Getting Capital to Microenterprises: What do we know about why and how?

Policy Paper
Published on 17 July 2019
Authors
Chris Woodruff

Abstract

Recent research illuminates the opportunity to increase incomes of microenterprise owners through the provision of capital. Experiments providing capital grants to randomly selected subsets of enterprises show that the average increase in earnings following receipt of a grant is much higher than the interest rates charged by micro lenders. But there is important heterogeneity in the returns. Moreover, results from experiments on loans made through traditional microcredit contracts are disappointing. Research implementing tweaks to microcredit contracts and eliciting information from entrepreneurial communities on potential returns from investments shows some promise in overcoming these issues. Ongoing work on microequity contracts also offers hope for contracts that provide some risk-sharing, allowing entrepreneurs to make riskier investments.

Authors

Chris Woodruff

University of Oxford and Centre for Economic Policy Research (CEPR)