Teaching entrepreneurship: Impact of business training on microfinance clients and institutions

Existing microcredit clients of FINCA Peru were provided business training during their weekly group banking meetings. Treatment groups received entrepreneurship training sessions and materials during their weekly meetings while comparison groups remained as they were before, meeting with the same frequency to make loan and savings payments.

2002-10-01

2005-11-30

(1) business outcomes
(2) business processes and knowledge
(3) household outcomes including empowerment in decision making and child labor, and
(4) microfinance institutional outcomes.

(1) Business outcomes: measured through sales and number of workers employed
(2) Business processes and knowledge: tests whether the specific practices taught in the training were adopted. Examples of such practices include paying tax, paying salary to self, using profit for business growth etc.
(3) Household outcomes: household decision making and engagement of client’s own child in work.
(4) Microfinance Institutional outcomes: measured by loan size, client retention, cumulative savings

The experiment uses pre-existing banking groups in the districts of Ayacucho and Lima where banks are randomly assigned to control and treatment group. Randomization was stratified by credit officer; hence, each credit officer had the same proportion of treatment and control groups. Each group ran the training at its own pace thus different groups were exposed to different intensities of training.
The empirical analysis compared the village banks assigned to treatment to those assigned to control, regardless of how well the groups adhered to the training program, how well clients attended the training, and how long clients continued participating in the lending program. This is important not only to avoid a selection bias from heterogeneous intensity of treatment, but also because the delays experienced are representative of credit-with-education interventions.

randomization done in office by a computer, likely using Stata

Village banks

Yes

239 village banks

4,591 microfinance clients

Control: 101 village banks
Mandatory participation in business training: 104 village banks
Voluntary participation in business training: 34 village banks

TEACHING ENTREPRENEURSHIP: IMPACT OF BUSINESS TRAINING ON MICROFINANCE CLIENTS AND INSTITUTIONS

Most academic and development policy discussions about microentrepreneurs focus on credit constraints and assume that subject to those constraints, the entrepreneurs manage their business optimally. Yet the self-employed poor rarely have any formal training in business skills. A growing number of microfinance organizations are attempting to build the human capital of microentrepreneurs in order to improve the livelihood of their clients and help further their mission of poverty alleviation. Using a randomized control trial, we measure the marginal impact of adding business training to a Peruvian group lending program for female microentrepreneurs. Treatment groups received thirty- to sixty-minute entrepreneurship training sessions during their normal weekly or monthly banking meeting over a period of one to two years. Control groups remained as they were before, meeting at the same frequency but solely for making loan and savings payments. We find little or no evidence of changes in key outcomes such as business revenue, profits, or employment. We nevertheless observed business knowledge improvements and increased client retention rates for the microfinance institution.

Karlan, Dean, and Martin Valdivia. 2011. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions." The Review of Economics and Statistics 93(2): 510-527.

http://karlan.yale.edu/sites/default/files/rest_a_00074.pdf