# _6.5 Effects on business skills, business practices, banking, and formalization_

We also included in our survey a whole range of outcome indicators that relate to business skills and business practices including banking and formalization. Although all firms in our sample received SIYB Training developed by the ILO, treated firms more than untreated firms may have felt the necessity to adapt their practices with the upcoming investment opportunity, but it could of course also be that untreated firms tried to make up for the difference and hence were more inclined to adapt. For those firms that invested their grant on technical support, especially the beneficiaries of matching grants, new skills and practices may also have been transmitted together with the technical support they received.

Formalization (that is, registration with social security, the tax administration, and possibly with the trade registry) was strongly recommended by MEBF to all firms in the sample but not enforced or made obligatory. The results in Table 6 show that at least beneficiaries of cash grants have a probability to be formalized that is higher by about 7–9 percentage points relative to control firms. This corresponds to almost a doubling of the share of formalized firms; the share of formalized firms in the control group is about 7 percent. The estimated coefficients for beneficiaries of matching grants are also throughout positive but mostly very small and insignificant.

For beneficiaries of cash grants, we also see sizeable and highly significant positive effects of having a bank account (+22 percentage points), even if the control group mean of 62 percent is already impressive. This is probably due to the good targeting of the intervention. The large effect for cash beneficiaries is not surprising because beneficiaries of cash grants in contrast to beneficiaries of matching grants needed to open a bank account and obtained, if needed, assistance to do so to receive their grant. Although this makes ‘having a bank account’ more a project output than an outcome, this is an important achievement as experience with a formal bank and improved financial literacy might have lasting impacts for the beneficiaries.

For the beneficiaries of cash grants, we also see an increased probability by 13 percentage points (from a control group base of 29 percent) to keep books on sales and purchases. This may partly also follow from the increased formalization, which requires to do bookkeeping. This is also an outcome with potentially lasting effects.

The survey also asked the entrepreneurs several questions regarding their ability and plans to innovate by introducing, for example, new or modified products, services, management or operational processes, and their plans to use the internet. To analyze impacts on innovation, we aggregated the answers using Principal Component Analysis. At least based on OLS, we find sizeable positive effects in this case for both beneficiaries of cash and matching grants. We find impacts in the order of 0.18 and 0.15 units of standard deviation for beneficiaries of cash grants and matching grants, respectively. If we use the ANCOVA specification, the effects for beneficiaries of matching grants turn insignificant but are borderline, and the size of the effect does not change much. Hence, it seems that even beneficiaries of matching grants, maybe partly in anticipation, increased their innovation potential.

Overall, we cannot find significant heterogenous effects at this stage. With respect to gender, for women, we see slightly lower effects on formalization and slightly higher effects for bookkeeping and innovation, but these differences are statistically not significant. There is also no difference for banking. There is otherwise no systematic pattern that emerges with respect to the sector of activity, the size of the capital stock at baseline, or the size of the grant firms received.

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