While not seen upfront and glamorized, small businesses are a big part of what keeps a country running. A closer look into small businesses can show you that they are teeming with creativity, hard work, and endless activities to improve daily. While this may be true, it shouldn’t distract you from the fact that these businesses face many challenges. The reality is that they do not have the big muscles that larger businesses use to weather the storm when national economic situations are dire; they are usually the first ones to be affected by them. This is why our Small Firm Diaries (SFD) Research project is so important. The world needs to find a way to give these unsung economic heroes a fighting chance, and research is the only way to do it.
We have interviewed Mekdes Hailegiorgis, Project manager of the Small Firm Diaries project, to give us a peek into the project.
Below is a transcript of the interview:
Could you please explain the SFD Project? How was it implemented?
The Small Firm Diaries project is being conducted by New York University (NYU), in partnership with Low Income Financial Transformation (L-IFT), and Microfinance Opportunities (MFO). The purpose of the study is to understand how small firms operate and what type of challenges they face by conducting weekly interviews with willing respondents for one year. The first step is looking at different areas and seeing how many possible eligible firms exist for one researcher to cover. After analyzing multiple areas, we selected at least 2 areas per researcher to conduct the first inventory of small firms, which we call “census interviews”. The purpose of the census interview is to see how many firms we can find that meet the criteria of the project; meaning the firms must engage in light manufacturing, Agri processing, and other specific services with 2-20 employees. We are most interested in these types of industries because we are interested in firms that add value to the product or services and help create job opportunities for others.
Once the census is completed, we screen out firms that meet these criteria and try to balance the sample in terms of industry, gender, and employee distribution. The next step is conducting an intake interview which has more detailed questions that help us know more about the firm. The first criterion for the selection after intake is the willingness of the respondents to continue with us for one year participating in weekly interviews, while the other is achieving a good distribution across the three industries, getting the maximum gender balance of the owners (we want at least half of them to be woman-led business or at least co-owned by one or more women with one or more men) and we want to achieve an employee distribution with a significant proportion of firms with more than 5 employees.
After the intake process, we enter the diaries methodology where we repeatedly interview respondents. We start off the interview by registering each respondent on the FINBIT app by using their own usernames and passwords. Then we move to the Setup process where the field researchers use their surveyor accounts to register the different characteristics of the respondents’ finances such as their income sources, accounts, loans given and taken, assets, and employee profiles. It is after these processes that we get to the weekly reporting where we ask respondents the same repeat questions on a weekly basis and update their profiles on the FINBIT app. These questions keep us updated about the different changing aspects of their finances such as their income for that week, their expenses, loan repayments, account transactions, employee hours worked, etc.
This project also includes three types of thematic surveys in addition to the diaries data collection. The first surveys are for the respondents and they zoom into subjects such as the use of technology, managing employees’ aspirations and plans, use of financial services, etc. The second is where researchers fill out surveys of their weekly observations. Lastly, the researchers conduct one-time interviews with the firms’ customers, suppliers, and employees to get the full value chain information.
What was the purpose of the project?
The data collected and findings from the research will be used to inform relevant institutions for better strategies that are useful and appropriate for small firms.
The SFD Project focuses on studying small firms that have received little research attention compared to micro-enterprises and larger firms. The project aims to fill the gap in research and find the challenges that small firms face in growing. By understanding these challenges, the project aims to help firms grow in revenue and become more productive, creating good-paying job opportunities and reducing poverty.
The project recognizes that there are many theories about why small firms do not grow, but there are no definitive answers. Therefore, the project aims to assess the weight of each factor that could affect the growth of small firms. To achieve this, the project tracks the cash flow, investment decisions, and business relationships of these firms, among other things, to gain insight into their needs and challenges. The information gathered is used to advise governments, universities, and financial service institutions on how to create better policies and training programs to benefit small firms.
The major goal of the project is to contribute to the effort to reduce poverty around the world. Understanding the role that small firms play in their communities and how they can lift people out of poverty is critical to achieving this goal. The project collaborates with government entities, such as the Nigerian National Bureau of Statistics, and universities like the Lagos Business School to influence policies and improve training programs based on the insights gathered from the study.
What was so special about the project? Why do you say there is no other project that has done this?
This project is so special because there haven’t been any other projects that intensively studied small firms in any country. The typical study interviews a small firm once or maybe one survey every year for three years. But this type of detailed tracking where we record day-by-day what happens in the firm is unique.
Our financial diaries for small firms follow a detailed tracking method where we record day-by-day what happens in the firm. This creates a dynamic picture from the financial diaries data (continuous transaction data collection) which is given more depth by the surveys. Moreover, the respondents also benefit from the repeat interviews since they usually are not good with record keeping and may not actually know their financial position in full. Interviewing them weekly and recording every transaction enables them to understand their situation in detail, which helps them notice opportunities and weaknesses and enables them to improve their business further. On top of these, by having weekly interactions with our field researchers, the respondents become more comfortable and disclose very sensitive information which benefits the study, and in return, we strictly maintain the confidentiality of our respondents, and any information they provide is only linked to a code which no one from the outside cannot identify them.
Hence, after the study is finalized we can understand in detail the problems that small firms face, we know how they try to respond to issues, which responses are more successful, and we can also demonstrate how successful small firms manage their business. Moreover, the study will hopefully help to reveal how to create more jobs in this sector.
What challenges did the research face?
The challenges we face differ from one country to the other. But the most common challenges were faced during the first stage of the project. Convincing the respondents to participate in the project and trying to gain their trust enough to disclose sensitive information such as financial data is challenging. Interestingly, people were more bothered about sharing their income data than their expense data. They mostly want to see the benefit of participation right away in the form of monetary value, while we only had the mandate to give them modest incentives and only after a period of participation. It was a hard decision whether to even consider those participants that appeared motivated only by the incentives. After all, we could only continue with respondents who are willing to be part of this big project for the entire duration of a full year. We are lucky to have great field teams in all the countries, who tirelessly convince our respondents and made them feel good about participating. Some months into the study, the situation changed with most of the hesitant respondents. The respondents themselves started calling our field teams to update them.
After the initial start-up challenges, we still face other issues such as scheduling appointments for the weekly interview. Our respondents are really busy since most are simultaneously running the business and also engaging in the production process. Hence, having time for both financial data and survey interviews is difficult, and they have to reschedule multiple times. This situation gets worse during the holiday season, which the project takes into consideration. Despite these challenges, our field teams did a great job to finish the interviews on time so that we get credible data.
How effective was the FINBIT mobile app during the project?
FINBIT is really effective for conducting the small firm diaries project. The FINBIT app has two types of accounts; the first one, named ‘individual mode’, is for individual users to use the app for their own financial data recording purposes. The other, named ‘survey mode’, is used for projects where researchers will be assigned different respondents’ accounts to interview. In the survey mode, one field researcher has all its respondents in their own surveyor accounts and can fill in the information they get from the interviews into these accounts. The respondents themselves do not have access to edit their information during the research since they are not yet as familiarized as they should be with the FINBIT app. This changes after the research is done. The respondents will have full access to alter their data and continue using the app, but the surveyors will lose their access. This process helps maintain the confidentiality of the respondents.
Moreover, FINBIT is relatively versatile as it consists of the financial data and survey portions in the app. Hence, the researchers were able to fill in the detailed financial transactions of each respondent and also ask the survey questions on one platform. On a weekly basis, they collect all the income transactions, each expense transaction, which accounts were used for each inflow and each outflow, loans taken and even loans given to others, repayments of loans, employee hours worked, and employee payment information as well as payment to respondents themselves. In each segment, we ask detailed questions such as what type of transaction they used (in cash, bank, or digital), payment type (full, partial, or credit), whether the transaction was timely or not, and what type of customers/vendors were involved in the transaction to name some. After this detailed information is recorded on FINBIT and synced, the data files can then be exported from the FINBIT technology. The technology automatically anonymizes these files, meaning that even senior staff do not have any access to data that is traceable to the individual. These anonymized files are uploaded to the cloud in a specific way which further safeguards the data’s integrity. Apart from the exported data files, the information is also available in the FINBIT portal. The portal helps viewers see the data easily using different visualizations. The portal shows the data both for the entire group, by segments (say according to the age of the firm, gender of the firm owner, or sector), or even by (fully anonymized) individual. The portal gets continuously updated, as soon as any data are synced. It was also possible to do case studies and forward questions to the field team to ask the respondents since the portal allows us to check data respondent by respondent (still anonymized).
How did the project participants benefit from the project?
As I tried to mention earlier, participating in the project gives the opportunity for the respondents to be aware of their transactions since most of the firm owners don’t keep records or at least, do not consistently do any bookkeeping. This project helps them be disciplined in record-keeping and most respondents are very happy about this. On top of financial transaction questions, the respondents also mention that they enjoyed the survey questions since they help them think about the issues we were posing questions on. Through these questions, some decided to adjust or plan to improve how they operate their business because the question made them aware of which areas they need to improve. The participants also got some direct benefits. We gave phones or tablets to our respondents in return for their willingness to participate in the project. Around the middle of the project, we also started giving some airtime money monthly so they can also start exploring FINBIT. Since they didn’t expect these, they were appreciative.
After the project ended, we prepared a closing event where we invited all firm owners/ respondents in one place and presented our findings, and had good discussions. During that event, each respondent received their personal flash disk containing their raw financial and survey data, visualized data, and the PowerPoint presentation. We also gave certification attesting that they have participated in the small firm diaries project. In the closing events, the participants were discussing how they can make use of the data they have received for their business. Some planned to try approaching financial service providers to give them loans based on their financial transactions. Others planned to use the data for better decision-making and enhancing their business by seeing their shortcomings and opportunities.
So what is next for small firm diaries? Will you take it to even more countries?
After the closing event, L-IFT is spending its own money to keep in touch with the respondents and see their progress. We are trying to help them start recording their financial transactions on FINBIT so they will continue to have rich data that enables them to approach financial institutions or analyze their data on their own by looking at different graphs the application provides and make sound business decisions. However, L-IFT also envisions implementing the small firm diaries methodology in other countries such as Cambodia, Nepal, Laos, Zambia, South Africa, Zimbabwe, Senegal, and Tanzania to name a few. We believe that other countries could greatly benefit from joining and implementing the small firm diaries project. These subsequent countries would be able to benefit from the design and setup of the project and the technology enables them to easily compare their findings to other countries’ findings. The findings will enable government officials to make sound policies and improve regulations that will benefit small firm owners in their country.
Interview by: Adonay Negash