Dr. Abu S. Shonchoy
Dr. Simon Quinn
The project considers an innovative new microfinance product, based on the principles of equity financing, in which promising potential entrepreneurs are provided with capital, training and mentorship to help them become online freelancers. This provides a unique opportunity to study the incentive effects of profit-sharing between entrepreneurs and mentors. We hypothesize that entrepreneurial mentorship is more effective when mentors are incentivized directly by the productivity of their mentees: when they have ‘skin in the game’. We target Bangladeshi college graduates of rural areas to finance the relatively high initial cost of an online freelancing training program, using different microfinance contract structures that we randomly assign. We are implementing the field experiment with Creative IT Institute, a global leader in training young and poor individuals to become online freelancers and with a significant presence in Bangladesh and with Gana Unnayan Kendra (GUK), a local NGO is located in Gaibandha.
The project propose a field experiment to explore some specific components of the design. These potential entrepreneurs will be selected and screened, before being randomly allocated into of four treatment categories:
CT: A control group, who will not be offered any form of financing, but will be offered the package of initial training and mentorship from our partner Coders Trust, for a fixed up-front cost.
DT: A debt treatment group, who will be offered a zero-interest, fixed-repayment loan to finance the total cost of the program, which includes initial training and mentorship (with the mentor being paid a fixed fee for their work).
ET1: An equity group, who – like the debt group – are also provided with financing for the program cost of training and mentor (who is paid a fixed fee), but where repayments are based on a profit sharing arrangement, linked to the (observable) performance of the entrepreneur’s business. Coders Trust do currently implement a similar model.
ET2: This is the same as ET1, except that the mentor’s compensation is directly linked to the entrepreneur’s performance.
All entrepreneurs who enter into the program, regardless of their assigned treatment, will be provided with the initial intensive training and access to a computer facility where they can conduct their business operations. Creative IT Institute will provide us with experienced trainers, for the intensive initial training program, as well as mentors post-training.
The project will be phased out on December, 2018 with the submission of an academic paper.