business and financial literacy for young...
TRANSCRIPT
BUSINESS AND FINANCIAL LITERACY FOR
YOUNG ENTREPRENEURS:
EVIDENCE FROM BOSNIA-HERZEGOVINA
Miriam Bruhn and Bilal Zia (World Bank, DECFP)
Introduction
What are the determinants of firm growth?
Much of the literature has focused on access to capital and external
finance (Banerjee et. al., 2009; De Mel, McKenzie and Woodruff, 2008)
Recent work argues that business management skills are another
important driver of firm growth and a key determinant of productivity
(Bloom, et. al., 2010; Bruhn et. al., 2010)
Academic interest is matched by a policy interest in training
programs that aim to enhance financial and business skills
But we know relatively little about what kinds of programs are
effective and for whom
Related Work and Contribution
Effects of financial literacy on households is limited (Cole, Sampson and Zia, 2010)
Evidence on business training is also scarce, though some studies are now coming through
Karlan and Valdivia (2010); Drexler, Fischer and Schoar (2010); Gineand Mansuri (2011); De Mel, McKenzie and Woodruff (2011).
Our contribution
Study effects of business training for current and prospective entrepreneurs, using a randomized controlled trial
Focus is not on micro-enterprises, but slightly larger firms
Complement survey data with high quality administrative loan data
Study Setting
Collaborate with a financial institution in Bosnia
(Partner) to provide business and literacy financial
training to their clients
Clients have a business loan
Look at young clients, age 18 to 35
Youth unemployment is 58 percent in Bosnia
Promoting creation, survival, and growth of youth-led
enterprises provides one possible solution to unemployment
problem
Business and Financial Training
Provided through a local NGO that has experience with business training for university students
Adapted content for loan clients based on client and loan-officer interviews, pilot training with university students
5 module basic course (2 days, 3 hours per day)
General concepts
Business plan
Marketing
Managing the firm’s finances
Business growth
Extra module on external finance (1 day, 3 hours)
Financing sources, importance of financial responsibility, interest rates, diversification, short term & long term, the devil is in the details
Experimental Design
Took 445 interested clients and randomly divided them into 3 groups
Treatment group 1 is offered 5 module course
Treatment group 2 is offered 5 module course plus external finance module
Control group
Stratified randomization based on Partner’s data and baseline survey data
Gender
Above and below median business and financial literacy score
Sector
Missing baseline profits, then sorted by profits within strata
Implementation Challenges
Low participation rate in the training (39%)
Main reason for not participating was lack of time
96% of participants would recommend training to a friend
Few people attended 6th module (external finance) In the analysis, combine both treatment groups
One third of clients did not have a business at baseline (they had an exploratory business loan)
Examine effect on business creation
For remaining analysis of business outcomes, keep only individuals who had a business at baseline
Baseline Data (Sample Characteristics)
Sample includes all 445 business loan clients
Sample includes the 267 clients who had a business at baseline
Female 0.35 0.35 0.98
Age 28.1 28 0.8
Completed secondary school 0.85 0.80 0.19
Risk averse 0.68 0.71 0.53
Treatment group
average
Control group
average
p-value of difference
(treatment – control)
Avg. employees 2.30 2.10 0.56
Avg. business age (yrs) 4.9 5 0.823
Registered 0.20 0.30 0.09*
Avg. monthly profits (KM, w/o outliers) 841.00 728.00 0.38
Services sector 0.541 0.463 0.23
Farming sector 0.20 0.25 0.3
Treatment Group Control Group p-value of difference
(treatment – control)
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
Empirical Strategy
Estimate causal impact of the training with
y is the follow-up survey outcome variable (e.g. business and financial knowledge, business profits)
TrainingInvite is a dummy variable indicating whether the client was randomly assigned to the treatment group (intention-to-treat)
Control for baseline outcome variable when available (McKenzie, 2011)
Include strata dummies (Bruhn and McKenzie, 2009)
Examine heterogeneous treatment effects by interacting TrainingInvite with baseline characteristics
Business and Financial Knowledge Scores
Find no impact of the training on average levels of business and
financial knowledge
But: the training significantly increased business and financial
knowledge among individuals with below median baseline levels of
business and financial knowledge
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
(1) (2)
Treatment -0.002 0.239*
(0.104) (0.131)
Treatment*Above median baseline financial literacy -0.248
(0.181)
R-squared 0.188 0.183
Observations 396 396
Mean of dependent variable in control group 1.129 1.129
Dependent variable: Business and financial knowledge score
Business Creation and Survival
No significant effect on the extensive margin (i.e.
business creation and survival)
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
(1) (2) (3) (4) (5)
Treatment -0.015 0.021 0.03 0.021 0.063
(0.053) (0.079) (0.027) (0.062) (0.099)
Treatment*Above median baseline fin lit -0.063 -0.074
(0.107) (0.128)
Treatment*Had business at baseline -0.004
(0.068)
Had business at baseline 0.645***
(0.055)
R-squared 0.089 0.089 0.409 0.115 0.117
Observations 396 396 396 267 267
Mean of dep. variable in control group 0.439 0.439 0.439 0.611 0.611
Dependent variable: Has business at follow-up
Business Practices
Treatment group is less likely than the control group
to use personal accounts for business
(1) (2) (3) (4)
Treatment -0.218*** -0.278** 0 -0.022
(0.079) (0.137) (0.063) (0.095)
Treatment*Above median baseline fin lit 0.095 0.034
(0.166) (0.129)
R-squared 0.287 0.289 0.146 0.147
Observations 169 169 170 170
Mean of dep. variable in control group 0.655 0.655 0.172 0.172
Dependent variable:
Uses personal
account for
business
Has credit card
for business
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
Business Investment
Training led to more investment in the business
(1) (2) (3) (4)
Treatment 0.106** 0.087** 0.165*** 0.156**
(0.044) (0.047) (0.061) (0.077)
Treatment*Above median baseline fin lit 0.029 0.014
(0.079) (0.115)
R-squared 0.19 0.19 0.227 0.227
Observations 169 169 170 170
Mean of dep. variable in control group 0.017 0.017 0.121 0.121
Dependent variable:
Invests savings in
business
Implemented new
production
processes
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
Business Performance
Evidence suggests that the treatment increased
profits by about 50% for clients with high baseline
levels of business and financial knowledge
(1) (2) (3) (4)
Treatment -65.828 -1485.965 0.051 -0.102
(837.310) (1,149.150) (0.080) (0.129)
Treatment*Above median baseline fin lit 2675.04+ 0.245+
(1,635.066) (0.162)
R-squared 0.179 0.202 0.084 0.099
Observations 108 108 170 170
Mean of dep. variable in control group 2642.162 2642.162 0.224 0.224
Profits May 2010 Increased profits
Dependent variable:
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
Business Growth
The treatment increased sales for clients with high
baseline levels of business and financial knowledge,
no significant effect on employees (slower moving)
(1) (2) (3) (4)
Treatment 0.062 -0.115 -0.011 -0.116
(0.079) (0.127) (0.120) (0.239)
Treatment*Above median baseline fin lit 0.282* 0.169
(0.158) (0.274)
R-squared 0.067 0.087 0.306 0.308
Observations 169 169 170 170
Mean of dep. variable in control group 0.207 0.207 0.681 0.681
Dependent variable:
Increased sales Log employees
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
New Loans
Treatment group is not more likely than the control
group to take out a new loan from Partner (same is
true for loans from any source)
(1) (2) (3) (4)
Treatment 0.002 -0.006 -0.045 -0.118
(0.037) (0.055) (0.074) (0.120)
Treatment*Above median baseline fin lit 0.014 0.118
(0.075) (0.152)
R-squared 0.053 0.054 0.188 0.191
Observations 445 445 170 170
Mean of dep. variable in control group 0.169 0.169 0.759 0.759
Took out loan from
Partner after
training
Currently has
business loan from
any source
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
Loan Characteristics
Treatment group clients who took out a new loan from
Partner have longer term loans (more installments) than
their peers in the control group
This is consistent with using loans for investment
(1) (2) (3) (4) (5) (6)
Treatment 0.429 603.03 4.939* 7.866*** -0.117 0.205
(849.055) (1,421.171) (2.865) (2.918) (0.645) (0.581)
Treatment*Above median baseline fin lit -1006.045 -4.886 -0.537
(1,760.976) (5.268) (1.165)
Control for loan amount Yes Yes Yes Yes
R-squared 0.2 0.205 0.537 0.544 0.452 0.453
Observations 80 80 80 80 80 80
Mean of dep. variable in control group 4392 4392 22.68 22.68 20.461 20.461
Dependent variable:
Loan amount Interest rateNumber of
installements
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
Loan Default and Refinancing
The training lowered default rates among clients with low
baseline levels of business and financial knowledge
Some evidence that the training led to higher rates of
loan refinancing/restructuring
(1) (2) (3) (4)
Treatment -0.019 -0.048+ 0.034* 0.015
(0.018) (0.032) (0.020) (0.032)
Treatment*Above median baseline fin lit 0.052 0.034
(0.037) (0.040)
Control for loan amount Yes Yes Yes Yes
R-squared 0.041 0.044 0.09 0.091
Observations 3901 3901 3901 3901
Mean of dep. variable in control group 0.06 0.06 0.039 0.039
Dependent variable:
More than 30 days
past due
Refinanced or
restructured
Statistical significance levels: + 15%, * 10%, ** 5%, *** 1%
Summary and Conclusion
The business and financial literacy training had no effect on the extensive margin in our sample(firm creation or survival)
But: Individuals who already had a business tend to use better business practices and make more investments in their business due to the training
Weak evidence suggests that this increased profits and sales (for individuals with above median levels of baseline financial literacy)
Promising result for financial/business literacy advocates