Friendship at Work: Can Peer Effects Catalyze Female Entrepreneurship?
Entrepreneurship training for women was found to be much more effective in increasing business activity for those who participated with a friend.
Past studies show that in developed and developing nations alike, women are less likely than men to succeed as entrepreneurs.[i] According to recent experimental evidence, business training programs for female micro-entrepreneurs have proven modestly effective in improving business performance in low-income settings.[ii] In this study, the authors explore whether the low numbers of successful female micro-entrepreneurs directly contribute to the gender gap in business performance due to limited positive peer effects. In particular, researchers study the effects of a business-training program if female participants could invite a friend. The study randomly assigned women to one of three groups: (1) attend a business training program alone, (2) attend a business training program with a friend or (3) do not attend any training. The authors measured all three groups four months later to assess differences in financial activity, business activity and client wellbeing.
[i] See for instance: De Mel, McKenzie, and Woodruff (2008) and Fafchamps, McKenzie, Quinn, and Woodruff (2011).
[ii] See Karlan and Valdivia (2011)
The business counseling intervention had a significant, immediate impact on participants’ business activity, but only for the women who were trained with a friend. The treatment-with-friend group increased the number of business-loans taken (but there was no evidence of having additional trouble repaying their loans) and a reported expansion in sales. The training also increased hours worked for both training groups.
- Women in the training-with-friend group were 7 percentage points more likely to take out a business loan relative to those who received no training. There was no significant effect on the likelihood of taking a business loan for women who received the training alone. This suggests that this type of increase in business activity cannot be solely attributed to the business-counseling program.
- Clients in the training-with-friend group were significantly more likely to report concrete plans to increase business revenues and were also more likely to report an expansion in sales than women who received no training. On the other hand, women who were trained alone were no more likely than women who received no training to report either business plans or sales expansion.
- Clients in neither the regular training group nor the training-with-friend group were more likely to report having problems repaying their loans, which suggests that the training did not encourage clients to enter into an excessive amount of business debt.
- The trainings with and without a friend both increased the amount of hours four months after the training by four hours, or roughly a 17% increase in weekly work hours.
- Women who trained with a friend were also 4 percentage points less likely to report to be a housewife as their occupation, four months after the treatment.
- Some positive impacts of training with a friend (e.g. number of hours worked and likelihood of taking a loan) were stronger among women from religious or caste groups with social norms that restrict female mobility.
The findings indicate that training with a friend had many positive effects on women’s entrepreneurial experience, including increased number of loans, sales and number of hours worked. Those who belonged to more restrictive social groups were particularly sensitive to having a peer attend the trainings.
From a sample of 636 female clients between the ages of 18 and 50, two thirds were randomly chosen to receive an invitation to participate in a two-day business training course, with one third invited to attend with a friend – preferably one who shared their occupation – and one third invited to attend alone. The remaining one-third served as a comparison group and did not receive an invitation to participate in the training. Training take-up was roughly 70% (all estimations provide Intent-to-Treat estimates).
The two-day business-counseling course, designed by researchers in collaboration with SEWA Bank, included components on financial literacy, business skills and building aspirations. The authors use three sources of data: a baseline survey implemented before the program, a follow-up survey conducted four months after a participant had attended her training event, and SEWA Bank administrative data. Control group members were administered the surveys at the same time as the members of the training sessions.
The follow-up survey gathered data on income, savings, loans, client business practices, labor supply, household expenditures, confidence and goals. The administrative data contained information on SEWA clients’ financial activity. Overall, 604 of the 636 women completed the follow-up survey, and the attrition rate was similar across the three groups.