Can entrepreneurship programmes transform the lives of the poor?

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The world's poorest people lack both capital and skills and are trapped in low return occupations. Whether their economic lives can be transformed by programmes which attempt to tackle both constraints by providing assets and training to enable them to run small businesses is, however, unknown. To shed light on this issue, the Institute of Microfinance (InM) and the International Growth Centre (IGC) have jointly conducted a randomised evaluation of an entrepreneurship programme that provides assets and training to the poorest women in rural Bangladesh. The result of this experimental evaluation brings out important findings. The study finds that the effect of the programme on occupational choice is ambiguous because the asset transfer creates a wealth effect that reduces labour supply and time spent running small businesses, while training generally increases both. The study also finds that the programme transforms the occupational choices of the treated poor women by inducing them to spend more time in self-employment, less in wage labour and increases their labour market participation, leading to a 36 per cent increase in annual income on average. Moreover, the programme leads to an increase in wages at the village level and its effects spillover to other poor women who experience an increase in labour supply and income. This is the big joint BRACIGC evaluation. Professor Robin Burgess from London School of Economics, has shed light on his in-depth findings on the experimental impact evaluation of an entrepreneurship programme that provides asset and training to the poor women in rural Bangladesh. These sorts of experiments are very important and useful in advocating multi-directional programmes of the government and the private sector, whose impacts are often seen with doubts due to lack of proper data and research. In my own opinion, the extent of new employment generation by micro-enterprises remains modest, constrained by limitations of entrepreneurs in managing workers and in willingness to delegate. This indicates, interalia, the need for external business development skill development support for the micro-enterprises. If properly pursued this may open up a new opportunity for development of yet another kind of micro-enterprises called skill development andor business development centres. Public institutions like the Small & Medium Enterprise (SME) foundations can play a major role in bringing down the disincentives and promoting entrepreneurship. Even, the central bank can play a pro-active role, which Bangladesh Bank (BB) is already playing in providing necessary refinance or seed money under its SME financing and Equity and Entrepreneurship Fund initiatives. The core lesson here is that extending microfinance alone will do little to improve the lot of the ultra poor who are constrained by poor health, poor education and other debilitating constraints. Micro-credit will necessarily need to be preceded by transfers in earning assets and in case for subsistence for some period. Scaling up of productive safety-net initiatives nationwide can be hastened by public-private partnerships in this social interventions; the government (represented perhaps by the SME Foundation, Palli Karma Shahayak Foundation or PKSF and micro-finance institutions or MFIs can team up to devise programmes in which the costs of asset transfer subsistence support transfer can be borne by the government. We are looking forward to the initiatives which will be going way further in the coming days, contributing positively to the efficiency of the programmes and the institutions combating poverty and promoting broad-based and equitable inclusive growth. The writer, Dr. Atiur Rahman, is governor, Bangladesh Bank. This is an edited version of his presentation at a function jointly organised by Institute of Institute of Microfinance and International Growth Centre, in Dhaka on Sunday