Innovations for Poverty Action

Most academic and development policy discussions about microentrepreneurs focus on credit constraints, and assume that subject to those constraints the entrepreneurs manage their business optimally. Yet the self-employed poor rarely have any formal training in business skills. A growing number of microfinance organizations are attempting to build the human capital of micro-entrepreneurs in order to improve the livelihood of their clients and help further their mission of poverty alleviation. Using a randomized control trial, we measure the marginal impact of adding business training to a Peruvian group lending program for female microentrepreneurs. Treatment groups received thirty to sixty minute entrepreneurship training sessions during their normal weekly or monthly banking meeting over a period of one to two years. Control groups remained as they were before, meeting at the same frequency but solely for making loan and savings payments. We find evidence that the treatment led to limited improvements in business knowledge, practices and revenues. For the microfinance institution, the program increased client retention rates. There is also suggestive evidence that effects were larger for those that expressed less interest in training before the program began. This could have important implications for implementing similar market-based interventions with a goal of recovering costs.