BUSINESS TRAINING OR TECHNICAL ASSISTANCE FOR FEMALE MICROENTREPRENEURS: LESSONS FROM TWO EXPERIMENTAL EVALUATIONS

1. 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

2. 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

3. 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

4. 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)

5. 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

6. 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?

7. 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

8. 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

9. 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)?

10. 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

11. 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

12. 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.

13. 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

14. 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

15. 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

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