One-time grants to small business owners in Sri Lanka led to sustained increases in income for men, but not for women.
Women in developing countries are often more credit constrained than men and invest less in their businesses, which can lead to lower returns. It is generally thought that if women receive the same credit as men, their rates and returns on investments will mirror men’s. However, limited data from several studies suggests mixed conclusions with regard to differences in profitability and growth of microfinance enterprises run by females and males. In many of these studies, businesses owned by females grow more slowly and generate less profit than those owned by males. This study examines the differences in the profits generated by one-time grants provided to male and female small business owners in Sri Lanka. In addition to looking at differences in income, the authors examine asset allocation within the business owners’ households after they received the grants, taking into account the intra-household bargaining process.
Participants in a three-year field experiment were assigned to one of four experimental conditions: a large cash grant (LKR 20,000), a small cash grant (LKR 10,000), a large in-kind grant, or a small in-kind grant. The cash grants were explicitly unconditional, and the equipment and materials given as in-kind grants were chosen by the business owners who received them. Male microenterprise owners saw sustained increases in income following the influx of cash or materials of either amount, but female owners saw no income increases following their grants.
- Overall, monthly profits increased by about 9% of the grant amount in male-owned enterprises, however, monthly profits did not increase at all in enterprises owned by women.
- Women who received the smaller grant amount invested 22% of the award in their business while men invested just over 60% over the first three months. Over the long term, however, women’s investments fall to zero while men invest 138% of the award.
- Women who received the larger grant amount invested a larger proportion of it than men in their business. Women invested 85% of the larger grant amount, compared to men who invested only 63%; however, women realize no return from these investments.
- Men invested 58% of their grants into inventories and working capital, compared with 45% of women. Women spent more on items that have uses in the business and home, such as sewing machines, ovens, cookers, and furniture.
- Women business owners invested more of their grants and saw better returns when they had more decision-making power in their households and spouses that were cooperative with regard to management of the enterprise.
Lack of access to credit alone does not account for the gender gap between small-businesses owned by men and women in developing countries. Even after an influx of capital, female-owned microenterprises show significantly less income increases than men. This can partially be explained by female-dominated industries being overall less lucrative than male-dominated industries and by competing household demands on women business-owners.
For the experiment, the authors selected a sample of 387 retail and manufacturing/services businesses in three southern and south-western districts of Sri Lanka that were obtained from a door-to-door screening process of 3,361 households. The overall sample was split evenly by gender and primarily fell across two broad industry categories: retail sales and manufacturing/services. These microenterprises had less than 100,000 Sri Lankan rupees (about 1,000 US dollars) in capital and no paid employees. 228 of these business-owners were selected by lottery to receive one of four grants: LKR 10,000 in materials for the business, LKR 20,000 in materials, LKR 10,000 in cash, or LKR 20,000 in cash. Cash treatments were given without restrictions. Initially, 124 businesses were randomly chosen to receive treatment. An additional 104 businesses were later phased into the treatment. Businesses not selected in either round served as the control and were given LKR 2,500 as a thank-you for their participation at the end of the study.
The data was collected through the Sri Lanka Microenterprise Survey. The baseline was conducted in April 2005. Firm owners were then interviewed at quarterly intervals for two years and semi-annually for the third year. The authors use 11 waves of data, the last of which was gathered in April 2008. In each wave, business-owners were asked about profits, revenues and expenses, changes in physical stock, and the level of inventories on hand. Some of the waves also included a household survey.
MLA: De Mel, Suresh, David McKenzie, and Christopher Woodruff. "Are women more credit constrained? Experimental evidence on gender and microenterprise returns." American Economic Journal: Applied Economics (2009): 1-32.
APA: De Mel, S., McKenzie, D., & Woodruff, C. (2009). Are women more credit constrained? Experimental evidence on gender and microenterprise returns. American Economic Journal: Applied Economics, 1-32.
Chicago: De Mel, Suresh, David McKenzie, and Christopher Woodruff. "Are women more credit constrained? Experimental evidence on gender and microenterprise returns." American Economic Journal: Applied Economics (2009): 1-32.