Microenterprise Product and Inventory Diversification
RCTReview
Small business owners operating under rigid early repayment schedules are restricted to narrow, fast-turning inventory lines, preventing them from diversifying product categories or purchasing in bulk to capture wholesale discounts.
Picture this
A corner store owner who must pay loan installments every Monday can only afford to restock basic white bread. Giving her two months before payments start allows her to stock fancy jams, exotic teas, and buy flour in huge sacks at half the price per pound, attracting more customers and lowering unit costs.
What the evidence says
Grace period clients expanded their product offerings by 6.05 additional types of goods and services relative to the control mean of 5.607 (p < 0.05), enabling entrepreneurs to capture wholesale volume discounts and expand customer reach.
- Who was studied
- N = 769 microenterprises surveyed 3 years post-disbursement in Kolkata, India.
- How
- Field RCT evaluating long-run operational diversification and inventory selection across loan contract structures.
What to do
Provide longer initial grace periods to retail and manufacturing microenterprises attempting to introduce new product categories or capture bulk purchasing discounts.
From the source
"Relative to regular clients, they were more likely to extend credit to customers through loans and pre-orders and to offer a wider array of goods and services."
101_290 microfinance and entrepreneurship AER2013.pdf