A randomized trial was conducted in urban Ghana in which tailoring microenterprises received advice from an international consulting firm, cash, both, or neither. The study was designed with a hypothesis that large infusions of financial and managerial capital could be transformative. It was found that all three treatments led to their immediate intended effects: changed business practices and increased investment. However, no treatment led to higherprofits on average, and certainly not to the large effects hypothesized. In fact, each treatmentat some point led to lower profits. Then, in the long run, microentrepreneurs in either consulting treatment group reverted back to their prior business practices, and microentrepreneurs in the cash treatment group reverted back to their prior scale of operations.
Knowledge of standard business, adoption of these practices, investment and savings behavior, and business income and profits.
A few months after the programme ended, firms that had received consulting support had slightly higher business knowledge and had implemented a higher percentage of standard business practices. The most widely adopted practice was record-keeping, with the percentage of firms implementing this practice increasing from 17 per cent to 62 per cent six months after the programme ended. These short run effects disappeared two years after the programme, as firms reverted to their previous business practices. Two months after receiving the grant, firms had invested between US$60 and US$120 more than those that did not get the grant. However, one year later the investment levels of those who did and didn’t receive the grant were similar again. The programme only had small and non-persistent impacts on saving or borrowing behaviour. None of the support schemes had an effect on revenue, expenses, hours worked or employment or profits. If anything, firms that received support experienced temporary drops in revenue and profits at some point after adoption. The effect was more negative for those receiving the cash grant. This is consistent with a learning dynamic in which entrepreneurs experiment with new techniques and investments, learn that those aren’t profitable and abandon them.