Publication: Piloting Macroinsurance for Microenterprises in Post-Revolution Egypt
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Date
2014-10
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Published
2014-10
Author(s)
Groh, Matthew
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Abstract
This note discusses the results of a pilot of an innovative insurance product, which aims to protect small firms from macroeconomic and political risk that might inhibit them from investing.
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“Groh, Matthew; McKenzie, David. 2014. Piloting Macroinsurance for Microenterprises in Post-Revolution Egypt. Finance & PSD impact;no. 31. © http://hdl.handle.net/10986/20431 License: CC BY 3.0 IGO.”
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Publication Macroinsurance for Microenterprises : A Randomized Experiment in Post-Revolution Egypt(World Bank Group, Washington, DC, 2014-09)Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. Economic theory suggests uncertainty can cause firms to delay investments until uncertainty is resolved. A randomized experiment was conducted in post-revolution Egypt to measure the impact of insuring microenterprises against macroeconomic and political uncertainty. Demand for macroeconomic shock insurance was high; 36.7 percent of microentrepreneurs in the treatment group purchased insurance. However, purchasing insurance does not change the likelihood that a business takes a new loan, the size of the loan, or how the loan is invested. This lack of effect is attributed to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment. 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However, there is evidence that women invested grants differently from men. A smaller share of the smaller grants remained in the female-owned enterprises, and men were more likely to spend the grant on working capital and women on equipment. The gender gap is largest when male-dominated sectors are compared with female-dominated sectors, although female returns are lower than male returns even for females working in the same industries as men. The authors examine the heterogeneity of returns to determine whether any group of businesses owned by women benefit from easing capital constraints. The results suggest there is a large group of high-return male owners and a smaller group of poor, high-ability, female owners who might benefit from more access to capital.Publication Macroinsurance for Microenterprises(Elsevier, 2015-08-24)Firms in many developing countries cite macroeconomic instability and political uncertainty as major constraints to their growth. We conduct a randomized experiment in post-revolution Egypt to measure the impact of insuring microenterprises against this uncertainty. Demand for macroeconomic shock insurance was high, with a take-up rate of 36.7 percent. However, purchasing insurance does not change the likelihood a business takes a new loan, the size of the loan, or how they invest this loan. We attribute this lack of effect to microenterprises largely investing in inventories and raw materials rather than irreversible investments like equipment, suggesting that macroeconomic and political risk is not inhibiting their investment behavior. The challenges of introducing an innovative insurance product in an environment where microentrepreneurs had little previous insurance exposure are particularly evident in a second year, where take-up was extremely low following political events that came close to, but did not, trigger insurance pay-outs.Publication Which Microenterprises have High Returns to Capital?(World Bank, Washington, DC, 2009-02)This new series is intended to share the findings of impact evaluations in the areas of finance and private sector development (FPD) that researchers in Finance and Private Sector Development Team of the Development Research Group (DECRG-FP) have been involved in, and to draw out their lessons for operational staff and policymakers. Rigorous evaluations of FPD policies are relatively rare compared to other sectors such as health and education, and there is often a perception that many FPD projects do not lend themselves to serious evaluation. 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