Teaching Entrepreneurship — FINCA Peru's Village-Bank Business Training Trial

FINCA Peru runs a village-banking microfinance programme for poor, mostly female microentrepreneurs in Lima and the Ayacucho region, built around mandatory weekly credit meetings of pre-existing lending groups.

Researchers Dean Karlan and Martín Valdivia added a business-skills curriculum — bookkeeping, cash-flow management, marketing and pricing — to test whether generic business training embedded in microfinance improves outcomes for clients and the lending institution.

Between 2002 and 2005 the team randomised 239 village banks (4,591 clients) into three arms — 104 banks with mandatory training attendance, 34 with voluntary training, and 101 comparison banks receiving only credit and savings services — publishing the results in the Review of Economics and Statistics (2011).

In the months immediately after training, treated clients reported sales roughly 15% higher than the comparison group and kept better business records, but over the full study period the researchers found little or no lasting change in business revenue, profit or employment. Trained clients did have loan-repayment rates about three percentage points higher and were four percentage points less likely to drop out, a retention effect the researchers calculated was worth more to FINCA than the training's cost.

The authors present this as a rigorous, randomised, peer-reviewed test that did not find the growth effect it was designed to detect on the entrepreneur side, a useful counterweight to assuming that management-upgrading interventions automatically raise SME performance, while showing institutional and client-level benefits can diverge.