English

This paper identifies separate and unique pathways to profits among small businesses in South Africa that are exposed to marketing or finance training in a randomized control study. The marketing group achieves greater profits by adopting a growth focus on higher sales, greater investments in stock and materials, and hiring more employees. The finance group achieves similar profit gains but through an efficiency focus on lower costs. Both groups show significantly higher adoption of business practices related to their respective training program. Consistent with a growth focus, marketing/sales skills are significantly more beneficial to firm owners who ex ante have less exposure to different business contexts. In contrast and in line with an efficiency focus, entrepreneurs who have been running more established businesses prior to training benefit significantly more from finance/accounting skills.

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Working Paper
Date:
July 30, 2016
English

Can innovation among micro-entrepreneurs in South Africa teach global corporations a lesson? Rajesh Chandy, Stephen Anderson-Macdonald and Bilal Zia reckon so.

Mass poverty is a huge world problem, typically addressed through multibillion aid programmes. But a grassroots research project in South Africa’s impoverished townships suggests another, sustainable solution. It isn’t the first study into the impact of skills training on microentrepreneurs in developing countries. But prior initiatives have tended to show that any benefits are small or short-lived. This project is remarkable because it is the first to demonstrate the opposite. “You can solve many of the problems of poverty and growth in the world by doing better business,” says LBS’s Rajesh Chandy, one of the three academics who devised the project. “Microentrepreneurs represent the most common type of business in the world. Yet we tend to ignore them – even though they are hiding in plain sight. If we can help them transform their business lives, then we will probably also transform the lives of their communities, given the prevalence of these kinds of businesses.” Not only that, but the lessons learnt that will inform policy in emerging economies such as those in southern Africa could also be applied in developed markets. “By studying the lives of business people many thousands of miles away, we might even learn a bit about ourselves,” says Chandy.

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Brief
Date:
March 30, 2016
English

Empirical evidence on peer intermediation lags behind many years of lending practice and a large body of theory in which lenders use peers to mitigate adverse selection and moral hazard. Using a simple referral incentive mechanism under individual liability, we develop and implement a two-stage field experiment that permits separate identification of peer screening and enforcement effects. We allow for borrower heterogeneity in both ex-ante repayment type and ex-post susceptibility to social pressure. Our key contribution is how we deal with the interaction between these two sources of asymmetric information. Our method allows us to cleanly identify selection on the likelihood of repayment, selection on the susceptibility to social pressure, and loan enforcement. We estimate peer effects on loan repayment in our setting, and find no evidence of screening (albeit with an imprecisely estimated zero) and large effects on enforcement. We then discuss the potential utility and portability of the methodological innovation, for both science and for practice.

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Published Paper
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June 01, 2014
English
The government has not historically been a major actor in the preprimary sector, but over the last decade this has changed substantially; the Office of the President declared Early Childhood Development (ECD) a national priority in 2004, and the government has both increased funding for private not-for-profit preschools and allowed for a large scale expansion (predominantly in public schools) of a reception year for 5 to 6 year-old children immediately before they start at primary school. Considerable progress been made towards universal attendance of this Reception (or “grade R”) across the country. This has led to the development of a two level preprimary system consisting of smaller private preschools (largely non-profits by status) aimed at 3-5 year olds, and predominantly public grade Rs.
 
In July and August 2013, Innovations for Poverty Action (IPA) conducted a data collection exercise in Soweto, Johannesburg. Sampling was designed such that the study is representative of the 8 poorest of Soweto (comprising about 15% of the overall area). The data collection consisted of 238 household surveys, 30 headmaster surveys and 26 classroom observations conducted with the aim of discovering the scale, cost and quality and preschool education in this area. This paper gives details of this research and its findings.
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Report
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November 01, 2013
English

Roughly two billion people in the world live on $2 a day or less. Of these a staggering 50 percent are estimated to be micro-entrepreneurs, running a small business to make ends meet but employing only a handful of people. If just a small proportion of these entrepreneurs were encouraged to grow and invest in their business, and hire more employees, it could transform the fortunes of the developing economies, and billions of people living in poverty. But how? It is a challenge that Stephen Anderson-Macdonald is hoping to help tackle.

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April 13, 2013
English

Firms spend billions of dollars developing advertising content, yet there is little field evidence on how much or how it affects demand. We analyze a direct mail field experiment in South Africa implemented by a consumer lender that randomized advertising content, loan price, and loan offer deadlines simultaneously. We find that advertising content significantly affects demand. Although it was difficult to predict ex ante which specific advertising features would matter most in this context, the features that do matter have large effects. Showing fewer example loans, not suggesting a particular use for the loan, or including a photo of an attractive woman increases loan demand by about as much as a 25% reduction in the interest rate. The evidence also suggests that advertising content persuades by appealing “peripherally” to intuition rather than reason. Although the advertising content effects point to an important role for persuasion and related psychology, our deadline results do not support the psychological prediction that shorter deadlines may help overcome time-management problems; instead, demand strongly increases with longer deadlines.

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Published Paper
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February 10, 2010

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