May 23, 2012

1. Business Training and Female Enterprise Start-up, Growth, and Dynamics in Sri LankaSuresh de Mel, University of Peradeniya David McKenzie, World Bank andChris Woodruff, University of Warwick May 23, 2012

2. Motivation I • Self-employment accounts for a large share of female employment in most developing countries • But: • Most female-owned firms are very small in scale, with low earnings • In much of South Asia and the Middle East, the majority of women are not even employed at all. • Key questions: • Can business training (alone or with a grant) raise the incomes of low-earning women; • Can it allow women outside the labor force to start new businesses.

3. Motivation II • A lot of emphasis has been on capital as the constraint to female microenterprise growth; hence the attention given to microfinance. • But: • In recent experiments in Sri Lanka and Ghana, we’ve found physical capital alone has not been enough to raise incomes of subsistence-level female-owned businesses. • Recent microfinance experiments also shown very modest results in this regard – although have had some success in getting new businesses started.

4. What do we do? • Conduct randomized experiments in Sri Lanka to test impact of business training on 2 different groups of women: • Self-employed with low levels of income • Out of the labor force but interested in entering. • Use the ILO’s SIYB training program, which is the most commonly used worldwide. • Look at impact of training alone, as well as training + grants. • Measure outcomes at 4 points in time post-training: increases power + look at trajectories.

5. Related studies • Last couple of years have seen a number of randomized experiments on business training in developing countries • Most are with microfinance clients, focus on existing business owners, are often with customized training programs, and have only single snapshot follow-up. • Karlan and Valdivia – Peru – improvements in business practices, no sig. improvements in sales, profits or employment; maybe higher sales in bad months. • Drexler et al. – Dominican Republic – compare two programs. Find simpler “rules of thumb” program improved practices and sales in bad months, no sig. impact on average sales, and profits not looked at. • Berge et al – Tanzania – for females weak improvements in business practices, no impact on business outcomes (males they get improvements). • Bruhn and Zia – Bosnia – improvements in business practices, but no increases in business profits or survival rates. • Gine and Mansuri – Pakistan – women improve business knowledge, but show no improvements in outcomes

6. Sri Lankan Context • Urban labor force participation rate for 20-40 year old women only 38% (vs >90% for men) • 28% of those in paid work are self-employed • Median profits only 5000 Rs (US$43)/month • Only 5% have any paid workers

7. Putting together a sample • Identify two groups of women in districts in and around Colombo and Kandy. Listing in 142 GNs in 10 DS divisions. • Age 25-45 yrs • Current enterprises: > 20 hrs per week in self employment, sector other than seasonal agriculture/fisheries, monthly profits =< 5000 Rs ($43). • Potential enterprises: planned to enter self-employment in next year, able to identify the nature of the proposed business, unmarried/married with no kids/married with kids > 5 yrs of age/if < 5 yrs of age had someone to look after the kids. • Selected sample of 628 current enterprises and 628 potential enterprises equally distributed across 10 DS divisions.

8. Typical current enterprise owner • Typical industries are tea shops, beauty shops, bag and mat manufacturing, tailoring, sewing, fruit & vegetable sales, making and selling lunch packets. • 36 years old, married, with 10 yrs of education, running the business for 6.5 yrs. • Mean monthly business income SLR 4000 (US$34). • This is about 1/4th of HH income • Low business practices score at baseline (mean is 4.6 out of 29). • Only 17% keep written records, only 4% done any advertising in last 6 months, only 9% have sales target fro next year, only 3% have budget of what costs for next year likely to be. • Only 18% have done any business related training – and of this mainly technical training

11. Typical potential enterprise owner: • Only 18% have never worked before, but only 8% have previously been in SE • 50% have taken some concrete steps towards opening a business in the past year. • 2 yrs younger in age than current group, but otherwise similar in terms of education, digitspan recall, raven tests, attitudes towards risk, and number of children. • Monthly HH income about Rs 1100 less than current. • Less likely to own fridge or sewing machine (assets that have business potential)

12. Randomization • Randomly selected 400/628 in each group to be offered business training • Half of these were also selected to receive a grant of 15,000 Rs (US$129) conditional on finishing the training. • At the time of being offered training, individuals were told that half of those who completed the training would be randomly chosen to receive a grant of this size. • Randomization stratified on D.S., and other key variables. • Current enterprises: children to look after; baseline profits • Potential enterprises: taken steps to opening business; whether had ever worked before • As a result of randomization, treatment and control groups balanced on baseline characteristics.

13. Training • ILO Start and Improve Your Business (SIYB) program • Designed to meet needs of small-scale entrepreneurs in developing countries • Started in Eastern Africa in 1977 • Global outreach of 1.5 million trainees, implemented in over 95 countries • Use three packages: • Generate Your Business (GYB) – 3 days on generating idea for business • Start Your Business (SYB) – 5 days on main aspects needed to start a business – what to sell, pricing, organizing staff, equipment and inputs, legal form, etc. • Improve Your Business (IYB) – 5 day course which helps existing business owners develop their business – modules on marketing, buying, costing, stock control, record-keeping, and financial planning.

14. Interventions • Potentials: 3 day GYB + 5 day SYB. • Currents: 1 day Refresher GYB + 5 day IYB • Both groups got 1 day technical training – exposure to, and training in, some relatively high return sectors which are socially acceptable for women. 2-3 options available at each training location. • Training provided by SLBDC, which has 8 years of experience delivering this content to local market & university-educated trainers. • Cost to us of training was around $130 per individual trained. • Course was offered to participants for free + attendance payment of 400 Rs per day to cover transport and opportunity cost of training.

17. Treatment Takeup • Current: 279 (69.8%) of the 400 offered treatment attended training and 268 (67%) completed training. • Married, more educated women running young firms more likely to attend. • Opportunity cost of time matters – less likely to attend if more profitable, work more hours, have more wealth. • Potentials: 282 (70.5%) of the 400 offered treatment attended training and 261 (65.3%) completed. • More able, older women more likely to attend • Take-up lower in Colombo than elsewhere

19. Follow-up Data collection • Follow-up surveys are at 3-4 months; 7-8 months; 15-16 months; and 24-25 months after training. • Attrition rates low – getting 580-590 out of 624 in follow-up rounds (92-94%). Attrition unrelated to treatment status in current enterprises, slightly lower for trained in potential sample but results robust to this • Measure: • Business outcomes, including profits, sales, capital-stock • Business practices

20. Theory – how might training affect who runs a business?

21. Theory – how might training affect who runs a business?

22. Impacts • On current enterprises • On business practices • On business outcomes • On potential enterprise owners • On whether they start-up a business • On how well these businesses do

25. 4 months after training + grant

26. 25 months after training and grant

28. Potential Businesses

30. Impact on business ownership • TOT impacts: • Cash + Training: 29 p.p. increase at R2, 2 p.p. in R4 and R5 • Training only: 12.2 p.p. increase at R2, -2 p.p. in R5. • Have sped up entry – so impact evaluations which looked only in the first year would think big impact on business start-up, but by 25 months no significant impact on levels of start-up. • What about who runs a business? • Model predicts we should see selection on ability and wealth

33. Impacts on outcomes of businesses which start • So even though levels of business ownership are the same, interventions have changed who owns a business – which makes evaluating the impact of the training and grants on the business less straightforward. • Two approaches: • Naïve experimental approach – estimate impacts via OLS – since selection seems to be that interventions bring in poorer and less analytically able, this might be argued to be lower bound. • Use generalized propensity score and run weighted regression to compare like with like.

35. Conclusions and Implications • Training alone not enough to get subsistence businesses run by women to grow • Consistent with results from other business training studies • Also consistent with work on capital grants • Adding capital gives temporary boost in profitability, but appears to be relatively short-lived • Really hard to get these subsistence-level firms to grow • Policy options: • More intensive one-on-one mentoring e.g. Valdivia – but expensive. • Address constraints to participation in wage work, with labor market failures potentially reason these women operating business in the first place.

36. Conclusions and implications • Potential enterprises • Results more encouraging for ability of business training to help women start businesses more quickly, and make these businesses more profitable • This is a group existing business training studies haven’t focused on • Consistent with microfinance studies which have found some impact on business start-up => Easier to get women to start-up subsistence businesses than it is to get these businesses to grow.

37. Implications for Impact evaluation • Results show the importance of tracing out the trajectory of impacts • Single follow-up survey would miss much of the story. • Importance of looking at impacts on different subgroups of interest • Potential vs Current firm samples • Arguably learn more about firm growth constraints by taking a sample of general population than by taking microfinance clients. • Issue of content when comparing evaluations • “business training” varies a lot in curricula, cost, number of hours, etc. across studies, making difficult to compare.