Cash grants for business in Burkina Faso are better than targeted grants

Cash grants appear more promising than matching grants, especially if small business survival rather than innovation is the key goal in an unstable political context. This is the result of a study conducted by economists at the University of Passau and the World Bank in Washington and Burkina Faso.

Study published V Journal of Development Economics.

The unresolved political question is whether it will be supported small firms in the form of grants should be flexible (a “cash grant”) and its exact use should be left to the discretion of the beneficiary, or it should be targeted and accompanied by strict procurement rules and possibly an earmarked contribution (a “matching grant”).

To shed light on this issue, researchers from the University of Passau and the World Bank conducted a study. randomized controlled trial (RCT) in Burkina Faso to compare 400 firms that received flexible cash grants with 400 firms that received grants designed to invest in customized technical training and consulting services. The study concludes that cash grants score higher in all categories and are also more cost-effective.

“Recipients of cash grants showed higher survival rates, improved business practicegreater formalization and more innovative activities compared to beneficiaries of relevant grants and firms in control group“explains Professor Michael Grimm, head of the Department of Development Economics at the University of Passau. He is the lead author of the study, which was published entitled “Supporting Small Firms in Volatile Contexts: A Comparison of Equity and Cash Grants in Volatile Contexts.” Burkina Faso.”

Together with his co-authors Dr Sidiki Sobeiga, a former doctoral student at the University of Passau and now a World Bank consultant in Burkina Faso, and Dr Michael Weber, a senior economist at the World Bank in Washington, Professor Grimm conducted the study. randomized controlled trial in Burkina Faso to assess medium-term effects and economic efficiency two innovative policies aimed at accelerating business growth and creating jobs in fragile rural environments. Cash grants can be used for any business purpose. Matching grants are for business development services (BDS), such as technical training and expert consulting.

Results at a glance

Two years after implementing the interventions, the research team noticed the following effects:

• Across all outcomes, cash grant beneficiaries outperformed those receiving matching grants.
• Most cash grant recipients chose to spend the grant on capital goods, resources and livestock rather than on BDS. Overall, there was little evidence of fraud or misuse, even for more flexible cash grants.
• Beneficiaries of cash grants increased investment, saw greater capital growth and became more resilient to the COVID-19 crisis, which could boost profits, sales and employment in the long term.
• However, neither the cash nor the matching grants significantly increased profits, sales, or employment compared to the control group.
• Cash grants are more cost-effective to implement. Including grants, the cost per beneficiary was $6,658 for cash grant recipients and $7,135 for matching grant recipients.

The economists conducted the study as a randomized controlled trial in Burkina Faso from 2019 to 2022 in partnership with the local Maison de l’Entreprise du Burkina Faso (MEBF) and Innovations for Poverty Action (IPA), which conducted the research. Participating firms were eligible to receive up to $8,000 in cash or matching grants. Procurement rules were more stringent for matching grants to prevent misuse. To qualify for providefirms had to take part in a business plan competition. On behalf of the MEBF, experts selected 1,200 entrepreneurs from 2,279 applications, who were randomly assigned to two treatment groups (cash grants or matching grants) and a control group.

“Cash grants seem to be a more promising alternative, especially if the key goal is firm survival rather than innovation,” says Professor Grimm, summing up the findings. “Flexible monetary intervention may therefore be a viable policy option in other fragile environments with weak institutions and low-skilled labor.”

According to the researchers, this is the first study to compare matching grants with cash grants based on a randomized field experiment in an unstable context.