Funded by IPA’s Entrepreneurship and Private Sector Development program and in partnership with Dharmalife Foundation, researchers are conducting a randomized evaluation in India to measure whether zero-interest loans provided in the form of inventory can empower rural women entrepreneurs economically and socially. The study also unbundles two specific mechanisms behind these loans—the ability to demonstrate products to customers and the ability to deliver them instantly from stock on hand—to identify which one drives improvements in sales.

The Challenge

Women entrepreneurs in low- and middle-income countries, particularly in rural areas, face multiple barriers to business success, including financial constraints and limited marketing knowledge. While microfinance has shown promise in enhancing financial inclusion, traditional cash-based credit often fails to address the specific challenges women face in building sustainable businesses.¹ Cash loans can be diverted to household needs or used for purposes other than business growth, limiting their effectiveness in driving entrepreneurial success.

In rural India, women entrepreneurs selling clean energy and household products struggle with two critical constraints tied to working capital limitations: the inability to maintain adequate product inventory, and the inability to demonstrate products to customers before they buy. Without inventory on hand, customers must wait for product delivery, limiting sales opportunities. Without a physical unit to show, entrepreneurs cannot demonstrate how a product works, which can reduce customer confidence and demand. Because these two constraints are usually bundled together in traditional inventory-on-credit, it is difficult to know which one matters most for boosting sales. These combined challenges keep women entrepreneurs unable to scale or improve their businesses or significantly increase their household incomes, despite market demand for their socially beneficial products.

The Evaluation

In collaboration with Dharmalife Foundation, researchers are conducting a randomized evaluation in India to measure whether providing zero-interest inventory loans improves business performance, financial health, and economic empowerment among women entrepreneurs, to isolate which feature of the loans—the ability to demonstrate products or the ability to deliver them instantly—drives any improvement.

The intervention takes place in the state of Bihar, Northern India and involves 280 women entrepreneurs, one from each of 280 villages, who sell socially benefitted products. The women entrepreneurs will be randomly assigned to one of four groups in a design that crosses two features—whether the entrepreneur can demonstrate the product, and whether she can deliver it instantly from stock on hand:

• (Comparison): Brochure only—no demonstration and no instant delivery (70 entrepreneurs): Entrepreneurs continue with standard business practices, using brochures for marketing and ordering products on demand, with working capital and marketing activities self-financed. They have no product on hand to demonstrate to customers, so a completed sale requires the customer to order and wait for delivery.
• Group 1: unsealed units at home — can demonstrate and provide instant delivery (70 entrepreneurs): Entrepreneurs receive unsealed clean cooking products on zero-interest inventory loans with flexible repayment terms, allowing them to both demonstrate the product to customers and deliver it instantly from stock on hand.
• Group 2: sealed units at home —instant delivery without demonstration (70 entrepreneurs): Entrepreneurs receive sealed clean cooking products as a zero-interest inventory loan. They can deliver products immediately from the stock available at home but cannot open any unit for demonstrations.
• Group 3: demo unit only — can demonstrate, but no instant delivery (70 entrepreneurs): Entrepreneurs receive a single unsealed unit as a zero-interest loan, letting them demonstrate the product to customers, but hold no additional stock, so a completed sale still requires the customer to order and wait for delivery.

By comparing these four groups, researchers can separate the value of product demonstration from the value of instant delivery. Researchers will measure impacts on sales and profits, the frequency of product demonstrations, and loan repayment, as well as financial health (access to credit, income, savings), and women's economic empowerment (confidence, agency, and social standing).

Results

Results will be available in 2027.

Sources

^1. Banerjee, Abhijit, Dean Karlan, and Jonathan Zinman. "Six randomized evaluations of microcredit: Introduction and further steps." American Economic Journal: Applied Economics 7, no. 1 (2015): 1-21.

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