Microenterprise 'Big Push' Transformation and Poverty Trap Testing
Canonical theories of poverty traps suggest that severe credit and managerial capital constraints inhibit enterprise growth, and that providing a simultaneous large infusion ("big push") of financial and managerial capital can transform microenterprises into growing small-to-medium enterprises.
Picture this
Imagine a small bicycle repair stand. A growth program provides the owner with a large cash grant to buy advanced hydraulic tools and one year of personal business mentoring to set up complex marketing and accounting systems. If the underlying local demand for bicycle repair is fixed or the owner's capacity to manage employees is limited, giving them a massive simultaneous push does not turn the shop into a regional factory; once the temporary support ends, the business shrinks back to its original manageable scale.
What the evidence says
Neither individual nor combined "big push" treatments produced persistent profit increases; pooled stated income effects were 0.905 cedis for consulting only (p > 0.10), -45.43 cedis for capital only (p < 0.05), and -23.23 cedis for capital plus consulting (p > 0.10) relative to a control mean of 111.9 cedis.
- Who
- 160 microenterprise tailors in Accra, Ghana (45 control, 36 capital grant only, 41 consulting only, 36 combined grant and consulting).
- How
- Randomized controlled trial delivering 200 cedi cash grants (~US $133, doubling baseline working capital) and 1 year of intensive Ernst & Young management consulting (averaging 10 hours per firm) tracked over 24 months across 8 survey rounds.
What to do
Reject universal "big push" capital and consulting grants as a mechanism for force-scaling microenterprises into formal medium-sized firms without screening for firm demand and managerial capacity.
From the source
"We designed the study with a hypothesis that large infusions of financial and managerial capital could be transformative... However, no treatment led to higher profits on average, and certainly not to the large effects hypothesized."
Consulting and Capital Experiments with Microenterprise Tailors in Ghana