Cash versus microfinance versus training: The randomized control trial

I think this is a first, and very important. And it’s a job market paper from one of my collaborators, Nathan Fiala.

He starts with a pool of very small business owners in Uganda who said they wanted to expand their businesses. They were randomly allocated either loans, cash grants, business skills training, or a combination of each.

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.

Cashonistas of the world: pause and reflect? Granted, these are short-term results only, but there are many reasons to pause and reflect, not least the fact that so few microfinance interventions show evidence of investment and earnings growth. I am still thinking deeply about the implications.

One possibility:

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.

Nathan elaborates in a guest post on the World Bank development impact blog.