Do Urban Livelihoods Programmes Work?

Apparently not in Sri Lanka.

The authors conduct a randomized experiment among women in urban Sri Lanka to measure the impact of the most commonly used business training course in developing countries, the Start-and-Improve Your Business program. They work with two representative groups of women: a random sample of women operating subsistence enterprises and a random sample of women who are out of the labor force but interested in starting a business. They track the impacts of two treatments -- training only and training plus a cash grant -- over two years with four follow-up surveys and find that the short and medium-term impacts differ. For women already in business, training alone leads to some changes in business practices but has no impact on business profits, sales or capital stock. In contrast, the combination of training and a grant leads to large and significant improvements in business profitability in the first eight months, but this impact dissipates in the second year. For women interested in starting enterprises, business training speeds up entry but leads to no increase in net business ownership by the final survey round.

Suresh de Mel, David  McKenzie, and Christopher Woodruff , "Business training and female enterprise start-up, growth, and dynamics: experimental evidence from Sri Lanka" (HT: @timothyogden)

Attack of the (Kiva) Clones!

An advert on Guardian.co.uk this morning reads: "Give a small loan, make a huge difference You can help budding entrepreneurs in developing countries work their own way out of poverty with a small loan. Find out how you can transform lives via lendwithcare.org. In association with Care International UK"

Clicking through to the Care site, we are told that "lendwithcare.org is a revolutionary way for you to help people throughout the developing world transform their future."

Seriously guys.

A - there is nothing revolutionary about directly copying Kiva's business model (they started doing this in 2005).

B - WHO ARE THESE PEOPLE who work in the microfinance industry and apparently have not read or understood "More than Good Intentions" or "Poor Economics" or "Due Diligence"?

Let me summarize for you, from David Roodman, who has just spent the last two years writing the book on the impact of microfinance;

There is not a case for heavy subsidy of these activities; I think less money should go into microcredit.

Why don't microenterprises grow?

A couple of very interesting ideas from David McKenzie that I hadn't heard before in the second part of his interview with Tim Ogden:  (here is part one)

maybe microenteprises are viable because the "reserve wage" of their owners is so low; 

If you start trying to value the opportunity cost of that labor and you calculate it at some sort of market wage rate quickly you’ll find that many of these businesses look unprofitable ... 

why it is that microfinance can get a woman to run somewhat profitable businesses with chickens and things but they never get those businesses to grow into something greater. And the whole thing is that the women in these Asian countries have no other options. When their time value is 0 they can do this but as soon as they have to hire somebody at market wage it becomes unprofitable to expand.

and measuring microenterprise profit is generally really really hard; 

if you look at the Banerjee and Duflo Spandana paper, for instance, there’s a huge amount of noise in their profits data. I did some calculations and I think it came out that they would need 2 million people to find an increase of 10% in profits given the take-up of microfinance and the noise in profit measurements

Finally; I am really looking forward to Tim's new book, Experimental Conversations, based on interviews with a variety of economists conducting field experiments on poverty interventions. One of the best books I ever read on macroeconomics was a book of interviews. There is a tremendous amount that goes unwritten in journal articles. Blogs have increased access to this kind of informal chat, but there is probably still an undersupply of good ideas communicated well. In Tyler Cowen's words; 

why do not more economists blog? I believe it is because they can’t, at least not without embarrassing themselves rather quickly, even if they are smart and very good economists. It’s simply a different set of skills.

As Freakonomics demonstrated ably (at least the original book), researcher-journalist collaborations can be a decent way of filling the gap. David McKenzie is one of my favourite economists, doing lots of fascinating research, and he blogs. And yet I hadn't heard either of these two fairly substantial points before.

Is microcredit insane?

First off, a lot of microcredit programs operate under the assumption that there are large populations of entrepreneurs in countries with long histories of poverty who just need a tiny push in the form of a microloan to unleash their wealth creating power. A lot of EAWs can say with a straight face that their microloans empower people who may be illiterate, innumerate and own no productive assets to start “microenterprises”. 

The problem with this belief is that it’s insane.

http://stuffexpataidworkerslike.com/2012/01/23/132-microcredit/ 

Kiva: A Gateway Drug?

It's pretty clear that "lending" money on Kiva is not the best way of giving to the poor. You aren't at all really lending to those individuals, but rather donating the interest you could have earned on your deposit to a microlending institution. And microlending institutions can raise their own money from deposits or capital markets, so you would be much better off donating to something more effective, such as buying bednets or deworming pills (see givewell.org's current recommendations, or the Proven Impact Fund).

The potential saving grace for me is Kiva as a development gateway drug. The story and personal connection is powerful. What if Kiva can get people hooked on development, who will then eventually find out more and graduate to doing something with bigger impact? I feel similarly about voluntourism. Would love to see any research on either of these topics.

Does succumbing to Kiva or voluntourism advertising have a causal impact on individual's attitudes and actions towards development, after the selection effect of those individuals being more likely to be interested in development in the first place?

Towards a Growth Strategy for Africa?

Long before all those randomised evaluations, my youthful enthusiasm for microfinance was killed by this:

"in the long-run, a growth strategy is the most cost effective way of dealing with poverty. This is true for two fundamental reasons: first, growth lifts many of the poor out of poverty; second, it generates the government revenues necessary for anti-poverty measures. A donor strategy that focuses exclusively on short-term poverty alleviation is a dead end, condemned to last indefinitely ... 

Food relief, micro-finance, improved wood-stoves, and reforestation are all examples of interventions aimed primarily at helping the poor to deal with their harsh environment.1 In nearly all cases these interventions correspond to a real need. In many cases they are effective in alleviating the worst effects of poverty. But by themselves they cannot lift the African continent out of poverty any more than food relief, micro-finance, and improved wood-stoves were responsible for lifting England, Japan, or Korea out of their poverty."

1. This is not to deny that these programs also have expected growth benefits. But it is probably a fair approximation to say that their primary effect is poverty alleviation.

Marcel Fafchamps, Francis Teal, and John Toye

(Of course, I've now come full circle and lean closer to the Banerjee-Duflo "we have no clue really how to do growth so lets focus on helping the poor deal with their harsh environment")

Everything you ever wanted to know about RCTs and Microfinance but were too afraid to ask

If you’re looking for a thorough, careful, and clear summary of the latest research, and one that gets to those important design questions, you can do no better than read this review. My own chapter 6 is not nearly as complete and precise. --- David Roodman