Diversification in the Household Economic Portfolio

Drawing on case study information from Peru, investigates the use of income diversification as an economic strategy among clients of the microfinance programme of Accion Comunitaria del Peru (ACP).

Develops a symbolic representation of the household economic portfolio. Examines the dynamic, or life cycle, changes that may occur in the portfolio as it pursues the diversification strategy of intergenerational launching.

Findings reveal that recipients of microenterprise credit have established one or more new microenterprises to be managed by their grown children. The resources for starting the new microenterprises came from the revenues of the parents' microenterprises and, sometimes, directly from the microcredit extended to the parents' microenterprises. The purpose of the diversification strategy was to launch the next generation of entrepreneurs.

Assesses implications for impact evaluation and concludes that:

• Growth in the target enterprise may not occur when the target enterprise is a launching pad for additional microenterprises managed by children;
• Despite the fact that the target microenterprise is not growing, the welfare of the household may be improving;
• Therefore, the target microenterprise is insufficient as the unit of analysis for impact assessments, and must be expanded to include the household economic portfolio.

Explores the implications of incorporating diversification into the design of a microenterprise programme impact evaluation and describes possible approaches for measuring the concept of diversification.

[Adapted from the author's abstract]