63674 Finance & PSD Impact JUNE 2011 The Lessons from DECFP Impact Evaluations ISSUE 14 Our latest impact note looks at an experiment funded by the Gender Action Plan which re-examines the issue of whether capital alone is enough to get female microenterprises growing. Capital, Gender, and Microenterprise Growth in Ghana Marcel Fafchamps, David McKenzie, Simon Quinn and Christopher Woodruff The Experiment Despite the emphasis placed by The experimental design is very microfinance organizations on lending to similar to the earlier Sri Lanka study: 793 female business owners, evidence from three microenterprises (479 female-owned and recent randomized controlled trials has cast 314 male-owned) were randomly allocated doubt on the ability of capital alone to grow into treatment and control groups. The female-operated microenterprises: in my treatment group got a one-time grant of 150 own previous experiment in Sri Lanka (see cedis (about $120). impact note 4) women given grants saw no A key feature was that half of these increase in business profits, while the recent grants were given as cash, with no randomized trials of microfinance in the restrictions on what they could be spent on, Philippines and India also see very little in whereas the other half of the grants were in- the way of profit increases when women get kind, with research assistants purchasing loans. raw materials, inventories, or equipment for One possible interpretation is that the business (with the owner choosing what female-owned microenterprises in these was purchased). countries are already operating at their The sample is twice as large as the efficient level of capital, which might be Sri Lankan study, offering greater statistical very low – especially in countries where power to look at gender differences, and at other labor market options for women are the role of cash vs in-kind grants. limited. Four follow-up surveys were then However, an alternative explanation conducted at 3 months, 6 months, 9 months, could be that the small scale of many and 1 year after the grants were given. female-owned firms is not efficient, but arises instead from a lack of separation of Results business and household accounts, and from The results of the experiment cast inefficiencies in the way people allocate doubt on the ability of capital alone to raise assets between them. These inefficiencies the incomes of subsistence female-owned might arise from self-control problems, businesses: Women earning approximately leading owners to not undertake profitable $1 per day at baseline did not see any investments, or from external pressure to improvement in profits from either the cash share with others. Either of these could lead or in-kind grants. to a lack of asset integration, so that the Women who at baseline were form that capital comes into the business earning in the top 40% (about $5 per day on will determine the extent to which it helps average) did see large increases in business the business grow. profits if they got the in-kind grant, but no We conducted a randomized increase in profits if they got the cash grant: experiment in urban Ghana which enables us i.e. the form the capital came in mattered a to test these ideas. lot. Do you have a project you want evaluated? DECRG-FP researchers are always looking for opportunities to work with colleagues in the Bank and IFC. If you would like to ask our experts for advice or to collaborate on an evaluation, contact us care of the Impact editor, David McKenzie (dmckenzie@worldbank.org) household. The difference between impacts Women of the cash and in-kind grants seems more Treatment Effect (cedis) 100 due to self-control issues than to external 90 80 pressure. 70 60 50 The results are not consistent with 40 30 standard models of microenterprise 20 10 investment and growth: to explain the large 0 difference in outcomes between cash and in- Subsistence High Initial Subsistence High Initial - Cash Profit - Cash - In-kind Profit - In- kind grants we need a model with a lack of kind asset integration, in which the form in which capital comes in affects the extent to which For males, there was no difference it is invested in the business. between subsistence and higher initial profit businesses in terms of their response to the Policy Implications grant. Our point estimates suggest that the The results offer mixed news for in-kind grant also had larger impacts than advocates of directing microfinance at the cash grants for males, but the difference women: Capital alone does not seem to be is not statistically significant. enough to grow subsistence enterprises. These results are consistent with the Men efficient scale just being very low for 40 such women – and the best thing to do Treatment Effect (cedis) 35 30 25 for them may be policies to draw them 20 15 into wage work. 10 5 There is a group in Ghana of higher 0 Subsistence High Initial Subsistence High Initial profitability women for whom access to - Cash Profit - Cash - In-kind Profit - In- capital does have very high returns – kind very few such women existed in the Sri Lankan study. But these returns were What happened to the cash grants if only realized when capital came in-kind. it didn’t end up in the business? Most of it Loans and grants to help seemed to have gone to household microenterprises grow may therefore consumption, with a little bit also going in succeed better if disbursed in kind, not transfers to others. in cash. Finally we try and understand what And finally, as in prior work in Mexico causes this difference in response to cash and Sri Lanka, the average male-owned and in-kind grants. We have a number of microenterprise gains a lot from more measures of self-control, as well as a capital – so developing financing tools number of measures of pressure to share for financing these businesses is an within the household and outside the important priority. For further reading see: Fafchamps, Marcel, David McKenzie, Simon Quinn and Christopher Woodruff (2011) “When is capital enough to get female microenterprises growing? Evidence from a randomized experiment in Ghana�. World Bank Policy Research Working Paper No. 5706. 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