1. Dale Fickett
Context – Entrepreneurship for Development
The body of research covering SME’s role in promoting global development outcomes is
limited. For example, only 43 articles, of 7,482 published during 1990 – 2006 in “leading
management journals,” addressed entrepreneurship in emerging economies.i However,
development economists and practitioners are generally agreed on the following: a)
Approaches which engage the poor within the private sector offer a promising method for
harnessing competitive markets to achieve poverty alleviation outcomes; b) one such
approach is the establishment and growth of SMEs which engage the poor; and c) SMEs in
these contexts face a range of constraints as they grow and compete.ii In sum, the research
and practitioner community has established that some SME growth supports economies,
creates jobs, addresses gender disparities and alleviates poverty. These outcomes are most
often enabled when entrepreneurs deploy capital to seize exponential production
increases.iii The challenge is identifying the conditions in which the growth of
transformational SMEs catalyzes development outcomes; and enabling the policy and
practices which support competitive ecosystems that help those in most need.
ABC Bank – New Product Study
This “pro-poor” SME growth is often constricted by a combination of internal and/or
external barriers. Access to finance, access to the right talent and skill sets, access to
markets, and regulatory constraints – can each play a role in limiting the venture’s rate of
growth and ultimate scale achieved.iv When introduced, ABC’s new Accounts Receivable
product will provide a new avenue to access finance, but it may, or may not, catalyze
incremental SME growth which drives development outcomes for targeted beneficiaries. A
randomized control trial (RCT) provides the most robust evaluation possible to establish the
causality between the product introduction and development outcomes, as it establishes
the counterfactual (i.e. what would have happened had the loan not been issued), and thus
minimizing the assumptions required to draw ex post conclusions.)
Planning: To conduct the intended study several planning activities help focus efforts. First,
it is important to establish the key project stakeholders; exactly what they are looking to
understand; and whether current or previous RCTs have gained the required insight. v
“Viability of the product,” may indicate establishing the anticipated market penetration rate
for commercial purposes, or seeking to establish the extent of poverty alleviating impact.
Second, it is important to establish precise target beneficiaries and the desired goal. With a
poverty impact goal, ABC Bank may be as specific as, “Seek to maximize the marginal
income increases (MII) for those currently earning <$2.00/day PPP.” Third, given the
stakeholders agreed goal, a needs assessment framework (see figure 1) is used to establish
Needs Input Outputs Outcome Outcome Goal
People in poor ABC Bank provides Fixed asset SMEs create work Low-wage earners Increased
rural areas lack SME loans to investments that was not take new jobs or household income,
income generating collateralize increase previously take opportunities improved
opportunities. Accounts production and available. for more hours/ economic choices,
Receivable. profitability. greater wages. and better levels
There are credit- Existing employees of health and
worthy SMEs that Flexible repayment These investments and local low-wage They start earning education.
need loans to terms allow for use sometimes create laborers are able more income, and
increase as working capital, work for the poor, to do the work continue to do the
production and and enable fixed but may decrease created. work over time.
returns. asset investments. work available.
Number and value SME days / hours MII for those who
of loans written. of new work were living on less
Variables to Measure:
SME investments created. than $2/day.
made.
Figure 1 – Illustrative Needs Assessment Framework

2. Dale Fickett
the causal links to be tested through the evaluation – testing whether the new product will
spur contributions towards the desired goal. Fourth, to gain clarity regarding other (perhaps
more cost-effective) potential interventions, a list of alternatives may be developed. The Theory of
Changevi techniques may be applied to illuminate other pathways to achieve the desired
goal. Alternatives to the new product may be developed narrowly, such as other products ABC Bank
may introduce; or it may defined so broadly as to include other stakeholder interventions, such as
government sponsored conditional cash transfer (CCT) programs. Lastly, a working hypothesis is
captured and refined through the planning process to describe the anticipated effect of the
product introduction, such as, “Those SMEs that receive the product and which operate within
industry sectors with the greatest labor density, will create the most additive work and the greatest
marginal income increases for those living on less than $2 PPP per day PPP.
Design: Building upon the planning stage decisions and the presumed needs assessment
logic in figure 1, the RCT design would include the following characteristics:
1. The SME entity, as treatment recipient, to serve as the unit of randomization;
2. A simple lottery is the method of randomization amongst screened participants, with
screening provided by standard loan origination proceduresvii;
3. Stratification by industry sector may be considered to ensure adequate participation
to investigate the dimension of the hypothesis related to labor density;
4. Threats to the design include: non-borrower survey participation, positive spillovers
due to increased local demand for non-borrowers’ offerings, negative spillovers as
labor rates increase, crossovers where non-borrowers access ad hoc credit from
cash-flush borrowers, and data quality issues, especially related to establishing
employees’ pre-existing income levels;
5. Optimal sample size (N) will be based upon ABC Bank’s position regarding minimum
effect size, and balancing the statistical significance of the findings (e.g. power [κ];
significance level [α]) with the cost of extending the sample size of the pilot; and
6. Variables to Measure (see figure 1), as one implementation consideration, will be
gathered by enumerators from borrowers and non-borrower SME owner/operators
and all employees at SME work sites, at the time of project initiation, and over the
two years during which production gains are expected to be realized. Data accuracy
will be established through techniques such as random re-surveys; and enticements
for non-borrowers will be utilized, such as preferential treatment in future lending.viii
Stakeholder Engagement: Ongoing collaboration with ABC Bank and other program
stakeholders (e.g. independent donors) improves focus, enables the decision-making
required during the planning activities, establishes consensus on design, ensures data
collection (e.g. origination, uptake, collections), establishes access to SME owners and
employees, and engenders support for post-study scale-ups and report dissemination.
Critical success factors related to stakeholder management include: early identification of
key constituencies; engagement with IPA SME Initiative funders and identification of
opportunities to leverage their capabilities to enhance program delivery; definition of
governance and preferred communications; identification of cross-initiative synergies or
dependenciesix; meaningful engagement with external stakeholders.
Benefits: ABC Bank, other researchers, policy makers, and development practitioners would
benefit from the establishment of a proven impact treatment, theory to explain the impact
achieved, pragmatic M&E enhancements to show how and why the product should be
scaled, and establishment of the intervention’s cost-effectiveness relative to other options.

3. Dale Fickett
i
Bruton, G., Ahlstrom, D. and Obloj, K. (2008). “Entrepreneurship in Emerging Economies: Where Are We
Today and Where Should the Research Go in the Future.” Entrepreneurship Theory and Practice, 32(1), p. 1.
ii
Brennan, L. and Fickett, D. (2011) “Developmental Entrepreneurship in Sub-Saharan Africa: Assessing
Financial and Social Returns.” IIIS Discussion Paper Series, No. 386, November 2011, p. 17. Retrieved from:
http://www.tcd.ie/iiis/publications/discussion-papers.php
iii
Banerjee, A. & Duflo, E. (2011). Poor Economics, New York, NY: PublicAffairs.p. 219-234.
iv
“About Small & Medium Enterprise.” (2012). Retrieved April 12, 2012, from http://www.poverty-
action.org/sme/why
v
Publications – Microfinance. (2012). Retrieved April 12, 2012, from http://www.poverty-
action.org/work/publications
vi
What is theory of change? (2012). Retrieved April 12, 2012 from
http://www.theoryofchange.org/about/what-is-theory-of-change/
vii
Screening recommendations ensure adherence to credit risk and other underwriting requirements at ABC
Bank and those of other Limited Partners committing capital, while also mitigating against selection bias and
ensuring a representative control group.
viii
Figure 1 captures a sub-set of required data, with additional data sources including loan officers, SME
owners, and employees. Other design considerations include: budget, timeline, documentation of
assumptions, prerequisites to meet target beneficiaries’ needs.
ix
Over time, the portfolio of SME projects will collectively meet the challenge of identifying the conditions for
pro-poor growth, and enable required policy and industry practices. Project interaction across the SME
Initiative enables synergy, and efforts should dovetail with those of other research initiatives in meeting
broader IPA goals. For example, opportunities to leverage the network of affiliates and related assets should
be investigated (e.g. publication on social capital or microfinance).
Note: This document is being furnished to IPA as a part of the recruitment process it draws heavily from
information available through Innovations for Poverty Action (see www.poverty-action.org) and the Abdul Latif
Jameel Poverty Action Lab (see www.povertyactionlab.org).