Experimental Evidence on Returns to Capital and Access to Finance 2005
Microenterprise sectors are a dominant feature in urban areas of low- and middle-income countries. As much as a third of the labor force in these economies is self-employed. Those involved in retail trade—street vendors and owners of small shops and restaurants—are a plurality of small scale enterprises. These vendors earn their living using their own labor and small amounts of capital. They generally lack access to loans from formal financial institutions, relying on their own savings and perhaps informal loans from family members or friends. Surveys indicate that the lack of access to finance is one of their most often mentioned complaints.
This study uses data from the Mexican National Survey of Microenterprises (ENAMIN) to estimate returns to capital. A randomized experiment was designed to generate data which allow a consistent measure of returns to capital in microenterprises. Data was collected from a panel of microenterprises in the city of Leon, in Mexico over a period of five quarters. The baseline survey was carried out in November 2005. After the first through fourth rounds of the survey, treatments were administered in the form of either cash or equipment to randomly selected enterprises in the sample. The treatments generate shocks to capital stock which are random, uncorrelated with either the ability of the enterprise owner or the prospects for the business.
An unbiased estimate of returns to capital has important policy implications in several areas. First, the returns from investment determine the interest rates which borrowers are willing to pay to microlending organizations. Higher returns imply a higher likelihood of developing financially sustainable microlenders. Second, if returns are low below some investment threshold, then these low returns may act as an entry barrier, preventing high ability entrepreneurs without access to capital from entering. If, on the other hand, returns to capital are high at very low levels of investment, then capital-constrained entrepreneurs should be able to enter and grow to a desired size by reinvesting profits earned in the enterprise. In that case, capital constraints will have short term costs, but fewer long term effects on outcomes. High returns at low very low capital stock levels suggest that credit constraints will not lead to poverty traps.
Kind of data
Sample survey data [ssd]
Leon, Mexico. Leon is the fifth largest city in Mexico, with a metropolitan area population of approximately 1.4 million. The city is the center of Mexico's shoe and leather industries, and is also home to an active microenterprise sector.
Unit of analysis
The research team set out to select a sample of enterprises with less than 100,000 pesos (approximately US$1000) in capital stock, excluding land and buildings. The sample was limited to enterprises engaged in retail trade and owned by males aged 22-55. In order to cover only full-time work, the owners were required to be working 35 hours or more a week in the baseline period.
Producers and sponsors
University of Warwick
World Bank Research Support Budget
The sample frame was based on the 10% public use sample of the 2000 population census for the city of Leon. Data was examined at the level of the smallest geographical unit available in the public sample, the UPM (unidad primaria de muestreo). For each UPM, the research team calculated for males 22-55 years of age the average education level and the percentage self-employed in the retail sector. They also calculated the percentage of households in the UPM with a male household head present. Using these data, 20 UPMS were selected with high rates of retail self employment and modest average levels of education.
The screening survey identified enterprises owned by males 22-55 years of age in the retail sector, operating without paid employees. Enterprises with paid employees are very likely to exceed our upper limit of
100,000 pesos of capital stock, so the lack of paid employees was used as an initial screen for capital stock. Where the screening survey was administered to the owners, we also asked for the value of the capital stock excluding land and buildings, measured at replacement cost.
The sample is limited to males aged 22-55 operating in the retail sector. The average enterprise has been operating for just over five years. Only 20 percent of the enterprises were started within a year of the baseline survey. Almost 20 percent are at least ten years old. Sales average 5,700 pesos per month, and profits 3,486 pesos per month. The median levels of sales and profits are similar, 5,000 and 3,000 pesos per month, respectively. We asked owners for profits before accounting for any compensation for their own time, so the profit levels should be viewed as including the opportunity cost of the time spent in the enterprise by the owner. As a result of this, profits are never reported as being negative.
Dates of collection
Mode of data collection
The study employed several questionnaires that are explained below.
- Survey screen: the screening questionnaire used to determine eligibility for the study
- Survey baseline: the baseline survey of enterprises
- Household Survey round 1: the baseline survey of households attached to the enterprise
- Round 2, Round 3, Round 4, Round 5 surveys: follow-up surveys of enterprises
- Round 5 household survey: follow-up survey of the household
- Digit span recall showcard: showcard of digits used for digitspan recall test
The survey instrument was modeled after the Mexican National Survey of Microenterprises (ENAMIN) survey. In the first round, detailed information was gathered on the capital invested in the enterprise, separated into tools, machinery and equipment, vehicles, real estate and buildings, and inventories and finished and unfinished goods. Operational data was also gathered on the firm--revenues, expenses and profits-for the preceding month, and personal information about the owner. In each subsequent survey, firms were asked about changes in capital stock, either purchase of new assets or sales of existing assets, and operational data for another month of the survey.
The data are anonymized to remove identifying information.
Use of the dataset must be acknowledged using a citation which would include:
- the Identification of the Primary Investigator
- the title of the survey (including country, acronym and year of implementation)
- the survey reference number
- the source and date of download
David McKenzie, World Bank and Christopher Woodruff, University of Warwick. Mexico Experimental Evidence on Returns to Capital and Access to Finance (CAFR) 2005. Ref. MEX_2005_CAFR_v01_M. Dataset downloaded from [URL] on [date].
Disclaimer and copyrights
The user of the data acknowledges that the original collector of the data, the authorized distributor of the data, and the relevant funding agency bear no responsibility for use of the data or for interpretations or inferences based upon such uses.