Nearly 98 percent of businesses in India are microenterprises that are susceptible to income shocks and lack access to capital. These conditions challenge their growth, profitability, and survival, particularly for women led microenterprises. While many entrepreneurs have access to microcredit, these loans typically come with rigid repayment schedules that often deter entrepreneurs from channelling money into the business. In this project, researchers partner with Buzz Women and Yunus Social Business to test the effectiveness of microequity contracts, which are characterized by revenue contingent repayments over a three-year term. Working with women microentrepreneurs, the research team explore how microequity contracts affect microenterprise growth. If successful, this financing instrument has the potential to be beneficial to many of the 10 million microentrepreneurs in India.
ABOUT THE PROJECT
Microequity contracts are structured to be more flexible than traditional microcredit contracts. For this project, the researchers have designed a contract with payments that are contingent upon the microenterprise’s revenue and a three-year term. Working with tailoring and animal husbandry entrepreneurs, the project will explore how performance-contingent repayment terms affect demand for microequity and how access to microequity financing affects microenterprise growth.
Researchers are offering half of the participating entrepreneurs an investment of approximately $1,400 in the form of assets and inventories that the entrepreneur chooses, with the other half serving as a comparison group.
The study is conducted in the state of Karnataka in India and focuses on tailoring and animal husbandry sectors which allow production to be monitored (which is key to enforcing a microequity contract).