Helping the ultra-poor develop sustainable livelihoods is a global priority, but policymakers are faced with competing ideas about the best way to approach this problem. Researchers are working with Village Enterprise and Innovations for Poverty Action in Uganda to evaluate programs with contrasting styles of engagement with ultra-poor households. Village Enterprise’s graduation-type program provides the ultra-poor with an intense series of microenterprise trainings alongside cash grants, with the aim of helping them start and sustain small businesses. Unconditional cash transfers, on the other hand, involve much less administration from development organizations. Researchers will evaluate how the graduation program and variations of it compare to unconditional cash transfers, measuring impacts on household income, assets, and savings. 

Policy Issue 

More than 20 percent of the world’s population that lives on less than US$1.90 a day, and finding more secure and sustainable livelihoods is crucial for these households. Microenterprise development is one key avenue for helping these ultra-poor families develop livelihoods, but some approaches that policymakers had hoped would help—such as microfinance services—have not substantially improved the living standards of small business owners or their families.

Two approaches that have recently shown greater promise are the graduation model and unconditional cash transfers. The graduation model is a package of intentionally sequenced interventions intended to help the ultra-poor develop stable and sustainable livelihoods. Despite the success of the graduation model in diverse settings, there are concerns about the cost-effectiveness of such comprehensive packages, which are relatively expensive.

By contrast, unconditional cash transfers are much less expensive to deliver; in their most basic form, they entail relatively little administration on the part of development organizations and have been shown to be effective.1 However, other evaluations of cash grant programs do not consistently find positive effects,2 and few of these evaluations have been conducted specifically among the extreme poor. This research aims to provide new evidence directly comparing a full graduation program, and variations of it, with unconditional cash transfers within the same context of the extreme poor in Uganda.

Context of the Evaluation 

Village Enterprise’s graduation program works to help ultra-poor households in East Africa develop sustainable livelihoods. According to a recent survey, over 95 percent of Village Enterprise households in Uganda are reliant on subsistence farming and agricultural day labor. Forty-eight percent of the households are living on less than a dollar a day and another 39 percent are living on between one and two dollars a day. The majority of households spend about 80 percent of their income on food.

Relative to national averages, households in districts where Village Enterprise works are more likely to have thatched roofs, less likely to have a sanitary latrine, less likely to have a pair of shoes for every household member, and less likely to own electronic devices or a mobile phone. Only one in five of people surveyed in Village Enterprise districts can read in any language, compared to Uganda’s 69 percent national literacy rate.

Details of the Intervention 

Innovations for Poverty Action is working with researchers to conduct a randomized evaluation measuring how Village Enterprise's graduation program and variations of it compare to unconditional cash transfers, measuring impacts on household income, assets, and savings of the ultra-poor. Researchers worked with Village Enterprise to identify the poorest 6,600 households across 138 villages, and will randomly assign households to one of six groups:

1. Full graduation program: Participants in this group will receive the full Village Enterprise graduation program, which has four components sequenced over 12 months:

  • Training—A business mentor will lead sessions for groups of around 30 participants. The training consists of 15 modules on topics suchs as record keeping, business planning, marketing, the importance of savings, and financial management. Participants will form small groups of three people each; these groups are expected to write a business plan and work on starting a small business together.
  • Capital grants—Three months after beginning the training, each small business group will receive a grant of US$100 to start their enterprise. A second grant of US$50 will be provided six months later; this grant will be conditional on the group’s proper utilization of the start-up capital and regular attendance at training sessions.
  • Mentoring—Business mentors as well as Village Enterprise representatives will monitor the small business groups’ use of the capital and advise them on specific challenges they encounter.
  • Business savings group (BSG)—BSGs function similarly to Village Savings and Loans Associations in that members make contributions to the group’s savings pool, and can also borrow from it. BSGs, however, are aimed at businesses rather than individuals; the goal of forming a BSG is to create a sustainable way for participants to access financial services and support each other after the program is over. The same group of 30 participants that attends the training will form the BSG together. 

2. Graduation program without BSG: Participants in this group will receive the training, capital grants, and mentoring components of the Village Enterprise program, but will not start a BSG.

A subset of households in groups 1 and 2 will also receive the Smarter Market Analysis Risk Tool (SMART) program component. SMART uses various complex data (price, crop yield, weather risks etc.) to generate simple, region-specific recommendations for subsistence farmers looking to undertake crop-based businesses.

3. Unconditional cash transfers: Each participant in this group will receive US$130 as an unconditional cash disbursement. To enhance the comparison of the graduation program and the unconditional cash transfer, US$130 is approximately equivalent to the per-person cost of delivering the Village Enterprise graduation program.3

4. Unconditional cash transfer combined with a behavioral/mindset intervention: Each participant in this group will receive a US$130 unconditional cash transfer, and will also be invited to participate in an intervention intended to prepare participants psychologically to make the most of the transfer. This intervention builds on existing research on goal setting and self-affirmation.

5. Business-in-a-Box (BIAB): In a small pilot, participants in this group will receive all components of the Village Enterprise program except the capital grants (training, BSG formation, and mentoring). Instead of capital grants, small business groups will receive all necessary inputs to start a business (for example, all the materials one would need to start growing sesame seeds or raising chickens).

6. Comparison: Households in this group will not be offered the graduation program, the cash transfer, or a BIAB.

Researchers will compare the six groups to evaluate the programs’ effects on households’ consumption, occupational choice, assets, access to financial services, and savings.

Results and Policy Lessons 

Results forthcoming. 

Sources

[1] Haushofer, J. And Shapiro, J. (2013) “Policy brief: Impacts of unconditional cash transfers”, Working paper, JPAL.

[2] McKenzie, D. and Woodruff (2008) “Experimental evidence on returns to capital and access to finance in Mexico”, World Bank Economic Review, Vol. 22(3): 457-482; Fiala, N. (2014) “Stimulating microenterprise growth: Results from a loans, grants and training experiment in Uganda”, mimeo, German Institute for Economic Research, Berlin; Berge, L. I. O., Bjorvatn, K., and Tungodden, B. (2012) “Human and financial capital for microenterprise development: Short-term and long-term evidence from a field experiment in Tanzania”, mimeo, Norwegian School of Economics, Bergen; de Mel, S., McKenzie, D. and Woodruff, C. (2014) “Returns to capital in microenterprises: Evidence from a field experiment”, Quarterly Journal of Economics, Vol. 123 (4): 1329-1372; Fafchamps, M., McKenzie, D., Quinn, S. and Woodruff, C. (2014) “Microenterprise growth and flypaper effect: Evidence from a randomized experiment in Ghana”, Journal of Development Economics, Vol. 106: 211-226.

[3] This calculation includes all the field expenses incurred by Village Enterprise in the deployment of its program.