Entrepreneurship is a significant source of women’s economic opportunity – employment and income generation – for both urban and rural women in low-income countries. Women entrepreneurs may participate in a wide range of activities, from undertaking income generation projects in their homes, to selling products in open markets and the street, to owning or managing a business in a fixed location with one or more employees. Typical interventions to increase these women’s earnings include credit, savings and insurance vehicles; business training; technical assistance; women’s enterprises and women’s business networks.
Summary of Lessons
Simply put, capital alone, either as a small loan or grant, is not enough to grow women’s subsistence-level businesses.
Very poor women need more comprehensive services in order to break free from low-earning subsistence-level businesses, rather than single services or small levels of capital (in-kind, grants or loans).
Pairing a relatively high-value asset with specific business training and follow-up technical visits can expand occupational choices and increase earnings. While providing more services is often expensive up front, it leads to a greater standard of living and is also cost effective over time.
In Bangladesh, women who received a choice of a large asset (livestock valued at about USD $140) combined with specific training and follow up visits increased their earnings by 34 percent.
For women with larger, more profitable businesses, loans and grants (capital) yield larger profits, particularly when delivered inkind (e.g., in the form of inventory) so that there is less temptation to divert cash resources from the business for household uses.
Additionally, financial services delivered through mobile phones can effectively help women grow their businesses, because it allows women to keep their financial transactions private.
In Niger, households that received cash via mobile phones bought a wider variety of goods, spent less money during crisis periods and grew more types of crops than those receiving cash using other methods. The researchers hypothesized that these positive outcomes were the result of the low cost of using the mobile to transfer cash and the greater privacy the mobile gave women to elect how to spend the transfer.
Business training has been shown to improve business practices, but does not increase the profits of subsistence-level women-owned firms.
Increasing the quality and duration of training, providing follow-up customized technical assistance and targeting women running larger sized firms shows promise in helping women increase their earnings.
There is growing consensus that providing women and girls with access to reliable savings products is a smart investment that is proven to increase the earnings of self-employed women.
Expanding access to commercial credit is a key ingredient of financial development strategies. There is less consensus on whether expanding access to consumer credit helps borrowers, particularly when loans are extended at high interest rates. Popular skepticism about "unproductive," "usurious" lending is fueled by research highlighting behavioral biases that may induce overborrowing. We estimate the impacts of expanding access to consumer credit at a 200% annual percentage rate (APR) using a field experiment and follow-up data collection.
M-Pesa is a mobile phone based money transfer system in Kenya which grew at a blistering pace following its inception in 2007. We examine how M-Pesa is used as well as its economic impacts. Analyzing data from two waves of individual data on financial access in Kenya, we find that increased use of M-Pesa lowers the propensity of people to use informal savings mechanisms such as ROSCAS, but raises the probability of their being banked. Using aggregate data, we calculate the velocity of M-Pesa at between 11.0 and 14.6 person-to-person transfers per month.
Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings.
Microfinance clients were randomly assigned to repayment groups that met ei- ther weekly or monthly during their first loan cycle, and then graduated to identical meeting frequency for their second loan. Long-run survey data and a follow-up pub- lic goods experiment reveal that clients initially assigned to weekly groups interact more often and exhibit a higher willingness to pool risk with group members from their first loan cycle nearly two years after the experiment. They were also three times less likely to default on their second loan.
We test whether managerial human capital has a first order effect on the performance and growth of small enterprises in emerging markets. In a randomized control trial in Puebla, Mexico, we randomly assigned 150 out of 432 small and medium size enterprises to receive subsidized consulting services, while the remaining 267 enterprises served as a control group that did not receive any subsidized training. Treatment enterprises were matched with one of nine local consulting firms and met with their consultants once a week for four hours over a one year period.
We explore the impact of reduced transaction costs on risk sharing by estimating the effect of mobile money on household consumption. Over a two-year period, household adoption increased from 43 to 70 percent, while the number of cash-in and cash-out agents increased four-fold. Using panel data we collected, we found that while shocks reduce per capita consumption by 7 percent for non-user households, the consumption of households with access is unaffected. The mechanism underlying this effect is an increase in remittances received, in number, size and diversity of senders.
Individuals and business owners engage in an increasingly complex array of financial decisions that are critical for their success and well-being. Yet a growing literature documents that in both developed and developing countries, a large fraction of the population is unprepared to make these decisions. Evidence on potential remedies is limited and mixed. Two randomized trials test the impact of financial training on firm-level and individual outcomes for microentrepreneurs in the Dominican Republic. We find no significant effect from a standard, fundamentals-based accounting training.
Microcredit has spread extremely rapidly since its beginnings in the late 1970s, but whether and how much it helps the poor is the subject of intense debate. This paper reports on the first randomized evaluation of the impact of introducing microcredit in a new market. Half of 104 slums in Hyderabad, India were randomly selected for opening of an MFI branch while the remainder were not. We show that the intervention increased total MFI borrowing, and study the effects on the creation and the profitability of small businesses, investment, and consumption.
We report on a field experiment providing random grants to microenterprise owners. The grants generated large profit increases for male owners, but not for female owners. We show that the gender gap does not simply mask differences in ability, risk aversion, entrepreneurial attitudes, or differences in reporting behavior, but there is some evidence that the gender gap is larger in female-dominated industries. The data are not consistent with a unitary household model, and indeed, imply an inefficiency of resource allocation within households.
This paper uses variation in policies and institutional characteristics to evaluate the impacts of village-level microfinance institutions in rural Thailand. To identify impacts, we use policies related to the successful/unsuccessful provision of services as exogenous variation in effective financial intermediation. We find that institutions, particularly those with good policies, can promote asset growth, consumption smoothing and occupational mobility, and can decrease moneylender reliance.