Consulting and capital experiments with microenterprisetailors in Ghana

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.

Policy implications

Relaxing capital and managerial constraints can allow business owners to experiment with new techniques or investments, but these experiments don’t necessarily lead to higher profits or firm growth. Adoption of better business practices might be profitable for some micro firms, but it’s difficult to identify in advance those that would benefit.

Additional information

Hypotheses/research question

Does providing urban microenterprises with capital, consulting services or both can help relax constraints and facilitate growth for microentrepreneurial tailors?

Study design

Multiple treatment with stratified randomization

The 160 study participants were randomly selected from an enumeration in eight neighborhoods in/around Accra of all tailors and seamstresses with five or fewer total employees and apprentices. Thirty five percent of participants had zero employees or apprentices, and 94% had three or fewer employees or apprentices. The eight neighborhoods were chosen because they had enough tailors to form the sample frame, and thus it was not overly costly for consultants and surveyors to visit multiple participants in a day. If two tailors were immediate neighbors, one was randomly chosen to be in the enumeration, to limit the chance the consulting lessons would be overheard by control group tailors. The density of the firms within each neighborhood varied.

Cost benefit ratio

Not available.

Rounds of data collection

Eight rounds of surveying were conducted over the course of 2 years.

Baseline data collection and method

The baseline survey was split into two separate rounds 1 month apart to reduce the length of each interview (December 2008 and January 2009, Rounds 1 and 2). The first visit focused on financial outcomes and the second visit on business processes and attitudes.

Data collection method and data collected

The first follow-up was conducted 6 months later (5 months after the consulting began) and primarily included questions on business processes. In August 2009 , the respondents were visited every other day to record how much money they received, how much they spent, how many sales they made, and what type of clothes they sold. We aimed to measure profitability unaffected by changes in the consulting group’s understanding of how to calculate profit and ability to recall revenue/expenses, and to improve precision by collecting more frequent data. In September 2009 , measures were gathered on the expenses, revenue and profit for the previous month. The baseline format was repeated for the next round, with surveys in December 2009 and January 2010. The December survey again focused on financial outcomes and the January survey focused on business process outcomes. In December 2010, the final follow-up was conducted, which focused on financial outcomes and business processes. This survey occurred 14 months after the capital drop and 11 months after the consulting stopped.

Stratification

The individual level randomization was stratified by the tailor’s neighborhood of operation, into consulting/non-consulting in January 2009. The capital grant randomization was done 8 months after the consulting began, and was stratified on consulting treatment status and the tailor’s community of operation.

Delivery partner

Innovations for Poverty Action (IPA) and EY

Reference

Karlan, D., Knight, R., & Udry, C., 2015. Consulting and capital experiments with microenterprise tailors in Ghana. Journal of Economic Behavior & Organization, 118, 281-302.

Consulting and capital experiments with microenterprisetailors in Ghana

Key information

Additional information

Key facts

Update trial