Yes, even the poorest of the poor can be entrepreneurs (or, further adventures in my cash transfer fetish)

It only took me and my coauthors seven years, but we now have a paper describing what happens when you give cash grants to the poorest of the poor women in Uganda.

In poor countries, especially rural areas, there usually aren’t big businesses, and so most employment is self-employment, like farming or trading. There’s now a gamut of evidence that the poor lack capital and can’t borrow it, and this is one of the main barriers to expanding businesses.

The policy implication: anti-poverty programs should focus on improving financial markets or simply handing out capital or cash.

But it’s not clear whether the same is true for the most marginalized and “ultra-poor” people—the people who have the very lowest incomes, almost no capital or business, and limited social networks.

On the one hand, the first chunk of capital could have the highest return, helping people to start new businesses, meaning returns could be higher than among the “regular poor”.

On the other hand, we often worry that the poorest people lack other important inputs or face other frictions and constraints. They might lack basic education or business skills. They could make impulsive decisions with the money. They might also lack the social networks that, in peasant societies, are main sources of advice, public goods, and finance.

When it comes to the marginalized, especially women, traditional social norms could also pressure them to share capital or earnings, or hinder their business growth. Also, husbands might try to relieve women of their capital or earnings.

This is one reason that aid program offer cash seldom, and when they do, they offer conditions, supervision, training, or make people form groups. Some of these things are expensive to provide–often more expensive than the cash or capital. Are they worth it?

In a nutshell, not if they are expensive.

We randomized a package of interventions and also turned some of the components randomly on and off over three years, testing their cost-effectiveness (and the theories underlying them).

We find that given $150, five days of training, and intensive supervision, ultra-poor women double their business ownership and their incomes. The supervision doesn’t add much in terms of earnings, however, even though it’s much more expensive than the grant.

We also encourage some women to form groups. Interestingly, this is easy–simple encouragement and a little training lead these formally marginalized people to start and stick with groups, where they save and cooperatively farm together. By some measures this boosts their earnings.

It’s a nice lesson: the ultra-poor (at least these ones) know what to do with cash and put it to terrific use, and expensive and heavy supervision doesn’t change how they spend their money. But social networks and capital are easy to stimulate (more cheaply too), at least among the excluded, and this seems to have real impacts on their financial life.

Full paper is here, with Eric Green, Julian Jamison, and Jeannie Annan.

65 Responses

  1. How about giving rights to property for self-employed small business people so that their property can be used to collateralize loans? You don’t mention that approach.

    I am not sure your description of the experiment in this post matches that in the paper itself.

    Did you look at any costs and benefits to the community other than those experienced by the recipients of the funds, training, etc.

    Were there any conditions in your research site in Uganda that suggest that the results there will or will not generalize? The north of Uganda was recovering from long term instability at the time of the study.