The Small and Medium Enterprise (SME) Program at IPA discovers and promotes effective solutions to the constraints faced by entrepreneurs and SMEs in developing countries. SMEs are the largest generators of employment in the developing world, creating nearly 60% of new jobs. They also generate a myriad of opportunities across sectors and geographic areas, and employ broad and diverse segments of the labor force. SMEs in developing countries, however, face constraints that are disproportionately large compared to those faced by larger firms and by SMEs in developed countries. Limited access to finance, low levels of human capital, and difficulty accessing markets stand out as some of the most challenging barriers to business growth.
Bank accounts can provide a secure way for low-income households to build their assets to make large investments or protect themselves against unforeseen expenses. Yet many poor households don’t use formal financial services. In the Dominican Republic, Banco Unión delivers remittances to approximately 400,000 clients who do not have a formal bank account. The bank also created two savings products tailored to the needs of these clients. In partnership with the Inter-American Development Bank (IDB) and Innovations for Poverty Action (IPA), Banco Unión developed SMS message campaigns to try to boost account uptake and usage among its remittance-receiving clientele. Two randomized evaluations found that the messaging campaigns did not increase clients’ use of formal bank accounts, and may have in fact discouraged account holders’ engagement with Banco Unión, as observed through decreased deposit and withdrawal activity and slightly lower balances by the end of the campaigns. There are several possible explanations for this behavior, including a desire for privacy, savings goals that were overly ambitious, or the use of other, unmonitored deposit products.
Una capacitación financiera simplificada basada en reglas prácticas mejoró las prácticas de negocios y los resultados económicos de microempresarios en República Dominicana, mientras que una capacitación técnica basada en principios contables tradicionales no produjo impactos significativos.
El acceso a servicios nancieros es crucial para el crecimiento de la Pequeña y Mediana Empresa (PyME). Estos servicios permiten a los emprendedores innovar, incrementar su e ciencia, expandirse a nuevos mercados y crear nuevos puestos de trabajo. Sin embargo, la mayoría de las PyMEs en países en desarrollo son incapaces de conseguir el nanciamiento necesario para alcanzar su potencial. Proporcionar nanciamiento a las PyMEs en dichos países puede ser riesgoso y costoso para los prestamistas, lo que ha llevado a una brecha de crédito de aproximadamente un billón de dólares (IFC, 2011).
Para reducir la brecha de crédito, instituciones nancieras, gobiernos y donantes han invertido en una gran cantidad de programas y políticas orientadas a proporcionar a las PyMEs el nanciamiento necesario para crecer e innovar. No obstante, la e cacia de estos programas en reducir los obstáculos para el nanciamiento de las PyMEs no ha sido evaluada con rigor. El Programa PyME en Innovations for Poverty Action (IPA) evalúa posibles soluciones y promueve las maneras más e cientes y económicas de expandir el acceso al nanciamiento de las PyMEs.
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Financial access is critical for the growth of small and medium-size enterprises (SMEs). It allows entrepreneurs to innovate, improve efficiency, expand to new markets, and provide millions of jobs. Yet, in developing countries, the majority of SMEs are unable to acquire the financing they need to reach their potential. Financing SMEs in the developing world can be risky and expensive for lenders, leading to an estimated financing gap of one trillion USD (International Finance Corporation, 2011).
To reduce the credit gap, financial institutions, governments, and donors invest in lending products and policies designed to provide SMEs with the financing they need to grow and innovate. However, the extent to which such programs effectively reduce the barriers to SME financing has generally not been rigorously measured. The SME Program at Innovations for Poverty Action (IPA) rigorously evaluates potential solutions and promotes the most efficient and cost-effective ways to expand access to finance for SMEs.
Lea la version en español aquí.
Micro-entrepreneurs often lack the financial literacy required for the complex financial decisions they face. We conduct a randomized control trial with a bank in the Dominican Republic to compare the impact of two distinct programs: a standard accounting training versus a simplified, rule-of-thumb training that teaches basic financial heuristics. Only the latter produced significant improvements in firms’ financial practices, objective reporting quality and revenues. Looking at treatment heterogeneity, the impact is specially pronounced for microentrepreneurs with lower skills or poor initial financial practices. These results suggest that reducing the complexity of training programs might improve their effectiveness, especially for less sophisticated clients.