolescent girls:

(1)  Health education

(2)  Health education, vocational training

(3)  Health education, vocational training, microcredit

(4)  Comparison group: No program

Results from this replication study will allow for a cross-country comparison of the program’s effects and help to build the evidence on the program’s impact. In addition, by introducing different treatment groups this evaluation aims to separate the effects of the programs different components, which will provide important information to partners on how the program should be expanded. Moreover, information drawn from individuals about the relationships they have with others in their village, known as social networks data, will reveal how information and skills acquired by program participants spreads to non-participants.

Results and Policy Lessons:

Results forthcoming.  

Read more about the ELA Sierra Leone program here

Read about previous research on the program in Uganda here.

The Impact of Computer-generated Credit Scores on Lending in Colombia

Small and medium enterprises are seen as promising engines of growth in developing countries but often fail to live up to their potential because of barriers to growth such as limited access to credit. Researchers used a randomized evaluation to measure the impact of introducing computer-generated credit scores on lending to micro and small enterprises in Colombia. The program significantly increased productivity in the loan approval process and improved allocation of credit without affecting average loan amounts and default rates.    

For additional information on current SME Initiative projects, click here.

Policy Issues:

Small and medium enterprises (SMEs) are thought to be an important source of innovation and employment in developing countries due to their flexibility in responding to new market opportunities and their potential for growth. However, entrepreneurs face a number of barriers to expanding their businesses and employing more workers, including constrained access to credit.

Whereas assessing the credit-worthiness of prospective borrowers has become relatively cheap and easy in developed countries through the use of credit scoring, in developing countries this process can be cumbersome in the absence of reliable information about the  credit or financial history of potential bank clients. The high costs associated with assessing the riskiness of loan applicants can outweigh the financial returns of lending, making banks reluctant or unable to make loans to SMEs. Credit scoring has been used successfully in the United States and other developed countries to reduce the cost of identifying creditworthy applicants, but there is little evidence on whether computer-based credit scoring might work in developing country contexts.

 
Context:

Researchers partnered with BancaMia, a for-profit bank that lends to small and medium businesses in Colombia. Prior to this study, BancaMia made all of its lending decisions based on information collected by loan officers. Applications incorporating the collected information were reviewed by a credit committee, who could approve or reject them. In difficult cases, the committee could also refer the application to upper-level managers or postpone their decision until more information was collected. The loan approval process under this system was under the discretion of the committee and was very expensive due to the high number of referrals and rounds of information collection. In an effort to improve its loan approval process, BancaMia developed its own credit scoring software, which produces a credit score based on verifiable client information.

Details of the Intervention:

Researchers, in collaboration with BancaMia, used a randomized evaluation to measure the impact of the credit scoring software on the loan approval process and loan outcomes.  

Out of  1421 loan applications that were scored through the new software, 1086 scores were randomly chosen to be revealed to the committee.  Scores were revealed either at the beginning of the application review process or after the committee had finished an initial review and made an interim decision about whether or not to offer a loan. Although the committee in the latter case did not know the applicant’s exact score, they did know that a score could become available once they reached a decision.

Researchers collected information about various aspects of the loan approval process (e.g., the average time spent evaluating an application, the number of approvals and rejections issued etc.) as well as loan performance and default rates.

Results:

Impact on Credit Committee Effort and Output:

Revealing the computer-generated credit scores at the beginning of the application review process  increased both the probability of the committee making a decision and the amount of effort put into the review. Seeing the score in advance raised the probability of the committee reaching a decision by 4.6 percentage points from a base of 89 percent. This change was driven by the reduction in the number of applications referred to bank managers and  the number of cases for which the commitee requested more information to be collected for a second round evaluation. In addition, the committee spent more time evaluating loan applications, especially the difficult cases (e.g., applicants that requested larger loans).

The committee also became more productive when it knew that a score would become available after the initial evaluation. The anticipation of seeing a score increased the probability of the committee making a decision to approve or reject an application by 3.9 percentage points. This improvement in committee productivity even in the absence of a credit score suggests that the committee might already have had the necessary information to make decisions on difficult applications, but lacked the incentives to use this information efficiently.

Impact on Loan Allocation and Outcomes:

Although providing computer-generated scores to the committee did not affect loan outcomes such as the average size of loans issued or default rates among borrowers, it did improve credit allocation. Computer-generated credit scores reduced uncertainty about borrowers’ creditworthiness, allowing banks to extend larger loans to less risky borrowers and smaller loans to riskier borrowers. As a result, there was no change in average loan size issued, but the bank was better able to match its lending to borrower characteristics.

Considered together, these results show that the credit scoring program had significant impact on the bank’s productivity. Specifically, summarizing the credit worthiness of prospective borrowers into a single, easy to understand number increased the quantity of difficult cases that the credit committee resolved. The score also nudged committee members to put in more effort on difficult applications. This could potentially reduce the workload of bank managers and reduce the cost of administering loans for the bank. The increase in productivity without providing new information to the credit committee also implies that banks may need to better incentivize their employees who hold useful information.

Related Paper Citations:

Paravisini, Daniel, and Antoinette Schoar. "The Incentive Effect of IT: Randomized Evidence from Credit Committees." NBER Working Paper No. 19303, August 2013.

Interfirm Relationships and Business Performance

Business networks can play an important role in firm growth, but in many developing countries, limited information sharing systems and poor contract enforcement mechanisms may make it difficult for businesses to establish relationships with the best set of partners. Governments in some developing countries work to address this challenge by organizing business associations that are meant to promote networking. This study evaluates one such program in Nanchang, China in which some firm managers are randomly assigned to participate in small group meetings for one year. Variations in the intervention will offer insight into the mechanism behind the impact of business connections and the optimal design for networking programs.
 
Policy Issues:
Small and medium enterprises (SMEs) are thought to be an important engine of economic development, but in many low income countries, SMEs face significant barriers to growth, often caused by failures in local market systems and institutions. Much of the existing research on constraints to growth for SMEs focuses on interventions that target firms on an individual level, such as access to finance or managerial expertise. However, businesses rely on relationship for knowledge on business practices, loans in the form of trade credit, necessary inputs, and a range of other opportunities. Business connections may therefore play an important role in the success of a firm. However, limited information sharing systems for partner identification and poor contract enforcement mechanisms found in many developing countries may make it difficult for business managers to connect with the best set of partners. Governments in some developing countries work to address this barrier by organizing business associations that are meant to promote networking. However, limited research on business networks exists to inform program design. This study looks at the overall impact of a business networking program on firm performance, and variations in the intervention offer insight into whether and how business networks facilitate information sharing and peer training. The study further examines how group composition and meeting frequency breakdown barriers to business networking by building trust and facilitating information flows.
 
Context:
Over the last decade, Nanchang, the capital of Jiangxi province in southern China, experienced rapid economic growth. This was accompanied by the creation of a large number of new firms, including over 30,000 SMEs formed between 2012 and 2014. According to local policymakers, establishing new business connections is a key challenge faced by managers of these firms as they work to grow their business. 
 
Details of the Intervention:
In the summer of 2013, managers of 11,000 recently-formed SMEs were invited to participate in the study. Participating firms had on average 33 employees and were primarily in the manufacturing, software, or business services sectors. Managers of 1,400 firms were randomly assigned to participate in meetings with other managers. The managers met in the same group of 10 participants every month for one year. The remaining 1,000 managers were assigned to a comparison group that did not participate in meetings.
 
The first business meetings were organized in collaboration with the Commission of Industry and Information Technology (CIIT) in Nanchang, a government department that works with small businesses. All subsequent meetings were organized by the participating managers themselves.
 
To explore the mechanism behind network formation, the groups were further divided. First, to gain insight on the role of networks in the spread of information, some managers from the meeting and non-meeting groups were provided with information about a new loan product. Researchers will compare the spread of information between those who meet regular and those who do not participate in organized meetings.
 
To learn about the motivation behind business connections and the effects of group composition on peer training, meeting groups were varied so that some included managers from similar firms and other include managers from firms that differed in size and industry. To explore whether managers are lacking connections with other managers from similar firms or different firms, researchers will compare the number of new connections made in the two group types. The difference in the number of connections made will also offer insight into whether connections are driven by active choice or chance. Researchers will additionally compare changes in managerial skill and profitability to learn about the level of peer training in different groups.
 
Finally, to learn more about two key barriers to network creation, poor contract enforcement and limited information sharing systems that make it difficult for managers to identify potential partners, researchers will explore the impact of one-time cross-group meetings which will take place about six months after the monthly meetings begin. These meetings should break down the partner identification barrier, but levels of trust, which may be more important in the absence of strong contract enforcement mechanisms, are expected to be higher between managers who meet repeatedly. Researchers will compare connections made in one time meetings with those resulting from repeat meetings and will also conduct trust games with participants who meet just once and those who meet repeatedly.
 
A baseline survey collected information on business performance, managerial practices, and detailed information on social connections and business partners. Firms will be resurveyed after the year of monthly meetings has concluded and one year later.
 
Results and Policy Lessons:
Project ongoing. Results forthcoming.

 

The Impact of Business Training and Capital for High Potential Entrepreneurs in Colombia

Small and medium enterprises (SMEs) are thought to be important drivers of growth in developing economies, but entrepreneurs in these countries face many barriers, including poor access to training, finance, and business networks. In Colombia, Fundación Bavaria’s “Destapa Futuro” (Open the Future) program identifies promising enterprises and provides them with a suite of financial, technical, business, and training resources. Researchers found that the trainings did not affect key business outcomes, such as sales and profits, but helped entrepreneurs to expand their business networks. 
 
For additional information on current SME Initiative projects, click here.
 
Policy Issue:
Small and medium enterprises (SMEs) are thought to be important sources of innovation and employment in developing countries, due to their flexibility in responding to new market opportunities and their potential for growth. However, entrepreneurs face a number of barriers to expanding their businesses and employing more workers, including constrained access to credit, lack of management skills, and unfavorable government regulation. Business training, capital, and mentorship are possible tools that could help SMEs overcome these barriers, but existing evaluations of business training programs and capital injections for entrepreneurs have found mixed results. Additional research is needed to understand how training programs should be designed and delivered in order to best help entrepreneurs develop their operations and foster economic growth.
 
Context of Evaluation:
Fundación Bavaria, a foundation started by one of the largest beverage companies in Colombia, works to foster entrepreneurship in Colombia through an intensive, year-long program called “Destapa Futuro” (Open the Future). The program uses a competitive process to identify entrepreneurs with promising business plans or small start-ups and provides them with business training, capital, technical advice, and the opportunity to network with investors. Since 2005, Bavaria has spent close to $10 million on the program, trained thousands of entrepreneurs, and financially assisted more than 200 businesses. 
 
Destapa Futuro targets relatively experienced and educated entrepreneurs. The average participant was 36 years old, had 16 years of education, and had four years of experience as an entrepreneur. Seventy-three percent were male. During the fifth round of Destapa Futuro in 2010-2011, these participants received business training from two organizations that support entrepreneurs, the Centro de Formación Empresarial (CFE) and Endeavor Colombia. 
 
Description of Intervention:
Researchers evaluated Destapa Futuro’s impact on business outcomes, the difference between the two organization’s different training strategies, and the relative impact of receiving prizes in cash or in kind. In order to participate in the program, entrepreneurs completed an online application, which included questions on business characteristics, leadership potential, experience in business administration, and potential social impact. From the database of 8400 applications 475 candidates, half of them with business plans and the other half with existing start-ups, were selected and ranked. 
 
This pool of 475 entrepreneurs was divided into three groups:
  • The top 25 entrepreneurs all received the Endeavor training. Because their participation in the training program was not randomly assigned, they were not part of the study sample.
  • The following 100 entrepreneurs were randomly assigned to receive training from either Endeavor or CFE.
  • The remaining 350 entrepreneurs were randomly assigned to either the CFE training group or the comparison group, which did not receive any training.
Both the Endeavor and CFE trainings included modules on financial management, marketing and business plan development. Endeavor offered an in-person training, delivered in two two-day sessions. All classes had a maximum of 20 entrepreneurs per trainer. In addition to lectures, each entrepreneur participated in several one-on-one discussions with program coordinators, trainers and mentors. CFE used a combination of online learning and in-person classes.  In the online component, which consisted of four modules over one month, participants were assigned to groups of 18-21 students. They completed online modules with homework assignments, participated in online forums, and collaborated via email and phone. The entrepreneurs who completed homework and participated in forums were eligible for the in-classroom training, which consisted of four days of classes with the same tutor assigned during the online training. 
 
After the CFE and Endeavor trainings were completed, the 100 entrepreneurs with the best business plans and course performance were selected to receive an additional coaching session in preparation for the business plan presentation that would determine the prize winners. The coaching session provided contestants with feedback on content and style of their presentations. After the presentations, the best 60 entrepreneurs were awarded a prize to fund their business.
 
In order to test how having the flexibility to choose how to spend the prize money affected business outcomes, half of the winners were randomly assigned to receive cash, and the other half received an in-kind prize. Cash prizes ranged from about 5,600 USD to 56,000 USD (10-100 million COP). Fundacion Bavaria determined the nature of the in-kind prizes based on the entrepreneur’s requests and available resources, and they included business equipment, marketing and advertising materials and other business investments.  Forty winners were also randomly selected to receive mentorships with Bavaria executives, who listened to business plan presentations, gave advice, and suggested potential contacts.
 
Results and Policy Lessons:
Impact on business outcomes: Entrepreneurs who participated in the CFE training did not have higher sales, costs, profits or number of employees than the entrepreneurs who did not receive any training.  Entrepreneurs in the CFE training were just as likely to start a company as entrepreneurs who did not receive training. Similarly, entrepreneurs who participated in the Endeavor training did not have significantly different business outcomes compared to those who participated in the CFE training.
 
One of the goals of the Destapa Futuro program was to help entrepreneurs expand their business networks by meeting fellow entrepreneurs, trainers and mentors. Entrepreneurs in the CFE training who did not have existing start-ups were more likely to secure a contact with a partner, ally or investor than entrepreneurs who did not participate in the training. The Endeavor training was more beneficial for network expansion for entrepreneurs with existing start-ups, while the CFE training was more beneficial for entrepreneurs with business plans only.
 
In-kind versus cash prizes: Compared to recipients of cash, winners of in-kind prizes did not have significantly different sales, profits or costs. The type of prize also did not influence investment choices of entrepreneurs, with the majority investing their winnings into machinery and equipment. Since the type of prize did not affect outcomes of entrepreneurs, and it was logistically easier and faster to disburse cash prizes, in this context cash may be a preferred option.
 
In the sixth round of Destapa Futuro, Bavaria Foundation modified the program to be more financially sustainable while providing more personalized support to entrepreneurs.

Analyzing the Impact of Availability of Finance for Dealers in Second Hand Vehicle Market

Resale markets for repossessed assets are often fragmented, illiquid and poorly functioning in emerging markets. In many markets, SMEs and brokers with limited access to finance dominate the asset resale market which leads to high transactions costs and low liquidity in these markets. Not only can this lead to poor price realization in these asset resale markets, but more importantly it can have economy wide effects on access to finance, since banks use assets as collateral. If the price of this collateral at the point of resale is depressed, banks will not be willing to give large loans against the full value of the collateral. Therefore, this projects aims to test how improvements in access to finance for dealers in local resale markets can improve the pricing, volume and liquidity. We focus on the market for used vehicles in India and work with a local financial institution to provide lines of credit to a randomly chosen subset of dealers to test the impact of liquidity on the secondary asset market.  We will evaluate the bidding behavior and returns to capital for the dealers and the market wide impact on the pricing and turnover of assets and (e.g. bids, volume, and final price). 

For additional information on current SME Initiative projects, click here.

 

Antoinette Schoar

Credit, Change, and Lost Sales: The Surprising Impact of Small Change on a Firm’s Profitability in Kenya

Highlighting the importance of carrying correct change helped firms to change their behavior and increase profits.

Policy Issue:

Small businesses in developing countries are thought to face numerous challenges in their efforts to expand and increase profitability. While credit and human capital constraints (i.e. lack of training) have frequently been highlighted as potential barriers, another constraint may be limited attention. Most people face constant tradeoffs between investing attention in work versus in other matters, such as homelife. The poor may face comparatively greater challenges in maintaining their homefront (because of higher rates of illness, for example), which may divert attention away from their work. It is possible to test whether this limited attention reduces productivity by focusing on one particular business decision for small firms: how much change to keep on hand to break larger bills. Not having proper change can have an impact of a firm's profit level. If a firm does not have sufficient small bills or coins to give a buyer change, the buyer may choose to buy the item elsewhere and the firm would lose the sale. Evaluation estimates suggest that the average firm in Western Kenya loses 5 to 8 percent of profits due to lost sales because of a lack of small change.

Context of the Evaluation:

The businesses included in this evaluation, which were randomly selected from ten market centers in Western Kenya, included barbers, tailors or other artisans, market vendors, and hardware shops. The typical business was small - only 16 percent of businesses had any salaried workers - and approximately 55 percent of firms were operated by women. Losing sales because of insufficient change was a common problem for these firms. At the baseline, over 50 percent of firms reported having lost at least one sale in the previous 7 days because they did not have sufficient change. Furthermore, firms spent over 2 hours on average looking for coins or small bills in the previous 7 days. Even firms that had not lost any sales in the past week spent over an hour and a half searching for change for customers.

Design of the Intervention:

To understand whether firms run out of change because they do not fully internalize the profits they are losing, the evaluation proceeded in two phases. First, a field officer visited each firm on a weekly basis to administer a short “changeout” questionnaire, which asked a number of questions about change management, including the number of times they ran out of change (i.e. the number of “changeouts”), the number of lost sales due to changeouts in the previous 7 days, the value of these sales, how much time they spent searching for change, and how often they gave or received change from nearby firms. The survey also asked about total sales and profits. Although the survey did not provide any training or information about change, or any direct "reminders," it may have served as a catalyst for firms to start altering behavior, as lost sales and profits due to poor change management became more salient. To measure this effect, the start date for the changeout questionnaire was randomized across firms. This enabled an estimation of the impact of the visits themselves, by comparing lost sales between those firms that started the survey earlier to those that started later.

The second intervention more explicitly emphasized the costs of having insufficient change. After following firms for several weeks, researchers calculated the lost sales for each firm due to insufficient change as well as the market average. This information was then presented to a randomly selected subsample of firms.

Results and Policy Lessons:

Impact on frequency of changeouts: Veteran firms, meaning firms that had joined the survey early, were, on average, 6 percentage points less likely to experience a changeout in a given week than firms who we had just begun the changeout survey. Firms who were randomly selected for the information intervention were similarly 8 percentage points less likely to experience a changeout than those not selected.

Impact on lost revenue and profits: Veteran firms, because they had fewer changeouts, also lost less income due to lost sales. Specifically, lost revenue for veteran firms decreased by 32 percent and lost profits decreased by 25 percent. Additionally, they also lost fewer sales whileaway from their shop to get change during the day. The information intervention also reduced lost revenue by 43 percent and lost profits by around 33 percent.

Impact on behavior: Firms that had been in the survey longer seemed to bring in more change to work each morning, but the results were not statistically significant. These veteran firms also visited nearby firms for change on average 2.4 fewer times per week and shared change with other businesses on average 1.1 fewer time per week. Similarly, upon receiving the information, intervention firms began receiving change 1.6 fewer times per week and sharing one fewer time per week. Estimates indicate that overall, behavioral changes resulted in a 12 percent increase in profits.

As the weekly surveys provided no skills training, nor any direct information, it is most plausible that they served as a reminder which made the importance of changeouts and the amount of money being lost more salient. While the information intervention provided some new information (the average behavior of other firms), the firm-specific information would have already been known to firms if they had processed the information. Thus, a likely explanation for the results is that firms were not paying attention to the lost sales to change, and the interventions reduced the cost of processing the information already available to them.

Identifying Gazelles among Micro and Small Enterprises in Ghana

This study examines methods of identifying microenterprises with higher growth potential in developing countries. Researchers surveyed 335 small businesses in Ghana, invited them to participate in a business plan competition, and then tested whether business plan competition judges or survey instruments were better able to identify firms that would grow faster. Both methods worked to predict growth, but survey data were slightly more predictive, and the best growth estimates resulted when both methods were taken together. Training offered to enterprises had no effect, regardless of firm or owner characteristics.
 
Policy Issue:
A large number of very small enterprises exist in developing countries, but very few ever scale to a point at which they hire additional employees, despite interventions meant to spur growth in this sector.1 If the microenterprises with higher potential for growth could be identified, resources currently spent on interventions provided to the full set of microenterprises could be diverted to provide more intense support to a much smaller target population. Researchers tested various methods used to identify such businesses and explored whether training could help them achieve growth.
 
Context of the Evaluation:
This project targeted self-employed small business owners with modest levels of formal schooling and substantial experience running businesses in urban Accra-Tema and Kumasi. Rather than focusing on a few large businesses, the project aimed to identify a greater number of self-employed entrepreneurs, each with the potential to create a small number of new jobs. These individuals are not likely to be operating cutting-edge businesses but are great in number and provide products and services that are fundamental to the functioning of the local economy, including areas such as business services (e.g., marketing services), retail trade, and basic manufacturing (e.g., producing soap).
 
Description of Intervention:
Enterprises were identified through the publication of a business plan competition by radio, newspaper, and door-to-door marketing in neighborhoods containing large numbers of small businesses. To participate in the competition, applicants submitted a form with basic information to ensure compliance with eligibility criteria. Eligible entrepreneurs had to be between the ages of 20 and 55 and be owners of a business that had been in operation for at least one year with two to 20 employees.
 
Three hundred thirty-five applicants were invited to participate in a three-day program, offered by CDC Consult Limited, designed to guide them in writing a basic business plan. Training participants were asked to submit and present a business plan to a panel of four judges. Each panel, comprised of consultants and successful business owners, scored 12 to 16 business plans on several criteria.
 
Half of the entrepreneurs were chosen to receive more intensive follow-on training. The selection was random with probabilities increasing with the panel ranking. Those in the top quartile of the rankings had a 75 percent probability of receiving training; the middle two quartiles had a 50 percent chance, while those in the lowest quartile had a 25 percent chance. This second round of training by the National Board of Small Scale Industries consisted of a six-day group course based on the International Labor Organization‘s “Improve Your Business” model. CDC Consult Limited provided individual consulting advice after this course.
 
A baseline survey was conducted before the initial three-day business plan training course. The survey gathered information on the owner, the history of the business, and enterprise-level data on assets, current employees, and sales and revenues. It also included measurements of risk aversion, numeracy, logical skills, personality diagnostics, and other measures from the entrepreneurial psychology literature. To track growth, follow-up surveys were conducted with all applicants one and two years after the business plan competition. Growth measures included level of sales, profits, and investment, along with the number of paid employees.
 
Results and Policy Lessons:
Survey data measured five categories: ability, management practices, access to credit, and two attitudes, one an outlook on the potential for growth and another combining trust, optimism, and internal locus of control. The ability measure - a combination of non-verbal reasoning tests, numeracy tests, years of formal schooling, and financial literacy - was significantly associated with growth as were management practices measured at baseline. Access to credit and both attitude measures were not associated with growth.
 
The two summary scores provided by the panel of judges, overall prospect of growth and how attractive the enterprise would be to an angel investor correlated highly with growth. Compared with the survey data, the panel scores did not explain quite as much of the variance in growth, however. The two measures together were a stronger predictor of growth than either one alone. The survey measure was somewhat better at predicting growth for more competitive contenders, while panel scores were more useful for separating out those at the bottom of the distribution.
 
The evaluation of the final intensive training found little effect on growth, regardless of firms’ panel or survey scores. In fact, on average, the training had a slightly negative effect on firm growth and was associated with some firms exiting the market. This finding is consistent with a number of other recent studies that find training has little or no effect on firm growth.
 

1Schoar, Antoinette. “The Divide between Subsistence and Transformational Entrepreneurship.” In Innovation Policy and the Economy, Volume 10, 57–81. University of Chicago Press, 2010. http://www.nber.org/chapters/c11765.pdf.

What Generates Growth in Microenterprises? Evidence from Sri Lanka

This study examined constraints that might be keeping small businesses in developing countries from growing and hiring more employees. To test interventions that might help spur growth and hiring, researchers offered a sample of male-owned businesses with two or fewer employees different combinations of capital, incentives to hire new employees, and management training. 

Policy Issue: 

Very small businesses are abundant in many developing countries, but few grow to the point where they employ more than one person. If even a small percentage of these microenterprises were able to scale up enough to hire a few employees, a significant number of new jobs could be created. While some research suggests that injections of capital into microenterprises increase profitability, there is little evidence suggesting that this profit increase would help a business grow enough to require additional employees. Is it possible to generate growth from microenterprises which leads to significant job creation?

Context:

The study focuses on microenterprises with two or fewer employees, located in urban areas of, Colombo, Kandy, and Galle/Matara in Sri Lanka. The 1,525 microenterprises in the sample were engaged in either the retail sector or manufacturing and service industry. Only male-owned enterprises were included in the sample because previous work showed that capital alone had a much larger effect on male-owned businesses.[1]

Details of the Intervention:

In this randomized controlled trial, three constraints thought to inhibit firm growth were relaxed: capital, labor, and entrepreneurial skills. A matched savings program was used to address capital constraints (details below). To incentivize hiring additional employees, a wage subsidy was used, and an entrepreneurial training based on the International Labor Organization’s (ILO’s) Improve your Business (IYB) program was used to improve entrepreneurial skills. Enterprises in the sample received either zero, one, or two of the interventions to determine which one, or combination was most effective. The group of businesses that did not receive any support was tracked as a comparison group.

Matching Savings Program

In November 2008, enterprises in this group were offered a matched savings bank account with National Savings Bank. Participants were told that they could deposit, but not withdraw, funding until August 2009. Savings were initially matched at a rate of 50 percent up to 1000 Sri Lankan Rupees (LKR). The match rate was later raised, ultimately reaching a maximum match of 100 percent up to 5000 LKR. Just before the account was unlocked, 5000 LKR was added to every account, regardless of previous deposit patterns to ensure that all enterprises in this group had some capital injection.

Business Training

The ILO’s IYB training program is one of the most widely implemented entrepreneurship training programs, reaching approximately 4.5 million people around the world.[2] IYB is a five day program intended to generate growth in microenterprises. The modules cover marketing, buying, costing, stock control, record keeping, and financial planning. The Sri Lanka Business Development Centre (SLBDC) delivered the ILO’s IYB training. Additional training on hiring and managing employees was added to the core modules.

Wage subsidy program

The subsidy provided a flat amount of 4000 LKR per month for a period of six months to businesses in this sample that hired an additional employee to work at least 30 hours per week. A flat amount of 2000 LKR per month was offered for an additional two months. The initial subsidy of 4000 LKR represented about half of the earnings of a typical unskilled worker.

Semi-annual follow-up surveys were conducted in 2009, 2010, 2011, 2012 and early 2013. The large number of surveys over a long time period enabled researchers to trace the trajectory of impacts.

Results and Policy Lessons:

Project ongoing. Results forthcoming. 


[1] De Mel, Suresh, David McKenzie, and Christopher Woodruff. "Returns to capital in microenterprises: evidence from a field experiment." The Quarterly Journal of Economics 123.4 (2008): 1329-1372.

De Mel, Suresh, David McKenzie, and Christopher Woodruff. "Are women more credit constrained? Experimental evidence on gender and microenterprise returns." American Economic Journal: Applied Economics (2009): 1-32.

[2] “Start and Improve Your Business Programme,” International Labor Organization, accessed June 3, 2014, http://ilo.org/empent/areas/start-and-improve-your-business/lang--en/index.htm.

The Impact of Exporting: Evidence from a Randomized Experiment in Egypt

This study evaluates a program that seeks to improve market access by matching Egyptian carpet making SMEs with buyers in western markets.

Policy Issue: 

In many developing countries, small and medium enterprises (SMEs) employ a substantial portion of the population.[1] Many of these countries have government-sponsored trade-facilitation programs[2] based on the assumption that increased exports will spur local SME growth and help local economies. However, several studies have questioned the assumption that exportation to western markets raises aggregate productivity.[3] Additionally, the actual impact of increased SME market access on household welfare is unknown, making it difficult for policy makers to assess whether trade-facilitation methods are a cost-effective poverty reduction strategy. Finally, little is known about what specific firm characteristics are conducive to exportation.  Evidence on this subject would allow policy makers to implement more targeted export promotion programs.

Context of the Evaluation: 

The project is set in Fowa, a peri-urban Egyptian town with a population of 65,000. The business owners participating have a per capita income of about $400 annually, well below the national average of $2,250. The study focuses on small enterprises with a single employee, the majority of which have not knowingly exported in the past.

Details of the Intervention: 

A baseline survey conducted in July 2011 collected information from a sample of carpet-making SMEs on production techniques and quality levels, firm owner characteristics, and owners’ household indicators. A randomly chosen set of these firms were offered the opportunity to produce orders generated by a local carpet distributor destined for retailers in the United States and Europe. The orders were for a significantly higher quality carpet than the typical product produced by these firms for the domestic market. Periodic surveys capture changes in firm profits and weaver incomes. The goal of this study is to offer evidence on the link between exportation, firm performance, and family income levels that will help policy makers both assess the role of export promotion in poverty reduction and design more targeted programs.

Results and Policy Lessons: 

Project ongoing. Results forthcoming. 


[1] IFC: Scaling-Up SME Access to Financial Services in the Developing World 2010

[2] Cadot, Olivier, et al. 2011. "Impact Evaluation of Trade Assistance: Paving the Way." Where to Spend the Next Million?

[3] Melitz, Marc J. 2008. "International trade and heterogeneous firms." New Palgrave Dictionary of Economics.

Clerides, Sofronis K., Saul Lach, and James R. Tybout. 1998. "Is learning by exporting important? Micro-dynamic evidence from Colombia, Mexico, and Morocco." The Quarterly Journal of Economics 113.3: 903-947.

Bernard, Andrew B., and J. Bradford Jensen. 1999. "Exceptional exporter performance: cause, effect, or both?." Journal of international economics 47.1: 1-25.

The History of Growth of Micro, Small, and Medium Sized Enterprises

Understanding the transition from micro to small and medium enterprises (SMEs) in developing countries could help inform both the problem of the “missing middle” in the firm size distribution, and potentially play an important role in mapping a path for development. However, a fundamental question is whether, and how, SMEs in developing countries grew from micro enterprises, or if they began as SMEs. This project seeks to shed light on the inception point and possible transition of current SMEs through a survey of microenterprises and SMEs in Kolkata, India. The survey uses a novel design aimed at capturing not only current firm characteristics, but also the history of each enterprise, in an effort to better illustrate the development of the business through time. It asks business owners to track items of interest, such as an asset or laborer, that was present at the start of the business and to then follow the life of items added and removed after business start. Additionally, the survey is designed to track both positive shocks, such as innovations to production, and negative shocks, such as family illness, that the business faced. It will be supplemented with questions about the entrepreneurs designed to capture entrepreneurial propensity, motivations for entering or exiting self-employment, labor and education history, and ability. Armed with this historical picture of the entrepreneur and his businesses, the study aims to map the trajectory of growth from start to present of both current and failed microenterprises and SMEs.

While the descriptive nature of this research project is unique in its methodology, the grander goal of the endeavor is to help inform in what step of the life cycle of their business entrepreneurs are particularly constrained. This knowledge will be used as a basis for future studies on the growth of SMEs.

Note: This research project is not a randomized controlled trial.

Erica Field, Rohini Pande

Are SMEs Leaving Returns to Scale on the Table?

A common sight in developing economies is a series of identical shops, selling the same product at similar prices and all located within extremely close geographical proximity. However, while the observation that shops appear redundant seems to imply that SMEs could increase profits by combining or diversifying, there is no empirical evidence that can test the hypothesis that SME behavior is irrational.  This project looks at whether such behavior among SMEs is efficient by collecting data that will allow for a direct answer to the question: assuming no agency costs and a well functioning consumer market, could SMEs combine and earn higher profits? 

This project focuses on ten used tire sellers in downtown Accra that are located in a row and all sell only used tires.  Data collection on these seemingly redundant firms includes digitizing the books of all ten small businesses and recording information about consumer purchasing behavior (i.e. transaction times, quantities and prices), the quality of goods being sold, the incidence of stock outs, management of labor as well as inventory and supply management practices, as well as conducting surveys with shop owners, shop workers and consumers.  The primary outcome of the study will be the ability to conclude one of two things: a) the tire shops continue to operate separately because there is no benefit to combining, or b) the tire shops could decrease costs and increase profits but they do not do so.

Microfinance Repayment Schedules in West Bengal, India

Most microfinance institutions follow a rigid contract model: clients repay loans in weekly installments beginning shortly after disbursement. Researchers tested two features of these contracts, repayment frequency and the time of the first repayment, to determine if characteristics of the loan contract affect borrowers’ repayment behavior and the types of investments they make. They found that less frequent repayments did not increase defaults. A two-month grace period before beginning repayment raised the default rate slightly, but allowed entrepreneurs to invest more in their businesses, resulting in long term economic gains.

Policy Issue: 

Most microfinance institutions (MFIs) structure their credit contracts in a similar way: clients meet in groups and repay loans in weekly installments beginning shortly after disbursement. The Grameen Bank, one of the first and best-known MFIs, established this model in Bangladesh in the 1970s, and it has since become the classic model of micro-lending in many countries. Group lending and weekly collection of repayment installments are widely seen as the key features of microfinance that reduce default risk, making lending to the poor financially viable. Repayment at weekly meetings, MFIs argue, imposes fiscal discipline, helping clients form repayment and savings habits. Initiating repayments immediately likewise imposes discipline and reduces the likelihood that a client will take the money and run. In addition, the classic repayment schedule increases interactions with loan officers, which may help build trust between clients and banks.

Yet, there may be advantages to offering more flexible repayment schedules for the lenders as well as the borrowers. Collecting weekly installments is costly for MFIs. If MFIs can lower costs by reducing the frequency of repayments, they may be able to lower interest rates, scale up operations, and reach additional clients in remote or previously underserved locations. Early initiation of repayment may reduce the amount entrepreneurs invest in their businesses, since they often set aside a portion of the loan for immediate repayment. As a result, they may be less likely to invest in raw materials or inventory, purchases that have high returns in the long run but are risky because they tie up cash in the short run. Despite the potential to better meet the needs of MFIs and their clients, there is limited evidence on the effects of deviating from the traditional microfinance contract design.

Context of the Evaluation: 

Village Financial Services (VFS) is an MFI operating in peri-urban neighborhoods of Kolkata, India. Most of the loans VFS offers resemble traditional micro-credit contracts, made to groups of women and repaid weekly. Access to credit or savings, both formal and informal, is limited in these neighborhoods, and VFS faces almost no competition from other lenders. VFS works exclusively with women, most of whom have a household income of less than two dollars a day. There is a high rate of business ownership, and selling and tailoring saris are common occupations.

Details of the Intervention: 

Researchers examined variations microfinance contract design in partnership with VFS. They compared weekly and monthly repayments in one evaluation, tested a two-month grace period before initiating repayment in another, and expanded the repayment frequency experiment to evaluate the effect on financial stress in a third.

Monthly repayments: Researchers examined how repayment frequency affected default and late payment rates. VFS offered loans of Rs. 4000 (about US$100) with a fixed Rs. 400 interest payment to 1026 first-time borrowers in 100 groups. These were randomly assigned to one of three different repayment schedules: 

  1. Standard weekly repayment: 30 groups repaid Rs. 100 every week for 44 weeks

  2. Monthly repayment: 38 groups repaid Rs. 400 every month for 11 months

  3. Monthly repayment with weekly meetings: 32 groups repaid monthly, but met with a loan officer every week for the first three months

Two-month grace period: Researchers examined how delaying the first payment until two months after disbursing the loan affected investment in businesses and loan repayment. Eight hundred and forty-five clients in 169 loan groups received loans ranging from Rs. 4000 (about US$90) to Rs. 10,000 (about US$225). The groups paid the same amount in interest but were assigned to two different repayment schedules:

  1. Standard schedule: 85 groups began repayment two weeks after receiving the loan

  2. Grace period: 84 groups began repayment two months after receiving the loan

Monthly repayments with a focus on financial stress: Researchers replicated the repayment frequency experiment and included additional questions on levels of financial stress. Seven hundred and forty clients in 148 groups were assigned to weekly or monthly repayment frequencies. A subgroup of 213 clients was surveyed by cell phone every 48 hours for seven weeks, and they were asked questions about their confidence in their ability to repay the loan, their anxiety about loan repayment, arguments with their spouse about finances, and the amount of time they spent thinking about loan repayment.

Results and Policy Lessons: 

Taken together, the results from these evaluations indicate that MFIs can improve upon the standard contract model that uses weekly repayment beginning shortly after disbursal.

Monthly repayments: Switching from weekly to monthly repayments did not affect the repayment rate. There was no difference in the default rate or the frequency of late payments between groups.

Two-month grace period: The grace period increased clients’ economic activity. Grace period clients invested Rs. 364.9 (roughly 6 percent) more in their businesses compared to regular clients and were twice as likely to start a new business. After three years, these clients reported weekly profits that were 57.1 percent higher than the comparison group mean of Rs. 1,587 per week and household incomes that were 19.5 percent higher than the comparison group mean of just over Rs 20,000 per week. Grace period clients also reported roughly 80 percent more business capital. However, grace period clients were more than three times more likely to default than regular clients, which is consistent with the theory that the grace period allows for riskier investments that, if successful, have a higher rate of return.

Monthly repayments with a focus on financial stress: Clients with monthly repayments were no more likely to default in the short term, and they scored 45 percent lower on an index of financial stress than clients with weekly repayments. Compared to weekly clients, monthly clients worried about repayment 51 percent less often, they were 54 percent less likely to lack confidence in their ability to repay, and were 60 percent less likely to spend significant time thinking about repayment. Monthly clients also reported investing more in their businesses and having higher income, which suggests that the flexibility encouraged more profitable investments.

These results suggest that the microfinance sector can gain by moving away from the traditional contract model. Switching to lower frequency repayment schedules could allow MFIs to save on the costs of repayment collection, with no added risk of default, while also reducing clients’ stress levels. Although offering a grace period before beginning repayment increased the default rate, it allowed entrepreneurs to make larger investments in their businesses, resulting in longer term economic gains. This is an area with large potential for further research, and the researchers are planning to conduct follow-up surveys to determine the long term effects of these contract modifications on participants’ business outcomes.

Training and Consulting Services for Managers: Experimental Evidence from Bangladeshi Garment Production Lines

Lack of managerial capital remains one of the core challenges to SME growth in developing countries. However, rigorous evidence on the impact of programs focused on improving managerial skills is limited. This study evaluates a program which offers training and consulting for managerial staff in garment factories. It focuses on understanding how new management practices are adopted and implemented and what determines their success. The study will measure the impact of the training and consulting on output, productivity and other important outcomes of the factories.

Policy Issue: 

Small and medium enterprises (SMEs) are thought to be an important source of innovation and employment in developing countries, due to their flexibility in responding to new market opportunities and their potential for growth. However, entrepreneurs face a number of barriers to expanding their businesses and employing more workers, including constrained access to credit, lack of management skills, and unfavorable government regulation. In the manufacturing sector lack of knowledge and skills on how to manage medium-sized production teams may be another key constraint to the creation and expansion of SMEs (see, e.g., Sutton (2011, 2012)).

Training and consulting could help SMEs overcome the lack of knowledge and skills and lead to improvements in productivity. This pilot project evaluates a training and consulting program with a strong emphasis on the implementation of new processes and practices for garment factories in Bangladesh. It focuses on understanding how new management practices are adopted and implemented and what determines their success. 

Context of the Evaluation: 

Despite exceptional growth in the garment sector, Bangladeshi factories still lag behind in productivity when compared to other countries, such as China, Indonesia, India and Vietnam. At the same time, there are mounting pressures on the factories to improve working conditions and social compliance. Many practitioners in the industry believe that it is possible to achieve both goals with appropriate changes in management practices. 

Details of the Intervention: 

This study will analyze the impact of a training and consulting program offered to staff in two factories. The program is a combination of classroom teaching to a variety of factory mid-level managers from the production, human resources, and planning departments and “activations” during which the material presented in the training is adapted and implemented in the factory. The program spans a broad range of production-related activities, including quality control, wastage, line lay-out, human resource practices, planning practices, provision of incentives and aspects related to social compliance. Because having accurate performance indicators is important to increasing productivity, the program also focuses on introducing a culture of recording and monitoring into the factory. 

In each factory, two production lines from an eligible set will be randomly chosen to pilot all of the twenty to forty activations expected to be implemented over the course of a year. The short-term outcomes associated with the experimentation of activation on the pilot lines will be compared to the remaining non-activated lines in the set. Subsequently, the activations will be rolled out to the other lines in the factory and the diffusion (both planned and spontaneous) of practices will be tracked. 

There will be two distinct data collection efforts in this study. First, detailed daily and hourly data on input and output for each production line, used to monitor operations will allow for measuring outcomes across lines as well as over time. Second, there will be surveys of key production lines managers and random samples of operators every month. The administrative and survey data will include a range of outcomes, such as output, productivity, workers’ absenteeism, adoption of new practices and others. 

Results and Policy Lessons: 

Project ongoing. Results forthcoming. 

Managerial Capital and Business Transformation in Emerging Markets

This research seeks to address a significant constraint to growth among businesses in developing countries: managerial capital. The study design consists of three parts: screening, access to skills, and access to credit information. First, a screening tool will be implemented to identify a homogenous sample of ‘high growth potential’ micro and small enterprises in four locations across South Africa. Next, Business Bridge will provide participants with business training. Participants will be randomly assigned to one of three training groups: “Marketing and Sales training,” “Finance and Accounting training,” and a control group. The course structure will show the impact of providing ‘specific’ business skills training programs as opposed to more general business training. Lastly, eight months after the training intervention, all participants will be randomly assigned into one of two credit information groups, with roughly half of all participants being provided access to information on a loan option for financing their business. This study will examine how transformational entrepreneurs can be identified and nurtured, and the extent to which the effects of managerial capital development depend on the specific training received (marketing vs. finance) and firm size (micro vs. small). 

Bilal Zia

Improving SME Market Access via Local Content Marketplace Services in Africa

Governments, multilateral agencies, and corporations, have touted local content policy (the requirement for multinational organizations to develop local supply chains and source in-country) as a means for fostering the growth of small- and medium-sized enterprises (SMEs). However, evidence for the positive linkage effects of local procurement remains mixed. This pilot – originated as a result of conversations between the principal investigator and the partner organization at the first SME Initiative working group – will evaluate via a quasi-experimental study the impact of the Building Markets' business facilitation services in Liberia. Findings will assess the viability of the design, will set the stage for future RCT and quasi-experimental studies, will improve understanding of the impact of local sourcing on SMEs, and will contribute to knowledge on the role of market access on SME growth.

Matthew Bird

Small and Medium Enterprise Financing and Mentoring Services in Emerging Markets in the Dominican Republic

Policy Issue
Recent work in the area of development finance has focused on poverty reduction through microfinance institutions (MFIs). These institutions are thought to enable entrepreneurship by providing small personal loans to borrowers who otherwise would have difficulty accessing capital markets, but new entrepreneurs are also faced with complex financial decisions for which they may be unprepared. Studies have shown that there is a strong association between higher financial literacy and better business decisions and outcomes, but there is little evidence on the best ways to quickly convey complex financial practices to business owners. Should courses place more weigh on conveying every aspect of complex materials, or teaching basic concepts in greater depth?
 

Context of the Evaluation
In the Dominican Republic, ADOPEM is a savings and credit bank which serves primarily low-income urban individuals and small businesses. They offer loans of US$70 – US$1,400 to both individuals and groups, and also operate a training center with programs covering basic computing, entrepreneurship, and trade skills. Many clients operate small businesses with few or no employees, including enterprises such as general stores, beauty salons, and food services, which bring in an average of US$85 per week. Many ADOPEM clients have been found to have errors in their accounting books, and relatively few individuals kept their business and personal accounts separate.
 
Details of the Intervention
Researchers partnered with ADOPEM to evaluate two methods of financial literacy training: one which emphasized classic accounting principles, and one which focused on simple “rule of thumb” methods for decision making. From a pool of 1,193 ADOPEM clients who had expressed interest in financial training, two-thirds were assigned to receive five to six weeks of training, which was offered once a week for three hours at a time and included out-of-class assignments. These classes were taught by qualified local instructors with experience in adult education, and were offered for free or nearly free. Two variations  of the training were tested:

Accounting Treatment:  This program was adapted from financial education models designed by Freedom From Hunger and the Citigroup Foundation, and focused on a traditional, principles-based approach to accounting techniques. It covered topics such as daily record keeping of cash and expenses, inventory management, accounts receivable and payable, and calculating cash profits, and investment.

Rule of Thumb Treatment:  This treatment taught participants simple rules for financial decision making, focusing on the need to separate business and personal accounts. It taught clients about paying oneself a fixed salary, distinguishing between business and personal expenses, and easy-to-implement tools for reconciling accounts.
Additionally, a randomly selected subset of each treatment group received weekly follow-up visits from a financial counselor, in an effort to distinguish between the effects of having learned the material and the effects of actually implementing it regularly in business practices. Counselors visited participants and answered any questions they had about course material, verified and encouraged completion of accounting books, and helped correct any mistakes that they found.
 
Results and Policy Lessons
Effects on Business Practices: Results indicate that the “rule of thumb” treatment had significant effects on clients’ business practices. The likelihood that clients were separating business and personal cash and accounts, keeping accounting records, and calculating revenues formally increased by 6 percent to 12 percent relative to the comparison group. By contrast, the accounting treatment seems to have had no impact on business practices.
 
Effect on Revenue Streams: Participants in the "rule of thumb" treatment reported an increase of 0.11 standard deviations on an index of revenue measures. The most significant effect is observed in the level of sales during bad weeks. The "accounting" treatment had no impact on revenues.
 
There was no discernible impact of receiving follow-up visits from counselors on either treatment group. There were, however, some differences in treatment effects across various groups. Training had a larger effect on more educated clients’ likelihood to separate business and personal cash and likelihood to save. Additionally, the “rule of thumb” treatment also had a larger impact on people who had not expressed great interest in accounting training. This suggests that charging fees or making training programs optional may not target programs to those who will benefit most.

Culture & Incentives: A Cross Country Field Experiment

Policy Issue:

Increasing the productivity of people lies at the core of the development process. Yet the drivers of worker productivity in developing countries remain largely unknown. Recent survey evidence shows that the most profitable and productive firms tend to adopt personnel policies that link pay to performance and that firms in less developed countries are less likely to do so. However, observational studies cannot establish causality, and rigorous field evidence on the effectiveness of pay for performance contracts is limited largely to the US and the UK. Whether pay for performance contracts can be effective at increasing productivity in developing countries remains an open question, the answer to which likely depends on how incentives interact with local cultural norms.

Context and Description of the Intervention:

Research on these topics typically faces a severe trade-off between precision and generality. At one end of the spectrum, cross-country surveys provide suggestive evidence on broad patterns but are unable to identify causality. At the other, field experiments run within one firm in one country identify precise causal mechanisms but are difficult to generalize. By implementing the same field experiment in several different contexts that differ systematically on the characteristic of interest, this project is the first to combinethe precision of field experiments with the breadth of macro studies.

This project aims to provide evidence on what drives worker productivity by implementing a series of identical, carefully controlled field experiments in a range of countries. By establishing identical firms in these countries and creating identical work tasks within those firms, the project is exploring the cultural determinants of worker productivity in the developing world. Exploring the interactions between culture and labor practices is a key step in understanding persistent productivity differences across countries and in providing practical, evidence-supported tools to help span the gap.

The Return to Capital for Small Retailers in Kenya

Throughout the developing world, the family owned business is the most common form of enterprise. Though these types of businesses are prevalent, there is tremendous heterogeneity in the success of such firms. For instance, in the retail sector, some firms hold large inventories and earn significant profits, while others hold minimal stocks and provide little more than subsistence income for their owners. Given the importance of small enterprises in poor countries, it is important to understand why some firms are more successful than others and to identify potential ways to address the constraints that keep some firms from becoming more profitable.

This project takes advantage of the characteristics of the retail industry to explicitly estimate the rate of return to a marginal increase in inventory for a set of small retail firms in rural Kenya. The empirical strategy is based on the fact that retailers should set inventories such that the marginal benefit from holding the last unit (the expected profit) is exactly equal to its marginal cost (the opportunity cost of holding capital). We estimate the marginal rate of return in 2 ways. First, we measure sales lost due to insufficient inventories. Second, we use an administrative dataset to observe whether firms buy enough inventory to qualify for quantity discounts.

Results:

Preliminary results suggest that returns to inventory capital in the Kenyan retail sector are likely far greater than returns to investment in developed country equity markets and suggest that these returns likely differ significantly across firms. Implementation of other surveys and interventions is ongoing.

Network Effects in SME Clusters

Identifying the determinants of entrepreneurship is an important research and policy goal, especially in emerging market economies where lack of capital and supporting infrastructure often imposes stringent constraints on business growth.  However, businesses do not develop in a vacuum.  Evidence from previous studies shows how businesses interact with neighboring businesses, with close associates operating in other areas, and with businesses above and below in the supply chain.  Many businesses are also part of larger networks, some of which make joint sales decisions, share costs, revenues, working capital, and production information.  The objective of this study is to increase knowledge on how business networks form and operate and test whether business and financial knowledge spreads across networks in a competitive market of informal small-scale industrial producers. 

The study is an impact evaluation of a comprehensive technical and business training program for informal small-scale industrial producers such as metal fabricators, shoe makers, caterers, and the like operating in the outskirts of Kampala, Uganda.  Owing to the physical clustering of workshops, the trainings will be delivered at the cluster rather than individual level. Randomization will also be at the cluster level to avoid spillovers to immediate neighbors who might be in the control group while allowing us to capture spillovers across business networks.  This study design enables us to test two competing hypotheses regarding information sharing in networks to see if network members are collaborators that freely share information learned during the training sessions, or if network members are competitors and therefore withhold information from each other to gain a competitive edge.

This project received funding from the SME Initiative Competitive Fund for Entrepreneurship and SME Growth. For additional information on current SME Initiative projects, click here.

Supply Chain Financing for Dairy Farmers

Policy Issue:

Farming entails long cycles of production which require up-front investment in animals, equipment, seeds, fertilizers, and other inputs. However, small farmers may have problems securing access to credit if they are located in remote areas that are not served by traditional financial institutions. Many small farmers manage their businesses informally and frequently do not have records or financial information that banks require for lending. Some microfinance institutions have tried to expand their usual urban activities to rural clients, but the costs of doing business in rural areas are still high and limit their scope. However, farmers often have stable relationships with agriculture processing companies and traders who purchase their crops, and these relationships may provide an opportunity to facilitate loan distribution and repayment.

For additional information on current SME Initiative projects, click here.

Context of the Evaluation:

In Colombia, less than 8% of rural households and enterprises are thought to have access to formal loans[1]. Nevertheless, there are about 400,000 families engaged in small and medium agribusiness for the production of milk in rural Colombia.[2] Milk production requires daily contact between the producer and the buyer, with payment occurring frequently. Buyers tend to attract the best dairy producers by providing access to inputs for production, or other services, or rewarding quality with higher prices.

Description of Intervention:

Bancamía, a bank specializing in microfinance, partnered with Alquería, a Colombian dairy company, to offer an individual loan product to small dairy farmers. Four hundred thirty five small dairy farmers who sell milk to Alquería via three intermediaries were randomly assigned to a treatment group, receiving a loan product offering, or a comparison group, receiving no product offering.

Bancamía offered the farmers in the treatment group a micro-loan with  a unique repayment process. Each month when the loan installments were due, farmers did not have to travel to the bank office to make the payments. Instead, the Alquería dairy deducted the value of the monthly installment from the farmer’s milk transfer payment and paid the bank directly. This scheme reduced risk for the bank as well as transportation, planning and transaction costs for the farmers. Loans ranged from about one to five million COP (about 560-2,800 USD) and were granted over a one to three year period.

To promote the credit program, meetings were held at the offices of three of the Alquería buying intermediaries to introduce farmers to the program, the benefits of the product, the rules and obligations, and the loan application and repayment process.  At the end of the meetings, milk farmers in the treatment group were provided with bank contact information and the opportunity to file a credit application.  Both those who participated in the meetings and selected participants who could not attend the promotional meeting received a phone call reminder about the program.  Before, during, and after the program, surveys were administered to collect socioeconomic information, household wellbeing, and loan data.

Results and Policy Lessons:

Low levels of loan product take-up led to a discontinuation of the evaluation.  Two main issues affected the implementation.  Firstly, two Alquería intermediaries offered their own loan products, very similar to the product offered by Bancamía, which lowered the demand. Secondly, the beginning of the rainy season was unexpectedly devastating that year, causing major flooding, damage to farmland, and death of livestock.  While the evaluation was discontinued, Bancamía, Alquería, and the intermediaries have continued to service the 33 clients who applied and received loans.



[1]Colombia Rural Finance: Access Issues, Challenges and Opportunities. Rep. no. 27269-CO. World Bank, Nov. 2003. Web. 16 Mar. 2010

[2]Rivera, José Félix Lafaurie, “TLC…la batalla no ha terminado.” Carta Fedegan N. 117.

Mobile Application as a Tool for Improving Record Keeping and Accounting Practices of Micro Retailers

Many subsistence entrepreneurs in developing countries do not maintain adequate business records which may limit their ability to streamline business operations and increase profits. This exploratory study was designed to explore take up and role of a new mobile application in helping small shopkeepers in Colombia to keep records, create business reports and manage other business tasks. Results show that while the application wasn’t widely adopted by the study participants, it was particularly useful for some of the shopkeepers who had good record keeping practices before they were introduced to the application.

Note: This research project is a pilot study designed to provide insights for a potential scale up to a full randomized controlled trial.

For additional information on current SME Initiative projects, click here.

Policy Issues:

Many entrepreneurs in developing countries who rely on their small businesses to meet basic consumption needs do not maintain records of business expenses or sales.  Without a system for managing finances, these small businesses may miss opportunities to increase profits and trim expenses. Providing tools to these micro entrepreneurs to help them manage their finances may be a way to improve their business outcomes and household consumption levels.

Context:

Colombia has an estimated 400,000 micro and small stores or "tiendas”, which account for 52% of food and retail sales [[1],[2]]. While tienda entrepreneurs sell hundreds of different products and manage relationships with wholesalers, most of them continue to use minimal business administration tools, for example, writing down sales and purchases in notebooks, or don’t use any record keeping at all.

To test if a more formal and engaging record keeping system could improve shopkeepers’ business records management, IPA partnered with Frogtek, a firm that builds business tools for entrepreneurs in emerging markets. Frogtek developed Tiendatek, a smart phone application that allows shopkeepers systematize their business by managing their accounting, inventories, sales, payments to suppliers, expenses and earnings. All data generated by the shopkeeper is uploaded and stored on a mobile phone and a Frogtek web server. The Tiendatek application creates reports on sales, purchases, credit, inventory, and break-even points based on the data uploaded by a shopkeeper.

Tiendatek relies on mobile phone technology, which is widespread and popular in Colombia. The country has among the highest rates of participation in the communication and technology markets, with 92.3 cell phone subscriptions per 100 people and 45.5% of the population using internet [[3]]. Thus, the application is easily accessible for micro and small retailers.

Details of the Intervention:

This exploratory study was designed with the goal of understanding take up of Tiendatek application and characteristics of shopkeepers who end up adopting the application. In the case of sufficient take up the study was also designed to explore whether and how the application helped small shopkeepers to better manage their businesses. The study targeted shopkeepers with sales between 1,000 and 2,000 USD a month. Frogtek staff interviewed shopkeepers, assessed their interest, delivered a mobile phone with Tiendatek application installed and provided training in one or two visits. Shopkeepers also received technical assistance from Frogtek staff for 6 months after delivery of the phone. In total, 58 shopkeepers received the phone, training and technical assistance.

Fifty-one shopkeepers were surveyed approximately ten to twenty days after receiving a new phone. A follow up survey was completed eight to ten months after the initial phone delivery with 47 shopkeepers. In addition, all data generated by shopkeepers and uploaded to a Frogtek web server was used as supplemental data for the study.

Results:

Tiendatek received positive feedback from shopkeepers who participated in the study, with 96 percent of them indicating that they would recommend it to their colleagues. However, most shopkeepers did not use the application fully; they did not register all business transactions through the application which in turn limited their ability to take advantage of features such as profits and inventory reports. Moreover, of the 40 shopkeepers who answered the question in the follow up survey, only 10 were still using it 10 months after receiving it.

While the application wasn’t widely adopted by the study participants, it was more popular with those shopkeepers who were more diligent in their record keeping and accounting practices initially. Out of 32 shopkeepers who reported having some system of recordkeeping in the baseline survey, four adopted Tiendatek, while among the 15 who did not have a formal recordkeeping system initially, six begun using notebooks and none started using Tiendatek. Moreover, shopkeepers who had good record keeping and business practices before they received the phone, for example, keeping written records and making an inventory of products, were more likely to use Tiendatek more frequently and for a longer period of time. 


[1]Diaz, Alejandro, Jorge Lacayo, and Luis Salcedo. 2007. "Selling to ‘mom-and-pop’ stores in emerging markets" The McKinsey Quarterly

[2]De Jacobs, Alicia. “Colombia Retail Food Sector” USDA Foreign Agricultural Services Global Agricultural Information Network Report, October 2010.

 

Returns to Consulting for Women Entrepreneurs

This study of the impact of entrepreneurship training and mentoring in Uganda evaluates a program which aims to help women entrepreneurs develop the skills they need to run thriving businesses. In addition to testing the overall impact of the program on participating entrepreneurs and the businesses with whom they compete or collaborate, the study will demonstrate the relative cost-effectiveness of intensive, personalized training versus a less intensive, standardized approach. The program will be advertised to female business owners in urban Central Uganda. As the training is expected to be oversubscribed, entrepreneurs who meet basic eligibility criteria will be randomly assigned to receive high-intensity personalized training, low-intensity standardized training, or no training (the comparison group). The randomized design allows systematic differences in outcomes to be attributed to differences between the treatment and control groups, and thus allow researchers to learn more about the impact of business skills training on profits, business size, and other outcomes for female entrepreneurs.

For additional information on current SME Initiative projects, click here.

Policy Issue:

Small and medium enterprises (SMEs) are often viewed as potential engines for innovation, employment, and social mobility, and promoted as vehicles for economic growth.  In many developing countries, SMEs make up a particularly large part of the economy, yet data suggest that very few grow into larger businesses. If SMEs have such growth potential, what prevents them from expanding?

Human capital constraints may be key, especially if having adequate managerial skills in place is a prerequisite for accessing other resources, such as financial services. Many “business development services” and “entrepreneurship training” programs target SMEs in developing countries, but there is almost no systematic evidence on the effectiveness of such programs.  This project evaluates a training and mentoring program in Uganda aimed at helping female entrepreneurs develop the skills they need to run thriving businesses. The objective of the evaluation is to measure the impact of an increase in “managerial human capital” on business outcomes for entrepreneurs who receive training, as well as the spillover impact of such an intervention on competing and collaborating businesses. It also compares the relative cost-effectiveness of skill transfer through a more personalized, time- and resource-intensive training approach, versus a standardized, less intensive one.

Context of the Intervention:

TechnoServe, an international non-profit business development organization, implements a business training program called Women Mean Business (WMB) in four cities in Central Uganda—Kampala, Entebbe, Jinja and Mukono.   Since 2008, almost 600 women have received business skills training through the WMB program.  A market survey of SMEs in these four cities, conducted by IPA, revealed that approximately 54% of all businesses interviewed were owned or managed by women.  However, owners of small businesses – and especially female entrepreneurs – may lack management skills and information about how to access financial services and other resources, limiting their ability to improve and grow their businesses.  For example, although women own nearly 40% of businesses with registered premises, they obtain only 9% of all credit disbursed.[1]The WMB program aims to provide female entrepreneurs with tools and training to better manage and grow their businesses. 

Details of the Intervention:

Eligible entrepreneurs will be randomly assigned to one of three groups: In Depth training, Light Touch training, or a comparison group.  Program activities for both tracks will take place over the course of a year, and will be implemented by TechnoServe staff or outside consultants and mentors trained and supervised by TechnoServe.

In the first year of the program, Light Touch track participants attend classroom training sessions on topics such as financial management, sales/marketing, customer relations and human resource management.  Each topic will be covered in a two-day training session, with one session each month.  Participants will also be placed in sector working groups (e.g. manufacturing, retail, services), which will meet for additional, targeted training lessons and field activities.  In the second year of the program, refresher training sessions will be held to provide more clarity on the topics and address any specific issues faced by the participating businesses.  Finally, Light Touch participants will receive individual visits from a TechnoServe counselor to discuss any business-specific challenges they face.

Women in the In Depth track will receive all of the services offered to the Light Touch group, and in addition, will be matched with student coaches selected from local business schools.  These coaches will work with the women for eight weeks in the first year of the program to develop a five year business plan.  In the second year, the women will be matched one-on-one with mentors, who they will work with over three months to implement the business plan and adopt the lessons from the various training activities. 

Before the start of the WMB program, a baseline survey will gather information on each business's operations, products and sales, employment, and finances, as well as background information on the owner/manager.  Eight to twelve rolling follow-ups surveys will be conducted over the course of two years to gather data on business performance during and after the one-year WMB training program.  A final endline survey will be conducted two years after the baseline survey and one year after the WMB program ends. 

Results and Policy Lessons:

Results forthcoming.



[1] Ellis, Amanda, Claire Manuel, and C. Mark Blackden, “ Gender and Economic Growth in Uganda: Unleashing the Power of Women,” Directions in Development 2006. 

The Impact of Enhanced Business Training for High-Potential Entrepreneurs in Colombia

Small and medium enterprises (SMEs) are thought to be important drivers of growth in developing economies, but entrepreneurs in these countries face many barriers, including access to business training, finance, and business networks. In Bogotá, Colombia, Fundación Bavaria’s “Destapa Futuro” (Open the Future) program identifies promising enterprises and provides them with a suite of financial, technical, business and training resources. In this round of the program,  Fundacion Bavaria and its partners competitively selected 1,000 entrepreneurs for a month-long virtual training which culminated in a business plan competition. Based on their business plans, 454 entrepreneurs were chosen to participate in an evaluation. Half were randomly selected to receive additional classroom training, and will be compared to those that didn’t.  Researchers will measure the impact of the program on SME profits, sales, and business creation rates.
 
For additional information on current SME Initiative projects, click here.
 
Policy Issue:
Small and medium enterprises (SMEs) are thought to be an important source of innovation and employment in developing countries, due to their flexibility in responding to new market opportunities and their potential for growth. However, entrepreneurs face a number of barriers to expanding their businesses and employing more workers, including things like constrained access to credit, lack of management skills, and unfavorable government regulation. Business training, capital, and mentorship are possible tools that could help SMEs overcome these barriers, but rigorous evaluations of business training programs have found mixed results. Additional research is needed to understand how training programs should be designed and delivered, and how they might work in combination with additional inputs such as seed funding, in-kind donations, or mentorship.
 
Context of the Evaluation:
Fundación Bavaria works to foster entrepreneurship in Colombia through an intensive, year-long program called “Destapa Futuro” (Open the Future). The program uses a competitive process to identify entrepreneurs whose businesses have the potential for high growth and provides them with training, capital, technical advice, and the opportunity to network with investors. Since 2005, Bavaria has spent close to $10 million on this program. A prior project evaluated the 5th round of Destapa Futuro in 2010-2012.
 
During the sixth round of Destapa Futuro in 2012-2013, Bavaria introduced several changes that were intended to make the program more financially sustainable while providing better support to entrepreneurs. First, they began partnering with Ventures Colombia, an NGO that promotes entrepreneurship in Colombia. Second, a new training curriculum was introduced, which taught entrepreneurs to think holistically about their business models and prepared them to make presentations to potential investors. Third, Bavaria switched from granting cash prizes to granting loans through a large Colombian bank for a selected group of qualified entrepreneurs and smaller cash prizes for the rest.
 
Details of the Intervention:
Entrepreneurs were invited to submit online applications to take part in the Destapa Futuro program. Out of 5,000 applications, a group of approximately 1,000 entrepreneurs who passed Bavaria’s initial selection process participated in a virtual training course based on the Business Model Canvas approach, which is designed to help entrepreneurs visualize and document various aspects of their business operations. They also received four virtual business training sessions on strategy, marketing, financial, and legal strategies. At the end of the month-long course, participants were asked to submit their business plans to the Ventures team for evaluation. All the business models submitted by the end of the training were evaluated by Ventures staff, and the top 73 entrepreneurs from this pool were selected to receive an in-person business training program. Because their participation in the training program was not randomly assigned, they are not part of the study sample.
 
Of the remaining business plan submissions, 454 were selected to participate in the evaluation. Of these 454 entrepreneurs, half were randomly allocated to a treatment group, which received in-class training and mentorship. The in-class training lasted two to three days and covered the same topics as the virtual training, but in more depth. The remaining 227 entrepreneurs served as the comparison group and received no new training or mentorship.
 
Researchers will measure the impact of the training, mentoring, and networking program on SME profits, sales, and business creation rates.
 
Results and Policy Lessons:
Results forthcoming.
Antoinette Schoar

Powering Small Retailers: the Adoption of Solar Energy under Different Pricing Schemes in Kenya

The majority of people living in Sub-Saharan Africa do not have access to electricity. Traditional power companies often find it too costly to bring electricity to rural and suburban areas, but in recent years, the cost of alternative energy sources like solar power has fallen dramatically. Providing small businesses with access to reliable electricity through off-grid solar power systems could potentially help small retailers earn more by keeping their businesses open longer and introducing new services. This randomized evaluation tests how price and payment method affect the adoption of off-grid solar power among small retailers near Nairobi and if access to electricity can improve their businesses’ performance.

Policy Issues: 
Nearly 70 percent of people living in Sub-Saharan Africa lack access to electricity. Most traditional power companies find it too costly to extend the electric grid to many rural and suburban areas. Without access to power, households and small businesses typically use kerosene-powered lanterns or candles to provide light at night. Access to electricity could potentially help small retail businesses earn more revenue by extending their hours of operation or offering other services to customers, such as mobile phone charging facilities. 
 
Many have proposed solar power as a way to bring safe and reliable electricity to small businesses and households that cannot access the electric grid. Yet for small retail businesses the cost of off-grid solar power systems may still be prohibitive. How do price and different payment methods affect the adoption and use of off-grid solar power systems among small retailers and how does access to electricity affect their business performance? 
 
Context:
The small businesses participating in this study typically sell food, drink, clothing, or other household goods. Access to electricity could potentially allow them to increase their evening operating hours, offer mobile phone charging services in their stores, and save on their own mobile phone charging costs. 
 
Angaza Design is a company that markets off-grid solar power systems to consumers and businesses in East Africa. Their main product is an LED light unit with integrated mobile phone charging and a detachable 3-watt solar panel to charge the unit’s battery. While the total cost of this solar power system is often too high for small retailers to purchase all at once, Angaza Design allows people to purchase the solar unit for a small down payment and then use a mobile money platform to pay for energy output in affordable increments by “topping up” device credit, just like they currently purchase mobile phone airtime. The device can be disconnected if payments are not made. Regular payments are applied towards paying off the full cost of the device, after which it is automatically “unlocked” and can be used without purchasing additional device credits.
 
Description of Intervention: 
Researchers are conducting a randomized evaluation in partnership with Angaza Design and SunnyMoney to estimate the impact of different pricing schemes, payment schedules, and enforcement methods on the adoption of off-grid solar power and the impact of access to electricity on small retail businesses’ revenue and profits. From a sample of 1,849 small retail businesses operating in the outskirts of Nairobi, researchers randomly assigned some businesses to receive one of four different offers to purchase the Angaza Design solar power system and some businesses to serve as the comparison group. Those offered the solar power system received marketing visits in which the salesperson read a script describing the features of the solar power system, the payment process, and penalties for late payments. The salesperson then gave the customer a voucher needed to purchase the solar power system from a sales agent, under one of four different payment schemes: 
  • Offer 1 provides the customer with a pay-as-you-go solar power device at 15 Kenyan shillings (KSH) per hour (about US$0.17) of electricity used. Customers are sent one text message per week to remind them to purchase more solar power time. 
  • Offer 2 instead allows the customer to make weekly payments of 130 KSH (about US$1.70) for unlimited use of the solar power system. The customers are sent a reminder to pay the day before their next payment is due. If a payment is missed, the solar power system automatically shuts off until the payment and a 50 KSH (US$0.56) penalty are paid.  
  • Offer 3 is identical to Offer 2 except that while customers are told about the 50 KSH penalties for non-payment during the initial marketing visit, after they receive the solar power system they are told it will not be applied. If customers fail to make a payment, the solar power system will not work until the retailer pays the weekly installment, but no penalty is charged. 
  • Offer 4 is identical to Offer 2 except that after customers receive the solar power system, they are told that neither the late payment penalty nor the shutoff will be applied if they fail to pay their weekly bill. Under this condition, there are no penalties for failing to pay and the device continues to work.
Results: 
Results forthcoming. 
 

The Impact of Credit-Scoring on Small and Medium Enterprise (SME) Lending and Performance in the Philippines

How does access to credit affect the growth of small and medium enterprises – both firms receiving loans as well as their competitors, suppliers and customers? Limited access to credit is commonly identified as a key constraint to SME growth, but little evidence exists of the direct and indirect effects of loans on small firms in a given market. Researchers are working with a large bank in the Philippines, using random assignment to offer loans to SME applicants who fall just below the threshold to be automatically approved for a loan. The researchers will compare the firms that received the loans to a similar group that did not. Comparing the two groups will allow for a better understanding of the impact of loans on firm performance and growth as well as any additional effects on firms in the same market or in the loan recipient’s supply chain.  
 
For additional information on current SME Initiative projects, click here.
 
Policy Issue:
Small businesses are often thought to be an important source of employment, innovation, and economic growth. In many developing countries, small and medium enterprises (SMEs) make up a large share of registered businesses, but a much smaller share of GDP. Data from several countries suggest that few SMEs grow to become larger businesses. One reason could be that unlike larger businesses, SMEs have limited access to credit, preventing them from making larger investments to improve their operations, upgrade to new technologies, or expand.
 
Most SMEs’ financing needs exceed the small loans that microfinance institutions provide. Yet larger commercial banks often find it too expensive to lend to SMEs because the cost of assessing whether an SME is creditworthy is high relative to the return banks could earn by lending to them. Many banks also perceive SMEs as being too risky and more likely to default on loans. Credit scoring has been used extensively in developed countries to reduce the cost and time required to process loan applications and to assess the riskiness of loan applicants in order to make small business and consumer lending profitable for banks. Can a credit-scoring system increase lending to SMEs in emerging markets, and does access to credit improve these businesses’ profitability? How does increased access to credit affect other businesses in the same market, namely the competitors, suppliers, and customers of businesses receiving loans?
 
Context of the Evaluation:
In the Philippines, the vast majority of registered enterprises are small or medium sized. Nationwide, there are over 800,000 micro, small, or medium enterprises. These businesses span a range of industry sectors, including wholesale and retail trade, manufacturing, and services. Promoting SME growth is a central focus of national policy and all banks are mandated to set aside at least 8 percent of their total loan portfolios for SMEs. The Development Bank of the Philippines (DBP) is a development banking institution mandated to provide medium and long term loans to SMEs. In 2013, DBP began to roll out its new Retail Lending Program for Micro and Small Enterprises in 45 bank branches across the country. Under this program, DBP will make lending decisions using credit scoring software, which will determine loan approvals based on verifiable client information and an objective credit score, replacing the current approval process which relies on loan officers’ perceptions about applicants’ creditworthiness.
 
Details of the Intervention:
Researchers are conducting a randomized evaluation in partnership with the Development Bank of the Philippines (DBP) to test how access to credit affects both borrowing businesses’ performance and that of their competitors and suppliers.
 
Each of the 45 DBP branches will advertise the new Retail Lending Program to SMEs in their area and encourage them to apply. The branches will be assigned to either target SMEs in certain randomly chosen industries for loans (e.g. bakeries or water purification plants) or to not target any industries in particular. After SMEs submit an application, the credit scoring software will assign each applicant a score. Applicants whose scores fall in a pre-defined range just below the minimum score that automatically qualifies someone for a loan will be randomly assigned to either receive a loan or serve as part of the comparison group. In branches that are randomly assigned to target certain industries, marginally qualified applicants in the targeted industries will have a 90 percent chance of receiving a loan. This randomized “bubble” will include approximately 250 of these marginally qualified applicants.
 
DBP’s credit committee will then review all loans approved by the credit scoring system prior to final approval, reserving the right to deny loans based on information not included in the credit scoring model, such as criminal history. Loan officers will separately record whether they would have normally approved the loan without the credit scoring system, allowing researchers to compare credit scoring to the current, more subjective lending approach.
 
Businesses in the treatment group will receive loans between PHP 300,000–10,000,000 (US$5,590–186,200). The terms of the loans will range from three months to five years. A baseline survey will be conducted with all sample firms prior to loan disbursement. One year after the loans are disbursed researchers will conduct a follow-up survey to measure the SMEs’ investment and profits. Administrative data from DBP will be used to measure loan repayment and default.
 
Researchers will also survey the SMEs’ competitors and suppliers to examine whether receiving a loan had an impact on those firms. Increased access to credit may make SMEs more efficient and profitable, potentially taking away business from their competitors. On the other hand, if increased access to credit leads some businesses to develop better methods of production that their competitors can copy, access to credit could potentially indirectly benefit their competitors. Similarly, access to credit may have spillovers on a loan recipient’s suppliers as a result of business expansion or adoption of new technologies. This study will examine whether increased access to credit indirectly benefits or harms borrowers’ competitors and suppliers.
 
Results and Policy Lessons:
Project ongoing.
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