Entrepreneurial Venture Creation Rate
RCTReview
Standard microfinance schedules force borrowers to channel capital into existing, short-term operational activities rather than funding the higher start-up risk and gestation lag required to launch net-new commercial enterprises.
Picture this
Opening a brand-new storefront takes weeks of setup before the first customer buys anything. If a landlord demands rent on day one before you even put up a sign, you will give up on opening the shop and just keep selling trinkets on the street corner.
What the evidence says
New business formation was 2.0% among regular contract clients versus 4.58% to 4.68% among grace period clients (a 2.58 to 2.68 percentage point increase, p < 0.05), representing more than double to nearly triple the rate of new venture creation.
- Who was studied
- N = 845 female microfinance clients in Kolkata, India.
- How
- Field RCT measuring new business establishment up to 30 days prior to or 180 days following loan disbursal across baseline and 3-year follow-up surveys.
What to do
Provide 60-day repayment deferrals specifically targeted at microfinance loan applicants seeking seed capital for new business start-ups.
From the source
"Microenterprise investment was approximately 6.0 percent higher and the likelihood of starting a new business was more than twice as high among clients who received the grace period contract relative to those on the regular contract."
101_290 microfinance and entrepreneurship AER2013.pdf