Business Registration Impact Evaluation (BRIE) Malawi

Transcription

1 Business Registration Impact Evaluation (BRIE) Malawi Informality and Financial Inclusion: Cross-country and experimental evidence Washington, DC, June 2013 Francisco Campos, Africa Financial and Private Sector Development with M. Goldstein (AFTPM) and D. Mckenzie (DECFP) RA: T. Ketema (AFTPM) Impact Evaluation supported by Africa FPD, Gender Innovation Lab, Investment Climate Practice, 3ie, PEDL

2 Informality, symptom or cause? WB Doing Business: Informality comes at a cost: firms in the informal sector typically grow more slowly, have poorer access to credit and employ fewer workers. Are these relationships between informality and enterprise performance causal? Or is formality only something that successful businesses can afford? 2 2

3 Research questions The major objective of the impact evaluation is to assess whether becoming formal improves enterprise performance. If one was to make it very easy for firms to formalize, would firms accept and what are the impacts of becoming formal? Specifically the IE will answer the following questions: 1. Do the benefits of business registration outweigh the costs? 2. Do both male and female-owned enterprises gain equally from registration? Are the effects of registration heterogeneous on other dimensions? 3. Does separating business from household money through business bank accounts add value to formality? 3 3

4 Uniqueness about this study Previous studies (Bruhn 2011, Klapper et al. 2006, Andrade et al. 2013) focused on effects of the reform on entrance into formality New studies, which this is one is part of, on alternative ways of increasing registration (De Mel et al. 2012), but focused on testing the effects on business performance This study also adds (i) African context, (ii) gender component, (iii) alternative methods of increasing formality (taxes vs BR certificate), (iv) additionality of complementary interventions such as business bank accounts (new studies on the pipeline on this) 4 4

5 Background: Business Informality in Malawi Informal sector represents 93% of the non-farm small scale enterprises in Malawi Process of business registration is centralized in one city and manual It takes 39 days to become formal according to the 2013 Doing Business Report (17 days in Zambia). This process includes among other aspects: 1) obtaining Business Registration Certificate 2) registering for taxes 3) paying licenses at the City Assembly 5 5

6 BESTAP reform 6 6

7 Benefits of business registration in Malawi Benefits Open business bank account Access to bank loan for business Register land in the name of business Export license Access to government contracts or procurement system Eligibility for government s programs Malawian Chamber of Commerce (MCCCI) Invoices to customers for tax purposes Business Registration Certificate (BRC) yes yes yes yes Yes for contracts, not the system yes yes Taxpayer's Identification Number (TPIN) needed if seller of land yes yes 7 7

8 Sample 3,002 informal businesses in two main cities 40% female-owned 71% of firms in retail Average monthly sales of approximately $850 Average of two people working in the business 30% of entrepreneurs with at least secondary education 8 8

9 Save in bank Save at home / business Don't save ROSCA / SACCO Spouse / friends / family Assets Save (for the future) Avoid spending the money Security reasons Manage money / investments Obtain a loan Avoid spouse or other family member using Baseline usage of saving products Usage of any saving product (%) 62 Any savings product 57 Bank account 8 ROSCA / SACCO 2 Business bank account Over 50% of firms in sample save in a bank account That compares with circa 20% for households Only 2% have access to business bank accounts Main place for saving (%) Main reason why saves in bank (%)

10 Borrowed in the past Spouse/family member MFI Moneylender / Non-Family Bank Loan Other business Personal savings Gift Spouse savings Sold Assets Pension/Severance Informal loan Inheritance Formal loan Credit for the business (baseline) Sources of funding at start (%) 60 Two thirds of firms that have borrowed in the past have 0 current net debt Median maturity of loans of 4 months. Ninety five percent of the loans with 12 or less months of maturity Source of borrowing for business (%) 37 Cash deposit, household assets and group-monitoring most common collateral requirements Purchase of inputs/raw materials largely the most common reason to get credit 10 10

11 Trust in banks / Patterns (baseline) Proportion (%) agreeing with statement I trust banks 86 Financial institutions have products and services designed for people like me 71 Financial institutions give too much credit 54 I could manage fine without a bank account 47 I would never take out a loan 15 It is difficult to open a bank account 19 Banking fees are high [If has spouse] Whenever I have money on hand, my spouse always ends up requesting some of it People who do well in their business are likely to receive requests from family and friends for money

12 Interventions tested under impact evaluation 1. Support in registering the business Intervention tries to make registration totally costless For firms in the treatment group, we instruct business owners on the benefits of business registration, help them prepare the registration form, take the required photo, deliver their entire application to DRG, pay the registration fee, and bring the Business Registration Certificate (BRC) back to the enterprise owner 2. Support in registering for taxes (obtain the TPIN) 3. Information sessions on the benefits of separating household and business money and offer business bank accounts (with NBS Bank) 12 12

13 Impact evaluation design Sample of eligible businesses using a screening criteria (3,000) Costless Registration and information sessions + business bank account (1,200) Costless Registration (750) Costless Registration and TPIN (300) Control Group (750) 13 13

14 Mechanism of change (not exhaustive) Activities Intermediate Outcomes Impacts Access to Markets Increased turnover Formality + Business bank account Access to Lending Access to Savings Increased investment Increased profits Mental separation of accounts Increased employment Lower harassment Better standards of living 14 14

15 Take-up of interventions BRC alone BRC +TPIN BRC + Information Session + Business Bank Accounts 75% 69% 85% 71% 64% 4% BRC BRC TPIN BRC IS BBA BRC: Business Registration Certificate TPIN: Tax Payers Identification Number IS: Bank Information Sessions on separating household and business money BBA: Business Bank Accounts 15 15

16 Short-term effects relative to control group on access to financial services (very preliminary) Has business bank account Saves earnings in a bank Has ROSCA/SACCO *** BRC BRC + TPIN *** BRC +BBA BRC BRC + TPIN *** BRC +BBA BRC BRC + TPIN *** BRC +BBA No immediate effect of business registration alone on access to savings products, except for business bank account. Coupling the Business Registration with offer of Business Bank Accounts provides access to SME Department of Bank and reduction in informal mechanisms of saving. Not shown here, but also indications of increase in overall amount saved. * p<0.1, ** p<0.05, *** p<0.001 BRC: Business Registration Certificate TPIN: Tax Payers Identification Number BBA: Business Bank Accounts 16 16

17 Short-term effects relative to control group on access to financial services (very preliminary) Keeps financial records Mixes HH and business money * BRC BRC + TPIN *** BRC +BBA BRC BRC + TPIN ** BRC +BBA Borrowed past 6 months Ln (amount able borrow in 2 wks) * Insurance scheme *** BRC BRC + TPIN BRC +BBA BRC BRC + TPIN BRC +BBA 0.00 BRC BRC + TPIN BRC +BBA BRC: Business Registration Certificate TPIN: Tax Payers Identification Number * p<0.1, ** p<0.05, *** p<0.001 BBA: Business Bank Accounts 17 17

18 Next steps Three more rounds of follow-ups 6 months apart from each other Analysis on main outcomes of interest such as business performance, as well as the other vehicles of change Qualitative work and some other analysis using surprise innovative methodological approaches 18 18

19 Thank you!! 19 19