Friday, June 8, 2012

TL;DR -- Spreading Cash Around the Developing World Science, Feb. 24, 2012 -- "One-time Transfers of Cash or Capital Have Long-Lasting Effects on Microenterprises in Sri Lanka," Suresh de Mel, David McKenzie, & Christopher Woodruff.

International development and philanthropy have long been a big interest of mine.  But often practices in these areas are driven more by emotion and intuition than by sound research.

This study examined effects of granting small amounts, either in direct cash or in equivalent resources, to small business owners (in which the owner was the only employee) in Sri Lanka.  This is not microfinance, as practiced by Kiva or the Grameen Bank, but is similar to the approach taken by GiveDirectly.  However, the effects of this strategy, and especially the long-term effects, have been poorly understood; does an infusion of cash actually contribute to the success of the business and the survival of the business owner?

Five years after the researchers initially randomly distributed large ($200 equivalent) or small ($100 equivalent) amounts to small business owners, they returned to evaluate the survival and the financial health of the businesses.  What they found is that those who received initial grants did better in the long run -- they were more likely to still be in business, and their businesses were more profitable, as compared to control businesses ...but only for men.  For women, those who received grants fared no better (and, in fact, numerically worse) than those who had not received grants.

This is unsettling news.  In fact, many organizations, such as Grameen, target their approaches based partly on gender, focusing on helping out women over men.  This research suggests that, despite good intentions, this practice may be ineffective.  But why were no benefits found for women?  This study can't fully answer that question, but the authors speculate that many of the women redirected the funds (or cashed out the resources) to their households, instead of investing in their businesses.  This makes sense, considering that the businesses run by women were only about half as profitable as those run by men; the short-term gains may have overridden any long-term planning.  Factors other than gender, such as base profitability, may interact with the intervention to determine success.

Of course, there are limitations to this research.  The outcome measures were exclusively economic, but it's possible that the women who received the grants got some benefit to other measures, such as health.  It's also not clear how well these results would generalize to other regions.  Is there something specific to the cultural or economic environments of Sri Lanka that lead to this gender disparity?  But on the other hand, it's also very heartening to see that such a simple intervention can lead to durable change.

Suresh de Mel, David McKenzie, Christopher Woodruff (2012). One-time Transfers of Cash or Capital Have Long-Lasting Effects on Microenterprises in Sri Lanka Science DOI: 10.1126/science.1212973

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