63673 Finance & PSD Impact MAY 2011 The Lessons from DECFP Impact Evaluations ISSUE 13 Our latest impact note looks at a business training program in Bosnia, one of several exciting new impact evaluations on business training that we will be featuring in upcoming notes. The Impact of Business and Financial Literacy Training for Young Entrepreneurs in Bosnia-Herzogovina Miriam Bruhn and Bilal Zia financial institution, Partner Microcredit Firms in developing countries are Foundation, who either already owned a widely known to face many constraints, business or had taken out an exploratory from lack of access to finance and physical business loan. It included only those capital to poor infrastructure. Recently, individuals who expressed an interest in however, there has also been a growing attending our business training course, focus among researchers on “managerial which was provided by an experienced local capital�, or business skills, as an important NGO, the Entrepreneurship Development determinant of entrepreneurship in Center. The course covered basic business developing countries. Policymakers have concepts and accounting skills, as well as been equally interested in the perceived investment and growth strategies, with a deficit of managerial capital, and have been particular emphasis on the importance of up- pouring resources into financial and front capital investment. business literacy education programs around Both the setting and the sample are the world. of special interest for several reasons. As an Yet we still have a very incomplete emerging post-conflict economy, Bosnia has understanding of the effectiveness of these a low business survival rate, as well as a programs, and their specific impact on very high rate of youth unemployment business outcomes. Until recently, there (about 58 percent, 2007 Labor Force were only two completed randomized Survey). Both factors could increase the impact evaluations of business training marginal value of a business training programs in developing countries: one in program. We also study somewhat larger Peru which found positive effects on certain businesses than do previous studies, which business practices but not on profits (Karlan focused on microenterprises; the businesses and Valdivia, 2010), and one in the in our study have an average of two Dominican Republic which found that basic employees, and a sizeable fraction of them rules-of-thumb-based training had a greater own operational assets, make business effect on business outcomes than formal investments, or are formally registered. business training (Drexler, Fischer, and We randomly divided the sample Schoar, 2010). into a treatment group and a control group, both of whom were administered a baseline Our Field Experiment in Bosnia and and a follow-up survey, allowing us to Herzegovina measure the effect of training on: financial We conducted a randomized knowledge and attitudes; new business start- evaluation of a comprehensive business and up among clients who were only given financial literacy training program for young exploratory loans; business survival; entrepreneurs aged 18-30 in and near Tuzla, surviving businesses’ practices, investments Bosnia and Herzegovina. The sample and performance. consisted of 445 loan clients of our partner Do you have a project you want evaluated? DECRG-FP researchers are always looking for opportunities to work with colleagues in the Bank and IFC. If you would like to ask our experts for advice or to collaborate on an evaluation, contact us care of the Impact editor, David McKenzie (dmckenzie@worldbank.org) We also had excellent administrative However, the program had no effect on data on loans from Partner, making it firm survival or business start-up, or on loan possible to examine the effect of training on default rates. Only one new business in the default rates, propensity to refinance, and entire sample was started up over the course terms for new loans. of the study; 36 percent of businesses in the sample eventually shut down, which is Results consistent with high rates of business failure All of the individuals in the in Bosnia and Herzegovina. treatment group had expressed interest in a business training course, but ultimately only Analysis and Policy Implications 39 percent attended the course. The major Our results seem to indicate that reason given for not attending the course while business training programs can have a was lack of time. The vast majority of those significant impact on surviving businesses, who did attend report being satisfied with particularly for those entrepreneurs with the course. higher ex-ante levels of financial literacy, in Knowledge and attitudes: the program led to our context it does not seem to affect significant improvements in basic financial business start-up or business survival itself. knowledge for those with low ex-ante Lack of business knowledge may therefore financial literacy. It also increased the not be the primary constraint to new preference for using own funds versus entrepreneurship, or business survival credit, and improved understanding of among the types of firms we look at. having a good credit history. Although training programs could form an Business outcomes: although the program important part of policies to promote firm had a significant impact along the intensive growth, lack of access to finance, for margin (i.e. growth of surviving firms), it instance, may be a much more important had no significant impact on the extensive factor in business development. margin (i.e. new firm entry and firm However, business training clearly survival). has positive effects on businesses that do Specifically, we found that surviving survive, encouraging them to implement businesses who received the training were production processes and make investments more likely to: that they otherwise would not have. This is implement new production processes; promising, given that the course specifically inject new investment in business; emphasized these behaviors. The course separate business and personal accounts; seems to have been particularly effective at refinance existing loans for more promoting business growth for those favorable terms, and negotiate a larger entrepreneurs who exhibited higher levels of number of loan installments financial literacy at the baseline. Policymakers might therefore consider exhibit greater improvements in sales targeting business training resources towards and profits, though this was only the existing firms, with an emphasis on case for those with higher ex-ante particularly teachable behaviors. financial literacy. For further reading see: Bruhn, Miriam and Bilal Zia (2011), “Stimulating Managerial Capital in Emerging Markets – The Impact of Business and Financial Literacy for Young Entrepreneurs,� World Bank Policy Research Working Paper No. 5642. Recent impact notes are available on our website: http://econ.worldbank.org/programs/finance/impact