Business Registration Impact Evaluation (BRIE)

This research team is carrying out a large-scale randomized trial that offers small informal firms different business registration services as well as information sessions on the benefits of separating business from household finances in Malawi to estimate the causal impact of enterprise formalization on business performance.

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This research team is currently carrying out a randomized experiment in Malawi to measure the impact of business registration for Micro, Small and Medium Enterprises (MSMEs) as well as assess the complementary value of business bank accounts as a means of separating firm and household finances. While informality is often seen as an obstacle to business growth and economic development, we know very little on the relative importance of this constraint. Furthermore, although the benefits of formality may include increased access to finance, markets, government support programs and networks, other development obstacles are often considered complementary to informality. One specific problem for MSMEs in Malawi is that household and business resources tend to be strongly intertwined, which can result in the depletion of working capital: data from this study suggests that 82% of the targeted firms use money from the business for household expenses whenever needed. Hence training on the benefits of separating household and business money coupled with offering business bank accounts may have strong positive effects in adding value to business registration.

This study will also examine whether male and female-owned enterprises gain equally from registration, and whether the effects of registration are heterogeneous on other dimensions (including age and sector of the firm). The team will use their PEDL Major Grant mainly to fund the study’s end-line survey, thereby allowing them to complete this impact evaluation.

The target group of this study consists of 3,000 informal SMEs located in Blantyre and Lilongwe, the major commercial cities in Malawi. These firms were identified through several rounds of listing exercises, and selected based on a pre-defined set of criteria including the number of employees of the firm, the physical location (if the firm operates in a fixed location) and their revenues. The researchers stratified firms within the sample by a set of measures, including gender, and then randomly assigned them to either one of the treatment arms or to the control group.

The study intervention consists of three treatment arms (totalling to 2,250 firms) and one control group (750 firms). In order to test the impact of business registration on business performance, all 2,250 firms in the treatment group were offered costless registration with the Department of the Registrar General (DRG) – which is the main step to enterprise formalization in Malawi. Out of these, while 750 firms were offered only the DRG registration, a random group of 300 firms was also offered to register for taxes and obtain a Tax Payable Identification Number (TPIN) from the Malawian Tax Authority, thus allowing the researchers to test the additional value, if any, of this secondary step in the formalization process. Finally, the remaining 1,200 firms in the treatment group were also invited to information sessions on the benefits of separating business from household money and were offered business savings accounts. With this intervention, the study team will test the effects of the interaction between business registration and business bank accounts.

The team is collecting extensive data – the first follow-up survey has been completed - to estimate the impact of the different treatment arms on business formation and expansion, access to finance, and productivity of SMEs. The outcomes of interest will include measures of firms’ financial performance (e.g. sales, profits and costs), investments in the business, survival rates, number and skill composition of employees, number and amount of loans taken out by the business, number of customers, etc. Data on the standard of living of the beneficiaries and their dependants (consumption, housing investments, savings, etc) will also be gathered, to capture any effects of the program on household welfare.

The outputs generated by this study will be directly relevant for policy. Malawi is currently streamlining its registration process in order to increase the registration rate amongst MSMEs. The Business Registration Impact Evaluation (BRIE) is a direct response to the interest of the Government of Malawi in evaluating whether or not business registration improves business performance. The government will therefore use the results of this study to promote registration (if any positive impact is detected) or to identify the corresponding bottlenecks that affect enterprise performance (if negative impact exceeds).