Stimulating Microenterprise Growth: Results from a Loans, Grants and Training Experiment in Uganda
German Institute for Economic Research (DIW Berlin)
December 4, 2013
Small enterprises may face a number of challenges to growth, including capital constraints, lack of skills and poor self-control. This paper presents the results of a randomized experiment involving microenterprise owners in Uganda designed to explore these constraints. Individuals from a pool of business owners who expressed interest in expanding their enterprises were randomly selected to receive loans, cash grants, business skills training or a combination of these programs. Participants were then followed quarterly to determine the short-run effects on business and household outcomes. I find that six and nine months after the interventions, men with access to loans with training report 54% greater profits. This effect increases slightly over time and is driven by men with higher baseline profits and ability. The loan-only intervention had some initial impact, but this is gone by the nine month follow-up. I find no impacts from the unconditional grant interventions. Markedly, there are no effects for women from any of the interventions. Family pressure on women appears to have significantly negative effects on business investment decisions: married women with family living nearby perform worse than those in the control group in a number of the interventions. Men instead benefit from close family proximity and demand labor from the household. The results suggest that highly motivated and skilled male-owned microenterprises can grow through finance, but the current finance model does not work for female-owned enterprises.
Number of Pages in PDF File: 68
Keywords: Economic development; microenterprises; microfinance; cash grants; entrepreneurship training; credit constraints
JEL Classification: O12, O16, C93, J16, L26, M53
Date posted: November 23, 2013 ; Last revised: December 5, 2013