Unconditional Grant Scale Reversion
RCTClinical Trial
Large infusions of unconditional cash grants designed to double microenterprise working capital fail to generate sustained business growth or higher profits when microentrepreneurs operate in saturated or highly competitive local markets.
Picture this
Picture a small neighborhood lemonade stand owner who receives double their usual cash to buy extra lemons and cups. The owner buys the extra supplies, but because there are no additional thirsty customers walking down the quiet street, the extra lemonade sits unsold, profits fail to rise, and once the grant money is spent, the stand goes right back to its original size.
What the evidence says
Capital recipients increased short-term targeted asset investment by 179 cedis in Round 3 (p < 0.10), but experienced an average stated monthly income reduction of 45.43 cedis (p < 0.05) across pooled follow-up rounds, leading to complete disappearance of new capital investments by Round 8 (14 months post-grant).
- Who was studied
- N = 154 microenterprise tailors in Accra, Ghana (75 assigned to receive capital grants of 200 GH¢ / ~US$133).
- How
- Randomized intervention supplying an unconditional cash grant equal to more than 100% of average baseline working capital, tracked across 8 survey waves over 2 years.
What to do
Test whether local demand and firm productivity can absorb capital injections before distributing non-repayable grants aimed at microenterprise expansion.
From the source
"In the long run, we find that the microentrepreneurs in either consulting treatment group reverted back to their prior business practices, and that microentrepreneurs in the cash treatment group reverted back to their prior scale of operations."
8dfcee5c-2a63-4460-a220-837509002b85-Consulting and Capital Experiments with Microenterprise Tailors in Ghana.pdf