World Bank Conference on “New Ideas in Business Growth: Financial Literacy, Firm Dynamics and Entrepreneurial Environmen

1. Business Training and Female Enterprise Start-up and Growth in Sri LankaSuresh de Mel, University of Peradeniya David McKenzie, World Bank andChris Woodruff, Univ of Warwick World Bank Conference on “New Ideas in Business Growth: Financial Literacy, Firm Dynamics and Entrepreneurial Environment” March 2011

2. Motivation: Previous work in SL • Randomized experiment where we provide SLR 10K or 20K (US$100 or 200) in equipment or cash grants to micro-enterprises to create exogenous variation in capital stock (QJE, Nov 2008) • Selected 618 firms in three districts in southern Sri Lanka (Kalutara, Galle, Matara) with less than SLR 100K (US$1000) in capital (excluding land and buildings). • Surveyed first in March 2005, then quarterly for two years, semi-annually for a third year (11 waves) • Profits increased on avg by 5.9% per month. • The surprising result: males generated 7.8% increase in profits but females generated -0.8% return. • We explore several possible explanations (AEJ Applied, July 2009) • Intra-household bargaining / capture by spouse • Sector of activity

3. Motivation: Other recent work • We look at the impact of business training on a general population of female business owners – not just on MF clients. • The current study focuses on 2 groups – current enterprises and potential enterprises • Content of the business training is a standardized training package (ILO’s SIYB training program). Useful to know its impact. Difficult to compare content across customized training programs offered by MFIs. • We measure outcomes at 3 different points in time post-training. Able to achieve more power than is possible with a single follow-up survey. And able to examine the growth trajectory over time. • We use business training + capital grants as interventions. Can examine impact of training only vs training + grants

4. Follow-on project in Sri Lanka • Identify two groups of women in 7 districts in and around Colombo and Kandy. Listing in 142 GNs in 10 DS divisions. • Age 25-45 yrs • Current enterprises: > 20 hrs per wk in self employment, sector other than seasonal agri/fisheries, monthly profits =< SLR 5000 ($43). • Potential enterprises: planned to enter SE in next yr, 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.

5. Interventions • Provide business training – ILO’s Start and Improve Your Business (SIYB) program. Implemented in 95 countries. Estimated global outreach of 1.5 million trainees. Teaching materials customized to local language and context. • Potential Ents: 3 day Generate Your Business Idea (GYB) + 5 day Start Your Business (SYB). Current Ents: 1 day Refresher GYB (RGYB) + 5 day Improve Your Business (IYB) • Both groups got 1 day technical training – exposure to, and training in, some relatively high rtn sectors which are socially acceptable for women. 2-3 options available at each training location. • Cash grants of SLR 15,000 (~$125) for half, conditional on completing training • Attendance payment of Rs 400 per day – transport, lunch, opp cost. • At each DS location, training offer to 40 current and 40 potentials. Half of those who completed qualified for the 15K grants.

6. Sample: Summary Statistics

7. Sample • Typical current enterprise: • 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 18% have done any business related training – and of this mainly technical training

8. Sample • Typical potential enterprise: • 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 grp, but otherwise similar in terms of education, digitspan recall, raven tests, attitudes towards risk, and no of children. • Monthly HH income about Rs 1100 less than current. • Less likely to own fridge or sewing machine (assets that have business potential)

14. Timeline April/May 2009 June 2009 Sept 2009 Jan 2010 Sept 2010 Jan 2009 Screening and Baseline survey Second follow-up survey Grants delivered Notification / Training First follow-up survey Third follow-up survey

15. Treatment Takeup • Current: 279 (69.8%) of the 400 offered treatment attended training and 268 (67%) completed training. • Potentials: 282 (70.5%) of the 400 offered treatment attended training and 261 (65.3%) completed. • Common reasons for not taking up training: • Family member was sick • No one to look after the business in their absence • No one to look after their children

16. Who is likely to take-up training? • CURRENT • Married, more educated women, running younger firms, more likely to attend training. • Having no children or having someone to look after children not significantly associated with takeup • Manufacturing firms more likely to attend training • Opp cost of time seems to matter: women running higher profit earning enterprises are less likely to attend, women working more than 40 hrs per wk are less likely to attend. • Firms in Colombo are less likely to attend

17. Who is likely to take-up training? • POTENTIALS • Take-up increases with age of woman and raven score. • Colombo potentials are less likely to attend. • Having no children or having someone to look after children, yrs of education, previous work experience, having taken steps to open a business, spouse’s income not significantly associated with takeup

18. Takeup: Current Ents

19. Takeup: Potential Ents

20. Current Ent: Impact on Business Practices • Measured at baseline (R1) and short-term (R2: 4 months after training) and medium term (R4: 16 months after training) • Business Practices usage has increased in both the short term and medium term for both training only grp and training + cash grp • Magnitude of increase large relative to baseline. • Training also significantly improved the components – marketing, stock control, financial planning, and record keeping.

21. Current Ent: Impact on Business Practices

22. Current Ent: Impact on Firm Performance • Impact of the treatments on monthly profits (also on sales and capital stock). Examined in levels, truncated at 99th percentile and in logs. • Training alone does not increase profits. • But significant impact of training + cash on profits • Magnitudes of impact on profits is also high. Eg. TOT shows that truncated profits increase by 2236 relative to baseline mean of 4014. • Increase in profits occur in R2 and R3 (4 months + 8 months post training) but falls off by round 4 (16 months post training).

23. Current Ent: Impact on Firm Performance

24. Potential Ent: Entry into SE • Training + grant leads to a 13 percentage point increase in prob that a woman enters into SE. • Training alone has a smaller effect which is not statistically significant. • However in R2 (4 months post training), training only leads to a 12 percentage point increase and training + grant leads to a 22 percentage point increase. • By R4 (16 months post training), the difference between treatment and control groups have disappeared. • On avg, training + grant leads to a 9.5 percentage point increase in likelihood of being ever SE

25. Potential Ent: Entry into SE

26. Potential Ent: Impact on Business Practices • Impact on business practices is much less compared to current ent. • Trtmnt raised overall score by only just over 1 point – but this is statistically significant only for the training + cash grp. • Impact of the trtmnt is positive in each of the sub-components but significance indicated only for marketing among the training + cash grp and record keeping for the training grp

27. Potential Ent: Impact on Business Practices

28. Potential Ent: Impact on Firm Performance • We find positive but insignificant effects of both treatments • In R2 and R3 we find negative effects on profits for those who rcvd training + grants (but not statistically significant) • By R4, large positive effect on profits for those who rcvd training only. Positive but not significant effect for those who rcvd training+grant. • Recall that in R2 and R3 we had significantly higher rates of SE in training + grants grp. Could it be that with the training + grants there has been more entry by women with lower potential profits and less entry by women with higher potential profits?

29. Potential Ent: Impact on Firm Performance

30. Conclusions • Examined impact of training and training + cash grant among current and potential female enterprises. • CURRENTS: • Significant improvements in business practices. Effects are only slightly smaller even 16 months after training. • Training only does not affect profits. But training +grants has significant positive impact on profits. • POTENTIALS: • Both training only and training + grant has speeded up entry into SE, but not the ultimate rate of entry. • Some evidence that profits are higher among the treatment grps by R4.