Cash versus microfinance versus training: The randomized control trial

I think this is a first, and very important. And it’s a job market paper from one of my collaborators, Nathan Fiala.

He starts with a pool of very small business owners in Uganda who said they wanted to expand their businesses. They were randomly allocated either loans, cash grants, business skills training, or a combination of each.

I find that six and nine months after the interventions, men with access to loans with training report 54% greater profits. This effect increases slightly over time and is driven by men with higher baseline profits and ability. The loan-only intervention had some initial impact, but this is gone by the nine month follow-up. I find no impacts from the unconditional grant interventions. Markedly, there are no effects for women from any of the interventions.

Cashonistas of the world: pause and reflect? Granted, these are short-term results only, but there are many reasons to pause and reflect, not least the fact that so few microfinance interventions show evidence of investment and earnings growth. I am still thinking deeply about the implications.

One possibility:

Family pressure on women appears to have significantly negative effects on business investment decisions: married women with family living nearby perform worse than those in the control group in a number of the interventions. Men instead benefit from close family proximity and demand labor from the household. The results suggest that highly motivated and skilled male-owned microenterprises can grow through finance, but the current finance model does not work for female-owned enterprises.

Nathan elaborates in a guest post on the World Bank development impact blog.

 

7 Responses

  1. I recently attended a panel that tried to round up what we know about women’s economic empowerment from the various studies out there. One of the conclusions they mentioned was that paying attention to which constraints hold people back is important – is it money or is it knowledge or is it both? However, from this it looks like the combo of training + expectation of paying back was the key, rather than anything having to do with capital…

    Another was that women were often expected to “share” the wealth with the family, if they received cash. One of the recommendations was to give any “cash” as gift-in-kind instead. No one expects a piece of a loom or a sheep’s foot.

    No idea how it intersects here, of course.

  3. Differential temptation of consumption can also explained the married woman results; nearby family knows about the money, and is constantly bidding against investment, to use money for sick children, a wedding, etc.

  4. I wonder if the training also acted to increase recipients’ expectations the loan would be monitored and therefore need to be repaid. In which case they might have substituted away from tempting consumption towards productive investments that would enable repayment.

  5. There is an organization called CORD (and in the USA it is CORDUSA) that works on development initiatives in India. They are very successful in micro-finance and their success is mostly with women (as opposed to the conclusion above). This model should be studied by economists as well and see what makes it work there.

  6. Another thing to think about is the type of businesses run by men vs. women. I’ve given out many micro-loans in Uganda in the past and have come to realize that most businesses women look to start (particularly in slum communities) are operating in a perfectly competitive market. More business training and more money through loans can’t help them grow their business until they begin to offer something new or different.