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Microfinance and Education

Microfinance and Education. Lecture # 17 Week 10. Structure of this class. Further inquiry on adding on “human capital accumulation” in microfinance A case study: Peru Attempting to measure marginal impact of adding business training Methodology and results. Human capital.

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Microfinance and Education

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  1. Microfinance and Education Lecture # 17 Week 10

  2. Structure of this class • Further inquiry on adding on “human capital accumulation” in microfinance • A case study: Peru • Attempting to measure marginal impact of adding business training • Methodology and results

  3. Human capital • Defined as teaching entrepreneurship • Is it a fixed personal characteristic or can it be taught? • To answer this question, Karlan & Valdivia (2006) used a randomized control trial to measure: The marginal impact of adding business training to a Peruvian village banking program for female micro-entrepreneurs

  4. PERU: BASIC FACTS Population: about 30 million Over 70% in services Only 9 % in agriculture Fast – growing economy GDP per head $219 Over 40% below the poverty Line Foundation for International Community Assistance (FINCA) (Pioneer of “village banking” Methodology since 1993 Clients: 96% women

  5. Salient features of the “educational program” launched in 2003 • Sponsored by FFH • 22 weekly sessions in basic business practices for improved entrepreneurial skills: • How a business is • How a business works • Business in the market place - How to treat clients • How to use profits • Where to sell • Use of special discounts • Credit sales • Goods and services produced

  6. These skills should in principle: • Increase sales, more workers, and incentives to join the formal sector And • Impact household decision making and child labor From the MFI’s standpoint: • Higher repayment rates • Goodwill and sentiments of reciprocity: higher repayment rates • Ambiguous effects on loan sizes and savings volumes • Ambiguous effects on client retantion

  7. Attempts to measure impact • In two parts of Peru: Ayacucho and Lima randomized-control trials in which pre-existing groups were assigned randomly to control and treatment groups • Ayacucho: 55 treatment villages (training was mandatory), and 34 treatment villages (training was voluntary), and 51 were assigned to control group • In Lima: 49 treatment villages (training was mandatory) and 50 assigned to control

  8. Implementation problems • Mandatory attendance was higher than voluntary • Training could not always occur at each meeting and at the same pace because of drop out rates, religious holidays, more time requested for studying  delays in completion and heterogeneity in treatment intensity

  9. Nevertheless, data was gathered • Baseline from financial transactions data delivered by FINCA • Baseline and follow-up surveys complemented the study via questionnaires involving a variety of questions including socio-demographic characteristics…. • Outcomes: 4 categories • Institutional • Business process, knowledge and savings practices • Business outcomes • Household outcomes

  10. Estimation strategies • DD or FD depending on whether outcome observed in both the baseline and the follow – up • Test whether training generates heterogeneous treatment effects along characteristics such as prior interest in training, schooling, marital status…. • Marginal effects are then estimated depending on prior characteristics

  11. Results: Institutional Results: • Repayments among treatment groups is 3% points higher than among control groups • Clients in treatment 5% points less likely to drop out • Repayment and retention higher for clients with larger business

  12. 2) Business skills and practices • Greater business knowledge in treatments • Better business practices • Maintained sales records • Introduced innovations in their businesses Results were mixed with regards to heterogeneous business techniques

  13. 3) Business results • Sales increase by 16% on average • No change in profit margin for retail business • For service business, translated into higher profits

  14. Household outcomes • No impact on decisions on how to use FINCA loan and savings • Clients more likely to separate bills from husbands/partners • Child labor is not significant However: Some indication on more education for daughters, and for more educated mothers led to a reduction of number of hours children spent working on the micro-enterprise  Next class: “Social Business”

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