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Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions

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  • Dean Karlan

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  • Martin Valdivia

Abstract

Can one teach basic entrepreneurship skills, or are they fixed personal characteristics? Most academic and development policy discussions about microentrepreneurs focus on their access to credit, and assume their human capital to be fixed. The self-employed poor rarely have any formal training in business skills. However, 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 that the treatment led to improved business knowledge, practices and revenues. The program also improved repayment and client retention rates for the microfinance institution. Larger effects found for those that expressed less interest in training in a baseline survey. This has important implications for implementing similar market-based interventions with a goal of recovering costs.

Suggested Citation

  • Dean Karlan & Martin Valdivia, 2007. "Teaching Entrepreneurship: Impact of Business Training on Microfinance Clients and Institutions," Working Papers 107, Center for Global Development.
  • Handle: RePEc:cgd:wpaper:107
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    References listed on IDEAS

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    1. Paulson, Anna L. & Townsend, Robert, 2004. "Entrepreneurship and financial constraints in Thailand," Journal of Corporate Finance, Elsevier, vol. 10(2), pages 229-262, March.
    2. Edmonds, Eric V., 2006. "Child labor and schooling responses to anticipated income in South Africa," Journal of Development Economics, Elsevier, vol. 81(2), pages 386-414, December.
    3. Jean-Marie Baland & James A. Robinson, 2000. "Is Child Labor Inefficient?," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 663-679, August.
    4. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    5. Signe-Mary McKernan, 2002. "The Impact Of Microcredit Programs On Self-Employment Profits: Do Noncredit Program Aspects Matter?," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 93-115, February.
    6. Eric V. Edmonds, 2005. "Does Child Labor Decline with Improving Economic Status?," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
    7. Copestake, James, 2002. "Unfinished Business: The Need for More Effective Microfinance Exit Monitoring," Working Papers 23752, University of Sussex, Imp-Act: Improving the Impact of Microfinance on Poverty: Action Research Program.
    8. Basu, Kaushik & Van, Pham Hoang, 1998. "The Economics of Child Labor," American Economic Review, American Economic Association, vol. 88(3), pages 412-427, June.
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    More about this item

    Keywords

    entrepreneurship; microentrepreneur; business skills; business training; credit;

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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