This document summarizes the results of a survey conducted with microcredit clients in Luanda, Angola to understand what factors contribute to entrepreneurial success. The main findings are: 1) Higher levels of education significantly increase entrepreneurial profits, suggesting education can help people escape poverty through business. 2) Entrepreneurs suffering from chronic illness have substantially lower profits, indicating health issues negatively impact business. 3) Entrepreneurs who know a local police officer have higher profits, showing that certain social networks may benefit business success. The document then discusses implications of these findings and plans for further analysis using additional survey data to better understand the relationships between education, health, social capital and entrepreneurial outcomes

1. Is it both what you know and who you know?
Human capital, social capital and entrepreneurial
success
Ivar Kolstad
and
Arne Wiig,
Chr. Michelsen Institute
Development Workshop, Luanda, 16 September 2011

2. Background
Survey conducted in Luanda by DW and CMI:
– February to March 2010
– 539 clients of Kixicredito
– …from 51 randomly selected credit grops in two branches (São Paulo
and Hoje Ya Henda)
Purpose: To find out what makes a microcredit client successful in business:
– More education?
– Better health?
– Access to networks?
– Trust?
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3. Context: Urban areas and petty trade.
6 January 2010
Sosialøkonomenes fagkonferanse 2011,
NHH
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4. Problem in finding effect of education
• We have addressed this problem
• We therefore have a reliable estimate of effect of
education 4
Education Profit
Ability

5. Problem in finding effect of health
• The next round of the survey (2013) will solve this
problem
• Current data only give us an indication of effect of
health
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Health Profit
Risk preference

6. Main results
i) An added year of schooling significantly increases
entrepreneurial profits.
ii) Profits are substantially lower for entrepreneurs suffering
from chronic illness.
iii) Entrepreneurs who know a local police officer have higher
profits, suggesting that specific forms of networks are related
to entrepreneurial success.
iv) Different family background variables are associated with the
educational attainment of men and women, indicating that
educational attainment is gendered.

7. Main variables

8. Descriptives

9. Main results

10. Implications so far
The importance of schooling:
• Helping keep people in school longer will make it
easier for them to escape poverty through
entrepreneurship
• Alternative: Business training:
– Results from other studies show effect only on men
• Effect on repayment rates?
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11. Implications continued
The importance of health:
• Chronic illness may cut profits substantially
– Malaria may cut profits in half
– Stomach disorders by a third
• But these estimates need to be checked in the next round of the survey
The importance of social capital:
• People who know a police office have higher profits
• Why?
– Connection increases profits?
– Or are people with higher profits a target for police corruption?
• No effect of other kinds of networks
• No effect of trust
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12. Gender differences?

13. Education and credit group dynamics
Are educated people more likely to give priority to their
fellow solidarity group members, over outside
demands?
To address this question, we performed an economic
experiment as part of the survey.
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14. The experiment
Dictator game in two versions
Version 1:
• ”At the end of this survey, we will give you a sum of 500 kwanza. You may
choose to keep this money, or give some or all of it to another member of
your solidarity group. The person the money is given to will be randomly
picked by us. You will not know who this other member is, and he/she will
not know who you are. How much of the 500 kwanza do you want to give
to the other member of your group?” (bold font added)
Version 2:
• ”We will also give you an additional 500 kwanza. You may choose to keep
this money, or give some or all of it to a person outside your solidarity
group. The person the money is given to will be randomly picked by us.
You will not know who this person is, and he/she will not know who you
are. How much of the 500 kwanza do you want to give to the person
outside your group?” (bold font added) 14

15. Results from the experiment
Figure 1: Amounts given in dictator game
0
50
100150200
Frequency
0 100 200 300 400 500
Amount given to credit group member
0
50
100150200
Frequency
0 100 200 300 400 500
Amount given to outsider

16. Descriptive statistics

17. Main result

18. Some possible implications
More educated individuals more likely to give priority to fellow credit group
members over outside demands:
– Schooling may help both individual and group performance
– Give educated group members a prominent position in group?
Women more likely to prioritise solidarity group over outside interests
Clients with a more cosmopolitan background are less likely to prioritize
solidarity group
Do choices in dictator game predict repayment?
– Results from other regions suggest a link
– If so: Can use game as screening device
– Requires follow up study

19. Concluding remarks
• Our results document importance of education:
– For individual business performance
– For solidarity group dynamics
• The survey presents an important baseline:
– To assess the situation of clients over time
– To assess the importance of health and social capital
– To study other forms of interventions
• Data from the current round can provide vital new information:
– On link between experimental behaviour and repayment behaviour
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20. Thank you!
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