Consulting and Capital Experiments with Microenterprise Tailors in Ghana

The researchers conducted an RCT to evaluate the impact of cash grants, managerial consulting, or both on business profits and practices of microenterprise tailors in Ghana. 160 tailors with fewer than five employees and apprentices were randomly selected from eight neighborhoods in and around Accra, Ghana to take part in the study. Forty-one tailors received managerial consulting only, thirty-six received a cash grant only, thirty-six received both managerial consulting and a cash grant, and forty-five tailors received no treatment as part of the control group. Eleven tailors were not included in the final sample due to death or relocation. Treatment assignment was orthogonal to baseline characteristics, and attrition was not correlated with treatment status. Eight rounds of surveys were conducted over two years; the first was a baseline survey and the final occurred eleven months after all treatment had stopped.

Initially, the treatments had large effects. The cash grants were invested and the management practices were adopted. However, there is no evidence that these changes increased profits, and some treatment arms experienced decreased profits in the short term. After two years, on average, the tailors in the treatment groups returned to their prior scale of operations and business practices, and the treatment and control groups were indistinguishable.

2009-02-01

2010-12-31

Knowledge of standard business practices, adoption of standard business practices, investment behavior, savings behavior, business income, business profits

In January 2009, 77 of the 160 participant tailors were randomly selected, stratified by neighborhood, to receive management consulting. Eight months after the consulting treatment began, 75 tailors were randomly selected, stratified by neighborhood and assignment to consulting treatment, to receive the cash grant treatment. In total, forty-one tailors received managerial consulting only, thirty-six received a cash grant only, thirty-six received both managerial consulting and a cash grant, and forty-five tailors received no treatment as part of the control group.

The consulting treatment was administered by four consultants from Ernst & Young and was adapted from training materials administered by Ghana's National Bureau of Small Scale Industries. Training took place at each tailor's shop over the course of a year and included lessons on record keeping, customer service, and employee management. The cash grant was 200 cedis, which was roughly twice the average amount of reported cash available for investment. Eight rounds of surveying took place from December 2008 to December 2010. Results are reported for four categories: investments, savings and loans, profitability, and measurement.

Randomization done in office by computer

Randomization for consulting treatment performed at individual level, stratified by neighborhood;
Randomization for capital treatment performed at individual level, stratified by neighborhood and consulting treatment

No

160 individual tailors

160 individual tailors

45 tailors in control group; 36 tailors received cash treatment only; 41 tailors received consulting treatment only; 36 tailors received both cash and consulting treatment

We conducted a randomized trial in urban Ghana in which tailoring microenterprises received advice from an international consulting firm, cash, both, or neither. We designed the study with a hypothesis that large infusions of financial and managerial capital could be transformative. We find that all three treatments led to their immediate intended effects: changed business practices and increased investment. However, no treatment led to higher profits on average, and certainly not to the large effects hypothesized. In fact, each treatment at some point led to lower profits. Then, in the long run, we find that the microentrepreneurs in either consulting treatment group reverted back to their prior business practices, and that microentrepreneurs in the cash treatment group reverted back to their prior scale of operations.

Dean Karlan, Ryan Knight, Christopher Udry, Consulting and capital experiments with microenterprise tailors in Ghana, Journal of Economic Behavior & Organization, Volume 118, October 2015, Pages 281-302, ISSN 0167-2681, http://dx.doi.org/10.1016/j.jebo.2015.04.005. (http://www.sciencedirect.com/science/article/pii/S0167268115001092)

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