Rules of Thumb: Providing Timely Useful Financial Management Advice at Scale in India

This study assesses the impact of an affordable and scalable financial capability intervention that delivered rules of thumb based business advice to entrepreneurs, via voice-based mobile phone messages.

Background
Micro, small and medium enterprises in developing countries have the potential to improve livelihoods and promote inclusive growth. However, entrepreneurs often lack necessary skills to manage their enterprises effectively, requiring the need to be provided with the right tools and skills to improve financial management of their enterprises. Traditional Approaches, such as in-person training, are expensive and have not had a demonstrated impact on actual financial behaviour and business outcomes. For an entrepreneur who typically juggles multiple roles, the time needed for these trainings including training hours, transport, etc. reduces turnout considerably.
To address these barriers, researchers at LEAD conducted a year-long randomized evaluation to understand whether a low-cost, mobile phone-based program that delivers simplified financial lessons via Interactive Voice Response technology could improve financial management behavior and business outcomes for microentrepreneurs in India.
Approach
This evaluation was carried out in two cities in India: Bangalore in the state of Karnataka, and Indore in the state of Madhya Pradesh. The intervention targeted microentrepreneurs in urban and peri-urban areas of these two cities who had outstanding individual business loans with the microfinance institution Janalakshmi. The microentrepreneurs in this study had taken a loan ranging from INR 50,000-200,000 (US$800-3,200). Their businesses included provisions and textile shops, fruit and vegetable stalls, tailoring services, micro-manufacturing, and trading. Researchers conducted a year-long randomized evaluation to understand whether a low-cost, mobile phone-based program that delivers simplified financial lessons via Interactive Voice Response technology could improve financial management behaviors and business outcomes for microentrepreneurs in India. Among 2,391 microentrepreneurs with business loans at Janalakshmi who expressed interest in participating in the program, researchers randomly assigned half to the treatment group and the other half to the comparison group. 

Key Findings

Preliminary analysis pointed towards a lack of significant impact of the training program on microentrepreneurs’ business practices, business sales, or profitability overall. This was partly attributed to low listenership. Despite 83% of the participants in the treatment group picking up the calls, only 48% of them heard the message. However, an increase in monthly business sales was observed in the more engaged participants, who listened to more than half of the message. They were also less likely to withdraw cash from their businesses for personal use, relative to the average for the entire comparison group.

Implications

The study has important implications for integrating behavioral design with training interventions to unlock the potential of microentrepreneurs, markedly improve their financial management practices and business outcomes, and in turn lead to the financial well-being of their families. 

Thematic area

MSME and Entrepreneurship

Project Leads

Shawn Cole, Antoinette Schoar

Location

Karnataka, Madhya Pradesh

Partners

Ideas42, IFC, PEDL, Janalakshmi, AwaazDe, EngageSpark

Status

Completed