Improving Financial Management Training for Women Entrepreneurs: Are Heuristics the Answer?

Many entrepreneurs lack the necessary skills to manage the complex finances of a small enterprise. Despite their global popularity, traditional classroom-based trainings have had mixed to no impact on actual financial behaviors. Behavioral science tells us that increased financial literacy knowledge does not always translate into action, that the hassles associated with attending in-person training – scheduling, transportation. Additionally, the time away from managing the business – tend to suppress turnout, and that women around the world are more likely to experience time scarcity due to context-specific societal and gender norms.

Heuristics – mental shortcuts or rules-of-thumb that facilitate problem-solving and enable people to make decisions quickly and efficiently – offer an alternative and promising option to traditional classroom-based training for financial management.

On March 15, as part of our Design in Action series, FinEquity hosted a webinar with the World Bank’s Africa Gender Innovation Lab (GIL) and ideas42, a non-profit that uses behavioral science to combat inequality. The webinar focused on the heuristic-based financial training that was designed by ideas42 and co-implemented by ideas42 and GIL through the Women’s Entrepreneurship Development Project (WEDP) with the aim of improving women’s entrepreneurship.

Heuristic-based financial training in practice

With the challenges of classroom-based trainings in mind, ideas42 has developed a scalable, mobile-based training program that simplifies financial management lessons into easy-to-adopt heuristics delivered at the client’s convenience. Successful heuristics depend on a robust understanding of the context in which they are being applied in order for them to rebalance the burden of learning towards the program designer and implementer – decreasing the effort and time demanded of the person learning. Since its inception in 2008, ideas42 has been adapting this financial heuristics training to new contexts, with demonstrated success stories in the Dominican Republic, India, and the Philippines.

Across Africa, GIL carries out impact evaluations that assess the outcomes of development interventions and generate evidence on how to close the gender gap in earnings, productivity, assets, and agency. In Ethiopia, GIL found that women were more likely to be interested in self-employment opportunities than men, yet women-owned businesses often operate in low-return sectors and report significantly fewer business earnings.

Aware of the mixed evidence on the effectiveness of traditional classroom-based learning, GIL and ideas42 piloted the financial heuristics training with 3,000 women in Ethiopia. This intervention was part of the portfolio of pilot interventions that make up the Innovations in Financing Women Entrepreneurs in Ethiopia (IFWE).

Complex business principles specific to the Ethiopian context were converted into easy-to-apply rules of thumb, and training was packaged into 3–4-minute lessons which were delivered by phone through Interactive Voice Response (IVR) and SMS. Through a randomized control trial (RCT), GIL and ideas42 tested training engagement (the likelihood of phone pick-up and duration of listenership as a comparison to classroom-based training programs) and outcomes (changes in financial behavior and the downstream effects on performance).

Measuring outcomes for women entrepreneurs

The preliminary results, shared in early 2023, showed that IVR and the combination of IVR and SMS positively impacted financial behaviors. In the IVR group, there was a 24% increase in financial practice scores, including an increase in adopting behaviors like separating cash between business and household when determining profitability. The study also showed improvements in inventory management. In addition, GIL created a business practice score to measure changes in practices from past training studies. The goal was to see if the heuristics training impacted practices that were not included in the curriculum – such as looking for new ways of advertising and additional financial resources for their businesses. However, the study did not detect a statistically significant change in the business practice score or credit management score in its preliminary results.

In the coming months, GIL’s data analysis will focus on the impact on business survival and intermediary variables such as investment and borrowing. GIL also plans to conduct a two-year follow-up survey to measure the impact on business performance outcomes in the long run. This data will be critical to assess the effectiveness of heuristics-based financial training in meeting the unique needs of women entrepreneurs and, ultimately, in improving their economic outcomes.        

The recording and slides from this webinar can be found here.