Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions

South America

Peru

Labour Market

Microcredit

D Karlan, M Valdivia

2011

Karlan, Dean, and Martin Valdivia. “Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions.” The review of economics and statistics 93.2 (2011): 510–527.
View publication

Primary data: N. A.
Secondary Data: FINCA Financial Reports: https://finca.org/about-finca/financials/.

2011

N. A.

October 2002-January 2003 (beginning and end of training sessions).

The mission of the program (microcredit concession by FINCA-Peru) is to improve the socio-economic situation of the poor and empower women. The objective of the intervention was to assess the marginal impact of incorporating entrepreneurial training into a microcredit program. The study provides an opportunity to test whether microentrepreneurs are maximizing their profits given the resources available to them, or whether instead simple lessons on business development can guide them toward higher profits. Child labour and school attendance are two of the outcomes observed.

The intervention targeted the clients of FINCA-Peru (no further details on the eligibility criteria are provided). Description of the public: among FINCA’s Lima clients, the literacy rate is 98%, the majority have a secondary education, and 40% have some postsecondary schooling as well. In the Ayacucho region, however, almost 70% of FINCA clients did not finish secondary school, and approximately 15% are illiterate.

Using a randomized control trial, the authors measure the marginal impact of adding business training to a Peruvian group lending program for female microentrepreneurs. Treatment groups received thirty- to sixty-minute entrepreneurship training sessions during their normal weekly or monthly banking meeting for one to two years. Control groups remained as they were before, meeting at the same frequency but solely for making loan and savings payments.

• Number of working children in the household
• Child labour (hours of work of 6-15-year-old children)
• School attendance

RCT

Study design: the authors evaluate the effectiveness of integrating business training with microfinance services using a randomized control trial in which pre-existing lending groups of, on average, twenty women were assigned randomly to control and treatment groups. In Ayacucho, of the 140 village banks (3,265 clients), 55 were assigned to a mandatory treatment group (clients had to stay through the training at their weekly bank meeting), 34 were assigned to a voluntary treatment group (clients were allowed to leave after their loan payment was made before the training began), and 51 were assigned to a control group that received no additional services beyond the credit and savings program. In Lima, of 99 FINCA-sponsored banks (1,326 clients), 49 were assigned to mandatory treatment and 50 were assigned to control (there was no voluntary treatment group in Lima). The randomization was stratified by the credit officer; hence, each credit officer has the same proportion of treatment and control groups. No other policy changes, such

as lending criteria, monitoring, or enforcement, occurred along with the training.
Sample: In Ayacucho, 3,265 baseline surveys were completed, and in Lima, 1,326 baseline surveys were done. Seventy-six percent of the clients in the baseline survey were reached and surveyed for the follow-up survey. Universe researched: as of June 2003, FINCA sponsored 273 village banks with 6,429 clients, 96% of them women.
Survey Instrument: The evaluation used three key data sources: FINCA financial transaction data, a baseline survey before the randomization results were announced, and a follow-up survey up to two years later. The baseline and follow-up surveys included a variety of questions on the sociodemographic characteristics and other general information about the client’s household and business.

The authors find little or no evidence of changes in the key outcomes of school attendance and the number of hours of working children in response to the microcredit intervention.

Child Labour

Households

Local

There is little or no evidence of changes on the number of hours of working children in response to a microcredit intervention in Peru.

There is little or no evidence of changes in key outcomes such as business revenue, profits, or employment. However, there has been improvements in business knowledge and increased client retention rates for the microfinance institution.

Expected outcomes were divided into four categories: (1) institutional outcomes, including loan repayment and client retention; (2) business results; (3) business processes, knowledge, and savings practices (that is, testing whether the specific practices taught in the training were adopted); and (4) household outcomes, including empowerment in decision making and child labor.