Warwick Economics in Action
A Warwick economist has won a grant from the U.S. Agency for International Development for an innovative research project in Kenya. The project will assess the ability of low-cost mobile technology to overcome long-standing barriers to credit for small businesses.
Christopher Woodruff, a Warwick economist who specializes in development issues and microenterprise research, is part of a three-person team of economists undertaking the initiative.
Access to finance is a critical constraint to the growth of small businesses everywhere, and particularly in developing countries. The Kenyan initiative will evaluate whether mobile technologies can overcome the impediments, allowing short-term trade credits to small retail outlets and kiosks.
Microenterprises in developing countries typically buy small amounts of goods for resale frequently rather than economizing by buying in bulk. They lack the access to credit that would allow them to borrow from suppliers to expand both their inventories and their businesses.
Obstacles to credit arrangements face both borrows and lenders in Kenya and other countries in the developing world. The borrower faces the inconvenience of frequent, in-person repayments. Lenders are reluctant to provide credit because the cost of monitoring repayments exceeds the potential revenue from small loans.
The project aims to use two technologies to make repayment easier for borrowers and to reduce the lender’s monitoring costs. The project will use a mobile phone-based money transfer system and an electronic inventory management software developed in Kenya. The researchers will then evaluate whether these technologies offer ways to free up working capital for other short-term uses that could enhance business growth.
The two other researchers on the project are Tavneet Suri, an economist at the Massachusetts Institute of Technology, and William Jack, an economist at Georgetown University.
The researchers will partner with Coca-Cola; Equity Bank; Safaricom, a leading Kenyan mobile communications supplier; and Financial Sector Deepening , an organization that promotes the expansion of Kenya’s financial services sector.
The project won funding from U.S. AID through its Development Innovation Ventures program, which was established in the fall of 2010 to seek cost-effective, scalable solutions to problems confronting developing economies. The Kenya initiative grant of more than $360,000 (roughly £226,000) is the program’s largest to date.
The work in Kenya will be coordinated by Innovations for Poverty Action, a U.S.-based, non-profit organization addressing economic issues facing developing countries.
For more detail see these announcements of the funding award:
