Microenterprise growth and the flypaper effect: Evidence from a randomized experiment in Ghana
In-kind grants of inventory, equipment, and supplies increase business profits for a significant proportion of female-owned microenterprises in urban Ghana, whereas cash transfers do not.
Microenterprises are an important part of the Ghanaian economy, in which women participate primarily through self-employed enterprises. Nearly 70% of women aged 15-60 contribute to Ghana’s labor force—only four percentage points lower than their male counterparts—and are more likely to be self-employed and to occupy more non-agricultural positions than men.
While many organizations have placed an emphasis on lending to female business owners, there is little data available suggesting whether capital in the form of in-kind grants—such as inventory, supplies, and tangible resources—or capital in the form of cash is more effective in spurring economic growth for female owned enterprises.
Seminal studies exploring this question have been conducted in Sri Lanka, largely suggesting that increased capital yielded no tangible outcome change in profits of female-owned microenterprises. However, there is little prior research on how the type of capital increase, either in the form of in-kind grants or cash, affects women in African countries, where they have a far greater presence in the labor force than in Sri Lanka.
Evaluating the difference in types of grants to female-owned microenterprises can provide insight into whether increasing capital of a certain type is more beneficial in terms of closing the gender gap in microenterprise growth.
Women with relatively successful microenterprises increased their business to equal or surpass their male counterparts with in-kind grants, but not with cash grants. Male-owned businesses increased their profits with both cash and in-kind grants. Specifically:
- In-kind grants to women who owned businesses increased average profits by 31-50 cedis/month. However, this increase was solely due to gains made by the female businesses with baseline profits above the median of 181 cedis in capital stock, which was about 40% of the female enterprise sample. These enterprises saw profits increase by 77-96 cedis monthly, while the increase was only 2-5 cedis among baseline low-profit (below-median) businesses.
- In-kind grants to men who owned businesses increased monthly profits by 28-60 cedis. Unlike with the female-owned businesses, both low and high baseline profit male-owned businesses benefited equally from the in-kind grants.
- Cash grants to women who owned businesses had no statistically significant impact on profits. The money was spent or transferred outside the house (to people or toward household expenses), instead of invested in their business. Researchers found that the ways in which these women spent the cash was due to personal preference of use, rather than coercion by extended family or community pressures.
- Cash grants to men who owned businesses increased profits by 5-29 cedis, though cash grants to men were not significantly different between low and high baseline profit businesses.
In short, cash and in-kind grants had markedly varied outcomes for female entrepreneurs. With in-kind grants in the form of equipment, supplies, and merchandise, there was significant growth for businesses that were already exhibiting a higher profit margin. These higher baseline women actually equaled or surpassed average men’s success with in-kind grants, suggesting that the gender gap in business profits could be narrowed by in-kind grants to women who already own relatively successful enterprises. However, this intervention was significantly less effective for enterprises with lower baseline profits, so women who own such businesses cannot expect to benefit in the same way.
Researchers deliberately chose a sample from two cities, Accra and Tema, in Ghana because Ghanaian women are historically nearly as active as men in the labor market. They then randomly selected 70 sample areas in Accra and 30 in Tema. In each area, household surveys were conducted to screen for the following inclusion criteria: 20-55 years old, self-employed working greater than 30 hours per week, no employees, and no business vehicle. From this base sample of individuals, males and females were then randomly chosen from three groups of typical business types: male-dominated, such as construction or vehicle repair; female-dominated, such as food or beauty services; and mixed, such as retail. This narrowed down the groups to 907 individuals, who were given a second survey prior to the experiment. After this survey, a total of 793 microenterprises represented were chosen to participate in the trial, 479 female and 314 male.