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Business Training and Female Enterprise Start-up, Growth, and Dynamics in Sri Lanka Suresh de Mel, University of Peradeniya David McKenzie, World Bank and Chris Woodruff, University of Warwick. May 23, 2012. Motivation I.

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Business Training and Female Enterprise Start-up, Growth, and Dynamics in Sri LankaSuresh de Mel, University of Peradeniya David McKenzie, World Bank andChris Woodruff, University of Warwick

May 23, 2012


Motivation I

  • Self-employment accounts for a large share of female employment in most developing countries

  • But:

    • Most female-owned firms are very small in scale, with low earnings

    • In much of South Asia and the Middle East, the majority of women are not even employed at all.

  • Key questions:

  • Can business training (alone or with a grant) raise the incomes of low-earning women;

  • Can it allow women outside the labor force to start new businesses.


Motivation II

  • A lot of emphasis has been on capital as the constraint to female microenterprise growth; hence the attention given to microfinance.

  • But:

    • In recent experiments in Sri Lanka and Ghana, we’ve found physical capital alone has not been enough to raise incomes of subsistence-level female-owned businesses.

    • Recent microfinance experiments also shown very modest results in this regard – although have had some success in getting new businesses started.


What do we do?

  • Conduct randomized experiments in Sri Lanka to test impact of business training on 2 different groups of women:

    • Self-employed with low levels of income

    • Out of the labor force but interested in entering.

  • Use the ILO’s SIYB training program, which is the most commonly used worldwide.

  • Look at impact of training alone, as well as training + grants.

  • Measure outcomes at 4 points in time post-training: increases power + look at trajectories.


Related studies

  • Last couple of years have seen a number of randomized experiments on business training in developing countries

  • Most are with microfinance clients, focus on existing business owners, are often with customized training programs, and have only single snapshot follow-up.

  • Karlan and Valdivia – Peru – improvements in business practices, no sig. improvements in sales, profits or employment; maybe higher sales in bad months.

  • Drexler et al. – Dominican Republic – compare two programs. Find simpler “rules of thumb” program improved practices and sales in bad months, no sig. impact on average sales, and profits not looked at.

  • Berge et al – Tanzania – for females weak improvements in business practices, no impact on business outcomes (males they get improvements).

  • Bruhn and Zia – Bosnia – improvements in business practices, but no increases in business profits or survival rates.

  • Gine and Mansuri – Pakistan – women improve business knowledge, but show no improvements in outcomes


Sri Lankan Context

  • Urban labor force participation rate for 20-40 year old women only 38% (vs >90% for men)

  • 28% of those in paid work are self-employed

    • Median profits only 5000 Rs (US$43)/month

    • Only 5% have any paid workers


Putting together a sample

  • Identify two groups of women in districts in and around Colombo and Kandy. Listing in 142 GNs in 10 DS divisions.

    • Age 25-45 yrs

    • Current enterprises: > 20 hrs per week in self employment, sector other than seasonal agriculture/fisheries, monthly profits =< 5000 Rs ($43).

    • Potential enterprises: planned to enter self-employment in next year, able to identify the nature of the proposed business, unmarried/married with no kids/married with kids > 5 yrs of age/if < 5 yrs of age had someone to look after the kids.

  • Selected sample of 628 current enterprises and 628 potential enterprises equally distributed across 10 DS divisions.


Typical current enterprise owner

  • Typical industries are tea shops, beauty shops, bag and mat manufacturing, tailoring, sewing, fruit & vegetable sales, making and selling lunch packets.

  • 36 years old, married, with 10 yrs of education, running the business for 6.5 yrs.

  • Mean monthly business income SLR 4000 (US$34).

  • This is about 1/4th of HH income

  • Low business practices score at baseline (mean is 4.6 out of 29).

    • Only 17% keep written records, only 4% done any advertising in last 6 months, only 9% have sales target fro next year, only 3% have budget of what costs for next year likely to be.

  • Only 18% have done any business related training – and of this mainly technical training


Typical potential enterprise owner:

  • Only 18% have never worked before, but only 8% have previously been in SE

  • 50% have taken some concrete steps towards opening a business in the past year.

  • 2 yrs younger in age than current group, but otherwise similar in terms of education, digitspan recall, raven tests, attitudes towards risk, and number of children.

  • Monthly HH income about Rs 1100 less than current.

  • Less likely to own fridge or sewing machine (assets that have business potential)


Randomization

  • Randomly selected 400/628 in each group to be offered business training

    • Half of these were also selected to receive a grant of 15,000 Rs (US$129) conditional on finishing the training.

    • At the time of being offered training, individuals were told that half of those who completed the training would be randomly chosen to receive a grant of this size.

  • Randomization stratified on D.S., and other key variables.

    • Current enterprises: children to look after; baseline profits

    • Potential enterprises: taken steps to opening business; whether had ever worked before

  • As a result of randomization, treatment and control groups balanced on baseline characteristics.


Training

  • ILO Start and Improve Your Business (SIYB) program

    • Designed to meet needs of small-scale entrepreneurs in developing countries

    • Started in Eastern Africa in 1977

    • Global outreach of 1.5 million trainees, implemented in over 95 countries

    • Use three packages:

      • Generate Your Business (GYB) – 3 days on generating idea for business

      • Start Your Business (SYB) – 5 days on main aspects needed to start a business – what to sell, pricing, organizing staff, equipment and inputs, legal form, etc.

      • Improve Your Business (IYB) – 5 day course which helps existing business owners develop their business – modules on marketing, buying, costing, stock control, record-keeping, and financial planning.


Interventions

  • Potentials: 3 day GYB + 5 day SYB.

  • Currents: 1 day Refresher GYB + 5 day IYB

  • Both groups got 1 day technical training – exposure to, and training in, some relatively high return sectors which are socially acceptable for women. 2-3 options available at each training location.

  • Training provided by SLBDC, which has 8 years of experience delivering this content to local market & university-educated trainers.

  • Cost to us of training was around $130 per individual trained.

  • Course was offered to participants for free + attendance payment of 400 Rs per day to cover transport and opportunity cost of training.


Treatment Takeup

  • Current: 279 (69.8%) of the 400 offered treatment attended training and 268 (67%) completed training.

    • Married, more educated women running young firms more likely to attend.

    • Opportunity cost of time matters – less likely to attend if more profitable, work more hours, have more wealth.

  • Potentials: 282 (70.5%) of the 400 offered treatment attended training and 261 (65.3%) completed.

    • More able, older women more likely to attend

    • Take-up lower in Colombo than elsewhere


Follow-up Data collection

  • Follow-up surveys are at 3-4 months; 7-8 months; 15-16 months; and 24-25 months after training.

  • Attrition rates low – getting 580-590 out of 624 in follow-up rounds (92-94%). Attrition unrelated to treatment status in current enterprises, slightly lower for trained in potential sample but results robust to this

  • Measure:

    • Business outcomes, including profits, sales, capital-stock

    • Business practices


Theory – how might training affect who runs a business?


Theory – how might training affect who runs a business?


Impacts

  • On current enterprises

    • On business practices

    • On business outcomes

  • On potential enterprise owners

    • On whether they start-up a business

    • On how well these businesses do


4 months after training + grant


25 months after training and grant


Potential Businesses


Impact on business ownership

  • TOT impacts:

    • Cash + Training: 29 p.p. increase at R2, 2 p.p. in R4 and R5

    • Training only: 12.2 p.p. increase at R2, -2 p.p. in R5.

  • Have sped up entry – so impact evaluations which looked only in the first year would think big impact on business start-up, but by 25 months no significant impact on levels of start-up.

  • What about who runs a business?

    • Model predicts we should see selection on ability and wealth


Impacts on outcomes of businesses which start

  • So even though levels of business ownership are the same, interventions have changed who owns a business – which makes evaluating the impact of the training and grants on the business less straightforward.

  • Two approaches:

    • Naïve experimental approach – estimate impacts via OLS – since selection seems to be that interventions bring in poorer and less analytically able, this might be argued to be lower bound.

    • Use generalized propensity score and run weighted regression to compare like with like.


Conclusions and Implications

  • Training alone not enough to get subsistence businesses run by women to grow

    • Consistent with results from other business training studies

    • Also consistent with work on capital grants

    • Adding capital gives temporary boost in profitability, but appears to be relatively short-lived

    • Really hard to get these subsistence-level firms to grow

  • Policy options:

    • More intensive one-on-one mentoring e.g. Valdivia – but expensive.

    • Address constraints to participation in wage work, with labor market failures potentially reason these women operating business in the first place.


Conclusions and implications

  • Potential enterprises

    • Results more encouraging for ability of business training to help women start businesses more quickly, and make these businesses more profitable

      • This is a group existing business training studies haven’t focused on

      • Consistent with microfinance studies which have found some impact on business start-up

        => Easier to get women to start-up subsistence businesses than it is to get these businesses to grow.


Implications for Impact evaluation

  • Results show the importance of tracing out the trajectory of impacts

    • Single follow-up survey would miss much of the story.

  • Importance of looking at impacts on different subgroups of interest

    • Potential vs Current firm samples

    • Arguably learn more about firm growth constraints by taking a sample of general population than by taking microfinance clients.

  • Issue of content when comparing evaluations

    • “business training” varies a lot in curricula, cost, number of hours, etc. across studies, making difficult to compare.


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