Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions

Can one teach basic entrepreneurship skills, or are they fixed personal characteristics? Most academic and development policy discussions about microentrepreneurs focus on their access to credit, and assume their human capital to be fixed. The self-employed poor rarely have any formal training in business skills. However, a growing number of microfinance organizations are attempting to build the human capital of micro-entrepreneurs 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 that the treatment led to improved business knowledge, practices and revenues. The program also improved repayment and client retention rates for the microfinance institution. Larger effects found for those that expressed less interest in training in a baseline survey. This has important implications for implementing similar market-based interventions with a goal of recovering costs.

Karlan, Dean and Martin Valdivia (2011) Urban and Rural.RCT.Freedom From Hunger training program. Measure marginal impact of adding business training to a Peruvian group lending program for female microentrepreneurs. 30-60 minute entrepreneurship training sessions during normal weekly or monthly banking meeting over 1-2 years. Controls held meetings as frequently but only for loan/savings payments.Improved business knowledge and client retention rates. Using difference in differences estimation there is some evidence that training may reduce downward fluctuations in sales (26% higher in 'bad' months). Little or no evidence of changes in business revenue, profits or employment. http://karlan.yale.edu/p/TeachingEntrepreneurship_revision_jan2010.pdfFemale microfinance clients.