Mastercard and the Small Firm Diaries, a global research initiative that will provide unprecedented insight into the financial lives of small businesses across six countries in Sub-Saharan Africa, Latin America and Southeast Asia. The study will examine how small firms manage the adoption of digital financial services, with a focus on women-led businesses.
By collecting detailed quantitative and qualitative data insights from firms employing between 1 and 20 non-family workers in Nigeria, Ethiopia, Uganda, Colombia, Indonesia and Fiji, the study will shed light on how small business owners across the world manage their financial decision making amidst uncertain and volatile economies. While there has been a great deal of research on informal family-run “microenterprises,” and more professionalized “medium-sized” firms, the needs of small firms are not yet well-understood. For example, in Sub-Saharan Africa, small firms play a crucial role in economic development and job creation and insight is needed to understand the unique challenges faced by them in order to create sustainable solutions for their longevity and growth. According to The World Bank, it is estimated that SMEs are responsible for 77% of all jobs in Africa and as much as half of the GDP in some countries. The research initiative, supported by the Center, aims to provide financial service providers, policymakers, and practitioners with knowledge and recommendations to address barriers to adoption of digital financial services.
“We must understand how small enterprises work in order to develop interventions that reduce inequality and increase financial security amongst financially underserved communities,” said Natasha Jamal, Regional Director, Middle East and Africa, with the Mastercard Center for Inclusive Growth. “This first-of-its-kind research will provide on the ground insights into what barriers and opportunities exist for small firms to adopt digital financial services and participate in an inclusive economy.”
“Small firms are by far the biggest employer in low and middle-income economies. Despite decades of statistical research, fundamental questions remain about why some grow, and some stagnate,” said Jonathan Morduch, Executive Director of the Financial Access Initiative and Professor of Public Policy and Economics at New York University.“ Our aim is to go into the field and try to understand small firms from the bottom-up, by listening closely to how entrepreneurs and workers make choices on their own terms.”
“Just as household financial diaries have been crucial to understanding the needs of low-income households around the world, and the barriers to achieving household financial security, the kind of detailed financial information provided by diaries is needed to understand the choices that small firm owners make and the real barriers to growth they face,” said Timothy Ogden, Managing Director at the Financial Access Initiative.
FAI and its partners are working closely with local organizations that will be involved in the research to obtain country-level research and ethics approvals in each of the six countries that will host the study.
Methodology of The Small Firm Diaries Research Initiative
Project researchers will follow a group of 100 businesses in multiple sites in each country over a period of 12 months, visiting them several times per month to collect quantitative data on cash flows, and qualitative data on business owners’ aspirations and decision-making.
Compared to traditional research studies that produce static snapshots from a single point in time, financial diaries can produce nuanced and dynamic portraits of firm owners and their choices. High-frequency, quantitative data on cash flows shows researchers actual trade-offs and decisions made in near-real time, and qualitative data collection allows them to probe deeply to understand the “why” behind those choices, revealing the behaviors and barriers that prevent firms from adopting useful tools and technologies, hamper firm growth, and slow market development. The study will illuminate the ebbs and flows of the businesses, the markets they serve, the constraints to their productivity, profitability and growth, the impact of access (or lack of access) to technology and formal credit, the interactions of the cash flows of the business with the cash flows of the owners and employees, and much more.
The Small Firm Diaries has also received funding from the Bill & Melinda Gates Foundation, the Argidius Foundation, the Aspen Network of Development Entrepreneurs, and Australian National University. The project’s overall research design is based on the experience of FAI and its research partners with previous financial diaries studies, such as Portfolios of the Poor, the US Financial Diaries, and the Bangladesh Garment Worker Diaries.
The advisory board for the multi-country study will include leading researchers on small firms and practitioners with expertise in digital and financial services and business support programs, with experience spanning the private sector, government, and academia. Current board members include: Tamara Cook, CEO, FSD-Kenya; Matthew Guttentag, Director of Research & Impact at the Aspen Network of Development Entrepreneurs; Machal Karim, Executive, Development Impact at CDC; Leora Klapper, Lead Economist at the World Bank and founder of the Global Findex; and David McKenzie, Lead Economist within the Development Research Group at the World Bank.