BUSINESS TRAINING OR TECHNICAL ASSISTANCE FOR FEMALE MICROENTREPRENEURS: LESSONS FROM TWO EXPERIMENTAL EVALUATIONS Martin Valdivia Conference "Women's Entrepreneurship: What do we know? What is next?” Washington D.C., April 6th, 2011

Structure of the presentation Motivation: Teaching entrepreneurship to female microentrepeneurs This presentation: Analysis of two experimental interventions for improving management capital for female microentrepreneurs Research questions Results and discussion Remaining questions

Motivation I Is it possible to transform a small trader/producer into a successful businesswoman? –In the developing world, millions of people work in their own familiar microbusinesses (GEM, 2007) –Many of those families are still poor Exclusion or use of opportunities? (Perry, et. al., 2007) Entrepreneurship in Latin America reproduces gender inequities (GTZ-BM-BID, 2010) –Female participation in labor force has increased a lot in the last decades, but mainly in the informal sector –Female-run businesses tend to be smaller, less profitable and less productive

Motivation II Majority of microbusinesses have low returns to capital, especially those female-run (de Mel, McKenzie y Woodruff, 2008) –Possibilities of business growth and sustainability are ambiguous –Contribution of this sector to poverty reduction and economic growth is uncertain Pro-microentrepreneurship interventions have been tried (microfinance, titling), but recent evidence showed they have not been enough –Microfinance (Banerjee et. al., 2009; Karlan & Zinman, 2010) –Titling (Field & Torero, 2005; Galiani & Schargrodsky, 2010)

Motivation III So, what else could be done to strengthen entrepreneurial efforts by females? –If the problem is exclusion, firms may be inefficient –need to improve management capital available to these businesses (Bruhn, Karlan & Schoar, 2010) business training Technical assistance Or both? –In the case of women, need to include a gender approach to empower the role of women within the household and in the community

What do we present here? Lessons from two experimental evaluations: Teaching entrepreneurship: Impact of business training on microfinance clients and institutions, with Dean Karlan (forthcoming, REStat 2011) Training or Technical assistance for female microentrepreneurs?: an experimental evaluation (first results, study in progress) Driving research questions Can entrepreneurship be taught, making a businesswoman succeed? –Is it intuition, determination? –Adoption of good business practices? Need some concrete advice (technical assistance) to improve business outcomes and consolidate new knowledge?

Characteristics of Study 1(FINCA) A business training module was added to the financial services of a MFI –We worked with FINCA-Perú, small but financially sustainable MFI (village banking) –Serving microentrepreneur women in Lima and Ayacucho –Two modules (22 sessions, with Atinchik, FFH): Module 1: what is a business, how does the market work, commercial strategies Module 2: separate account management (home-business), productions costs calculation, prices –Half-hour sessions in the dates of their regular payment meetings, run by previously trained FINCA promoters –Random assignment of banks to treatment and control groups to identify effects Control group: business as usual for FINCA village banks Marginal contribution of training on clients and MFIs

Characteristics of Study 2 (Consortium) Study associated to the RBI project by WB-UNIFEM –Eligible female microentrepreneurs were called in the north and south cone of Lima –Design and execution of training in charge of the consortium CEDLAS- CAPLAB-INPET –Three modules: personal development, business management, productive development Random selection of beneficiaries and control group from the eligible interested population –T1  3-month regular training, 3 classroom group sessions of 3 hours each week –T2  regular training plus technical assistance (AT) –C  nothing

Research questions Key general questions –Can good business practices be taught to adult women with low formal education level and, in some cases, low self-esteem? –Can the training contribute to the growth of the women´s business? FINCA study –Can training help improve the outcomes of the MFI? (client retention, repayment rate, loan size, etc.) –Should the MFIs provide business management training? Consortium Study (how to provide training?) –Is there any difference when the training is provided by specialists? –Can traditional training be enough (transmission of good business practices), or is a component of technical assistance required (more specific advice to the businesses of these women)?

Results: do microentrepreneurs’ practices change/ improve? Yes, definitely –FINCA study: improved record keeping of inputs/outputs, separate household and business accounts, reinvest more, think proactively about business innovations and implement them –Consortium study: separate household and business accounts, close non-profitable businesses/ open new businesses, participate more in producers/ traders associations, seek more credits (specially from informal sources) According to the emphasis of each training –But not all recommended practices were adopted

Results: does it contribute to businesses growth? It seems general training is not enough, TA is needed –FINCA study: sales of the treated increased 15% more than those of the control group, especially in “low” periods Nevertheless, we cannot reject that this effect might be explained by some structural differences –Consortium study: sales increased between 17%-20%, but only for women who received full treatment (general training plus technical assistance) Could it be the effect of working with specialists in the provision of training (Consortium)? –No, as women with just regular training in Consortium study do not present any effects either –Instead, the effect is only significant when combining general training with technical assistance

Discussion of key results Policy implication: –Teaching general good business practices (GT) is cheaper and more scalable, but TA is needed to help microentrepreneurs grow –Both effects are stronger in relatively larger businesses Existence of a threshold from which this kind of intervention can help But, can we really say that the full intervention (GT+TA) has transformed beneficiaries in better businesswomen? –Not necessarily. Positive effects do imply there were inefficiencies (room to improve) and specific advice was sound –Do not know whether the diagnosis and innovation process could be replicated further without a third party’s help (subsidized or not) If not, these microentrepreneurs would still be vulnerable to changes in the economic context, and their businesses’ growth and sustainability would still be uncertain –We can learn a lot from a second follow up.

Other key results: Should a MFI provide business training? It is beneficial for the MFI –Improves client retention –Reduces loan repayment problems of the members Important: with joint liability, there are repayment problems that do not affect directly the MFI accounts But with joint liability, payment problems destabilize village banks, so improvements in this indicator are good for the MFI –But things may still get complicated if TA is added FINCA study provided training in a mandatory scheme –Who benefits the most? –Results in business practices and institutional outcomes are stronger in those initially less interested in the training –Policy implication: demand-driven selection of beneficiaries would not be the most appropriate choice Free-trial periods and tied-sales would be more advisable

Remaining questions I: randomization and effective treatment Consortium study: only 50% of the selected beneficiaries accepted to start the training program, and only 305 reached 75% of it. –In the FINCA study that selectivity was also true, because of clients dropping out of village banks –In any case, ITT estimator is relevant if programs work this way –A cost-benefit analysis that assumes perfect compliance is not useful Nevertheless, it is crucial to try to see how to maximize effective treatment –Connection between early childbearing/distance to training center suggest time constraint is a key issue (childcare services, shorter/less frequent sessions) –Other related adjustments: group invitations, use of ICTs may help catch up after unavoidable absences

Remaining questions II: external validity Businesses in both studies are very small –FINCA study: average monthly sales of 800 soles –Consortium study: average weekly sales of 500 soles This group is very important because it includes very poor people Nevertheless, it is valid to think that results could be different for small and medium businesses –Pilot strategies like these should be implemented –It is likely that other restrictions may come as relevant Formality costs, technological level