Norma has a small store in the Bago City neighborhood of central Philippines. In the packed interior of her store, Norma sells a variety of household items such as coffee, sugar, chips, bread, eggs, soft drinks, soaps and more. She has big plans for her business — she wants “to expand (her) retail store into a big grocery shop.” Norma’s high aspirations are not uncommon among the microentrepreneurs the ideas42 team interviewed in the Philippines and India. And like their counterparts around the developing world, these entrepreneurs struggle to manage and grow their businesses and reach their goals, but can be supported by interventions leveraging technology.

Microentrepreneurs have the potential to be the engine of growth for developing countries by creating jobs, bringing valuable products and services to communities, and spurring economic expansion. With an estimated 400 million micro, small and medium enterprises around the emerging world, successful small businesses could improve the livelihoods of millions of families.

Despite a huge expansion in microfinance, why has this promise leveraging technology not yet been realized? Because access to finance alone does not make a business successful.

It is crucial for microentrepreneurs to know how to run their businesses correctly. That is why effective business and financial management training for micro-entrepreneurs matters. Classroom-based financial education courses have traditionally been used as a way to bridge this skills gap. Despite their popularity, such trainings have shown limited impact on financial behaviors of microentrepreneurs or the actual performance of their businesses. Small lapses in decision-making and behavior are the culprit: Did micro-entrepreneurs show up for the training leveraging technology? Did they understand how to implement the business advice being taught? Did they follow through on the recommendations? If the answer to any of these questions is “no,” it becomes impossible for microentrepreneurs to optimally use the training advice to improve their financial management practices.

ideas42’s financial heuristics training, a behaviorally designed financial management training, offers an alternative by focusing precisely on closing the intention-action gap that traditional financial education training programs have failed to bridge. From a behavioral perspective, increased knowledge alone does not always translate into improved decisions or behaviors. Our innovative approach simplifies financial management training into easy-to-remember and easy-to-adopt heuristics, or simple rules of thumb. We tested the effectiveness of such classroom-based heuristics training with a randomized controlled trial in the Dominican Republic and found that it not only improved microentrepreneurs’ financial and business management practices, but also increased their business revenues compared to the control group that received traditional financial literacy training, showing the effectiveness of leveraging technology.

Read the full article about supporting microentrepreneurs by Marina Dimova and Mukta Joshi at ideas42.