English

Interlinked transactions in which output prices are determined jointly with the terms of a credit contract are an important feature of many business relationships, particularly in developing economies. We present results from a randomized experiment designed to study how value is passed along the agricultural supply chain in the presence of such interlinkages. In response to an increase in a trader’s wholesale price, we find limited pass-through of the price to farmers. However we also find a large increase in the likelihood that traders provide credit to farmers, suggesting that the value of the wholesale price increase was passed to farmers along a different margin. We develop a model of interlinked transactions that shows how price and credit passthrough are determined, and verify its predictions empirically. Our work suggests that the presence of interlinkages is a candidate explanation for low rates of price pass-through that have been observed, but one with substantially different implications for welfare than others.

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Type:
Working Paper
Date:
June 17, 2015
English

There is a disconnect between academic economists’ search for individual mechanisms that constrain firm growth and the more complex reality facing firms and policymakers aiming to alleviate these constraints. The comprehensive, some would say scattershot, approaches that are common in practice are considered challenging for evaluators because of the difficulty in identifying any particular causal mechanism. More targeted attempts to improve business performance typically generate mixed performance (McKenzie and Woodruff 2012) or do not seem to scale either in the market or with public support.

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Type:
Working Paper
Date:
May 28, 2015

There is a disconnect between academic economists’ search for individual mechanisms that constrain firm growth and the more complex reality facing firms and policymakers aiming to alleviate these constraints. The comprehensive, some would say scattershot, approaches that are common in practice are considered challenging for evaluators because of the difficulty in identifying any particular causal mechanism. More targeted attempts to improve business performance typically generate mixed performance (McKenzie and Woodruff 2012) or do not seem to scale either in the market or with public support.

With that in mind, we partnered with the Asian Institute of Management (AIM), a leading Philippine business school, to launch a classbased program that had MBA students providing consulting services for local small and medium enterprises.

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Type:
Published Paper
Date:
May 01, 2015
English

This document presents the preliminary results of the exploratory phase of the Secured Transaction Reform impact evaluation; the degree to which the inability to use movable assets as collateral seem to limit firms’ access to credit; Financial Institutions’ (FI) expectations on the utility of the new regulation; and the use of the registry since its launch, since February 24th , through September 30th , 2014.

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Type:
Report
Date:
March 25, 2015
English

We conduct a randomized evaluation in urban Ghana in which micro and small tailoring enterprises receive advice from an international consulting firm, cash, both, or neither. We find that all three treatments lead to their immediate intended effects: changed business practices and higher investment. However, both treatments lead to lower profits on average in the short term. Then, in the long run, the micro-entrepreneurs in the treatment group disinvest relative to those in the control group, and revert back to their prior scale of operations and business practices. 

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Type:
Working Paper
Date:
March 11, 2015
English

Small and medium enterprises are the biggest contributor to employment across countries, providing over 66% of jobs on average. SMEs are also thought to drive innovation, social mobility, and productivity. However, businesses in developing countries grow less than firms in developed countries due to constraints such as limited access to finance, low levels of human capital, and inefficient markets. Because these constraints hinder the SME sector’s contribution to job creation and economic growth, governments and other organizations in developing countries spend billions of dollars each year on programs that aim to address the barriers to growth for SMEs. Unfortunately, little evidence exists on how to effectively address these constraints to unlock SME growth.

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Type:
Brief
Date:
March 01, 2015
English
A body of literature suggests that relationships affect contractual and market outcomes, but how does market structure affect the economics of relationships? This paper provides microeconometric evidence that upstream market structure affects the value of downstream relationships between retailers and buyers. In our setting, a monopoly ice manufacturer sells through independent retailers to fishermen buyers in Sierra Leone. We demonstrate that a shock that increases upstream competition among manufacturers improves the contractual terms offered by retailers to buyers. Under the monopolistic manufacturer, we document that late deliveries are common due to outside demand shocks. To help mitigate this uncertainty, retailers prioritize loyal customers when faced with shortages, and buyers respond by rarely switching retailers. When manufacturers compete, prices fall, quantities increase and services improve with fewer late deliveries. Entry upstream also disrupts collusion among retailers by increasing the
value of competing for buyer relationships. Competing retailers expand trade credit provision as a new basis for loyalty, and stable buyer relationships reemerge after a period of intense switching. The findings suggest that market structure shapes informal contractual institutions, and that competition can increase the value of relationships
Country:
Type:
Working Paper
Date:
January 24, 2015

Despite regulatory efforts designed to make it easier for firms to formalize, informality remains extremely high among firms in Sub-Saharan Africa. In most of the region, business registration in a national registry is separate from tax registration. This paper provides initial results from an experiment in Malawi that randomly allocated firms into a control group and three treatment groups: a) a group offered assistance for costless business registration; b) a group offered assistance with costless business registration and (separate) tax registration; and c) a group offered assistance for costless business registration along with an information session at a bank that ended with the offer of business bank accounts. The study finds that all three treatments had extremely large impacts on business registration, with 75 percent of those offered assistance receiving a business registration certificate. The findings offer a cost-effective way of getting firms to formalize in this dimension. However, in common with other studies, information and assistance has a limited impact on tax registration. The paper measures the short-term impacts of formalization on financial access and usage. Business registration alone has no impact for either men or women on bank account usage, savings, or credit. However, the combination of formalization assistance and the bank information session results in significant impacts on having a business bank account, financial practices, savings, and use of complementary financial products.

Country:
Type:
Working Paper
Date:
January 01, 2015
English

We conduct a business plan competition to determine whether survey instruments or panel judges are able to predict which participating firms will grow fastest. Participants were required to submit a simple six- to eight-page business plan and then defend that plan before a panel of three or four judges. We surveyed the pool of applicants shortly after they applied, and then one and two years after the business plan competition. We use the follow-up surveys to construct a measure of enterprise growth, and use the baseline surveys and panel scores to construct measures of the potential for growth of the enterprise. We find that a measure of ability correlates quite strongly with future growth, but that the panel scores add to predictive power even after controlling for the measure of ability and other variables from the survey. The survey questions appear to have more power to explain the variance in growth. Participants presenting before the panel were give a chance to win customized training. Fourteen months after the training, we find no positive effect of the training on growth of the business.

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Type:
Working Paper
Date:
April 03, 2014
English

Many micro-enterprises in Kenya have low productivity. We focus on one particular business decision which may indicate low productivity: keeping enough change on hand to break larger bills. This is a surprisingly large problem. Our estimates suggest that the average firm loses approximately 5-8% of total profits because they do not have enough change. We conducted two experiments to shed light on why this happens: surveying firms weekly about lost sales, thereby increasing the salience of change, and explicitly informing firms about lost sales. We find that both interventions significantly altered change management and reduced lost sales. This largely rules out many potential explanations such as the risk of theft or the costs of holding change being too high. One explanation consistent with firms’ response to the survey and information on their lost sales is that firms were not perfectly attentive to change management prior to the interventions.

Country:
Type:
Working Paper
Date:
January 01, 2014
English

Standard models of investment predict that credit-constrained firms should grow rapidly when given additional capital, and that how this capital is provided should not a§ect decisions to invest in the business or consume the capital. We randomly gave cash and in-kind grants to male- and female-owned microenterprises in urban Ghana. For women running subsistence enterprises we find no gain in profits from either treatment. For women with larger businesses we strongly reject equality of the cash and in-kind grants; only in-kind grants cause growth in profits, suggesting a flypaper e§ect whereby capital coming directly into the business sticks there, but cash does not. The results for men also suggest a lower impact of cash, but di§erences between cash and in-kind grants are less robust. There is suggestive evidence that the di§erence in the e§ects of cash and in-kind grants is associated more with lack of self-control than with external pressure. 

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Type:
Published Paper
Date:
January 01, 2014
English

Do the repayment requirements of the classic microfinance contract inhibit investment in high-return but illiquid business opportunities among the poor? Using a field experiment, we compare the classic contract which requires that repayment begin immediately after loan disbursement to a contract that includes a two-month grace period. The provision of a grace period increased short-run business investment and long-run profits but also default rates. The results, thus, indicate that debt contracts that require early repayment discourage illiquid risky investment and thereby limit the potential impact of microfinance on microenterprise growth and household poverty.

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Type:
Published Paper
Date:
October 01, 2013
English

We use detailed contract level data on a portfolio of 197 coffee washing stations in 18 countries to identify the sources and consequences of credit markets imperfections. Due to moral hazard, default rates increase following unanticipated increases in world coffee prices just before (but not just after) the maturity date of the contract. Strategic default is deterred by relationships with the lender and foreign buyers: the value of informal enforcement amounts to 50% of the value of the sale contract for repaying borrowers. A RDD shows that firms are credit constrained. Additional loans are used to increase input purchases from farmers rather than substituting other sources of credit. Prices paid to farmers increase implying the existence of contractual externalities along the supply chain.

Type:
Working Paper
Date:
September 01, 2013
English

In 2013 IPA celebrated ten years of producing high-quality evidence about what works, and what does not work, to improve the lives of the poor. It was a year of celebration for our accomplishments. More so, it was a time to prepare our organization for the next phase as we continue to pursue our vision of a world with More Evidence and Less Poverty.

 

View an online version of the report at annualreport.poverty-action.org/2013annualreport/

Topics:
Type:
Annual Report
Date:
September 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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Type:
Date:
April 13, 2013

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