An opportunity for the missing middle to grow

July 1, 2013 - PRLog -- If the new research by London Business School succeeds, micro-entrepreneurs in Africa, living on not more than $2 a day, can be able to overcome the barriers that forbid their business to grow into a profitable ones.

Stephen Anderson-Macdonald, PhD Candidate at London Business School, and one of the principal investigators, explains: “There are roughly two billion people in the world living on less than $2 per day; half of them run businesses. We believe there can be major reductions in poverty in developing countries if these micro enterprises are better able to develop and grow their businesses into larger enterprises.”

Most businesses in developing countries are micro-enterprises, yet only few of them can grow into small or medium-sized businesses.  Therefore, most entrepreneurs could barely afford their living and a vast missing middle appeared in these economies. Organizations like The World Bank, USAID, and DFID funded London Business School to find new ways to help improving the situation.

Anderson-Macdonald says: “Micro-entrepreneurs in developing countries face many constraints. For example, they have limited access to capital. A good deal of money has gone into aid and micro-finance, but the results of these efforts have been mixed at best. Micro-entrepreneurs also tend to have poor business skills. Our research investigates ways in which the private sector can help micro-entrepreneurs overcome these constraints. ”

The researchers are currently working on two projects, in South Africa and Ghana. In South Africa the researchers are finding the business skills constraints that micro-entrepreneurs face. Stephen Anderson-Macdonald is working with Rajesh Chandy, The Tony and Maureen Wheeler Chair in Entrepreneurship and Academic Director of the Deloitte Institute for Innovation and Entrepreneurship, London Business School and Bilal Zia, Economist at The World Bank. The researchers have also partnered with Business Bridge, an NGO founded by Michael Hay, a Professor of Management Practice, London Business School.

Around 1,000 growth oriented entrepreneurs are selected as the experimental groups, which receive intense mini trainings in marketing and sales or finance and accounting provided by Business Bridge, while the control groups receive NO trainings.  The impacts and outcomes of the trainings are being analyzed by the researchers.

The Ghana project focuses on financial constraints micro-entrepreneurs face. Stephen is currently working with a local financial institution, Financial Republic.  At the same time, Professor Om Narasimhan, London School of Economics, Anja Lambrecht, Assistant Professor of Marketing, London Business School and Professor Chandy are testing new banking products that are targeted to fit the realities of business in developing countries. The researchers hope to succeed in exploring new ways to help their business, in which foreign aid grants and traditional micro-lending have failed.

Over 3,500 local businesses will receive the new loan products and will be tied to the purchasing of assets for example equipment, construction or vehicles.  The results will be compared with those receiving a typical cash load without tying to asset purchase.

Currently, the researchers in South Africa are examining the preliminary results from the study.

For more information about London Business School, visit http://www.london.edu/