The Returns to Microenterprise Support among the Ultrapoor: A Field Experiment in Postwar Uganda

Abstract

We show that extremely poor, war-affected women in northern Uganda have high returns to a package of $150 cash, five days of business skills training, and ongoing supervision. Sixteen months after grants, participants doubled their microenterprise ownership and incomes, mainly from petty trading. We also show these ultrapoor have too little social capital, but that group bonds, informal insurance, and cooperative activities could be induced and had positive returns. When the control group received cash and training 20 months later, we varied supervision, which represented half of the program costs. A year later, supervision increased business survival but not consumption. (JEL I38, J16, J23, J24, L26, O15, Z13)

A Firm of One's Own: Experimental Evidence on Credit Constraints and Occupational Choice

“…Of course, our results should not be taken as evidence that credit constraints never generate poverty traps. Recent studies by Blattman, Fiala, and Martinez (2014) and Blattman et al (2016) suggest that credit constraints may well be preventing latent entrepreneurs from launching successful businesses in recently conflict-affected regions of northern Uganda. However, our findings resonate with a number of recent studies of cash grants and other credit market interventions.…”

“…Economic theory suggests that such interventions can help potential entrepreneurs who have limited opportunities to save or borrow to start or expand profitable businesses, and one recent study suggests that cash grants can help unemployed youth launch businesses and increase their incomes (Blattman, Fiala, and Martinez 2014). However, a growing body of evidence on the the returns to capital among entrepreneurs suggests that credit constraints may not be the main obstacle limiting the growth of female-owned microenterprises: evaluations to date have found that, in most cases, cash grants to female entrepreneurs do not lead to sustained increases in business profits or income (De Mel, McKenzie, and Woodruff 2008, De Mel, McKenzie, and Woodruff 2009, Fafchamps, McKenzie, Quinn, and Woodruff 2011, Fiala 2014, Karlan, Knight, and Udry 2015, Blattman et al 2016. 1 Taken together, these results suggest that many women who operate small businesses are "subsistence entrepreneurs" (Schoar 2010) who lack either the ability or the inclination to expand their enterprises; if this is true, access to capital (alone) is unlikely to have major impacts.…”

“…In addition, we present a model, building on previous work (cf. Fafchamps et al 2011, Blattman, Fiala, and Martinez 2014, Blattman et al 2016, that yields a straightforward interpretation of the estimated program impacts in relation to credit and savings constraints. Our model suggests that the patterns of impacts that we observe are more likely to be explained by savings constraints than by credit-constraintbased poverty traps.…”

Entrepreneurial orientation, intermediation services, microfinance, and microenterprises

“…Supervisions and training have shown positive impacts on business survivals. Provisions of insurances and development of group bonding have enhanced microenterprise outcomes (Blattman, Green, Jamison, Lehmann, & Annan, 2016). Both financial intermediation and BDS have widely impacted enterprise development in SHG-based microfinance programs (e.g., see Hyman & Dearden, 1998;Maes & Basu, 2005;Panda, 2016a).…”

Rewarding Poverty Alleviation: A Case Study in Payment-by-Results

“…There also exist randomized evaluations that are similar in spirit to graduation programs but not labeled as such and not included in the review (see e.g. Blattman et al, 2016). Overall, the rates of cost-effectiveness in Banerjee et al (2015) appear representative of the available body of evidence, though a forward-looking interpretation of the expected cost-effectiveness of similar programs might consider adjusting these rates downward to account for the possibility of implementation failure.…”