Support for entrepreneurs in developing countries should go beyond finance

Our current finance-centered approach to poverty alleviation through entrepreneurship takes a Western view – and Atlas Award-winning researchers say it’s time to change

By Lucy Goodchild van Hilten - February 27, 2020  10 mins
Professor Pablo Muñoz (right) with Elsevier publisher Simon Jones at the Atlas Award event in January 2020

Atlas trophy and logo Each month, the Elsevier Atlas Award recognizes research that could significantly impact people's lives around the world. The September 2019 award goes to Jonathan Kimmitt, Pablo Muñoz and Robert Newbery for their June 2019 article in Journal of Business Venturing: “Poverty and the varieties of entrepreneurship in the pursuit of prosperity”:

Entrepreneurship is trendy in many developed countries. Self-development books, TV shows and Facebook posts tell us to turn our passion into profit, become a digital nomad and work four hours a week. With so many people broadcasting the wonderful entrepreneurial life, it’s easy to believe that starting a business will make us financially stable and therefore happy. However, this research indicates this may not be the case.

We project that ideal onto people in developing countries and setting up microfinancing initiatives to support them. The logic goes that poverty is a problem and we could alleviate it by increasing people’s incomes; if they could become entrepreneurs, couldn’t they become financially stable and therefore happier too?

Taking this Westernized, finance-centered view of business success may mean we’re not supporting entrepreneurs in developing countries as effectively as we could be. In an Atlas Award-winning study in the Journal of Business Venturing, researchers from the UK show that in developing countries, the link between poverty and entrepreneurship isn’t as simple as we might expect. In fact, entrepreneurship, wellbeing and financial improvements can be disconnected. One of the authors, Dr. Jonathan Kimmitt, a lecturer in entrepreneurship at Newcastle University Business School, explained:

“If you take something like a microfinance initiative, we assume a connection between entrepreneurship as being about starting a business, and therefore entrepreneurship is about making money. And a natural outcome of that is the suggestion that if you're a successful entrepreneur, you have more money and therefore your life is better. What we actually discovered within this paper is that that link is not quite as clear cut as we previously thought.”

Bob-newbery

Taking a eudaimonic view

The assumption that entrepreneurship leads to income improvement and improvement in life circumstances underpins many of the support programs and interventions offered to entrepreneurs in developing countries. It’s based on a hedonic perspective: more money equals a better life. But Dr. Kimmitt believes we need to take a more eudaimonic view, where we consider non-financial factors as important elements of success.

In their study in Journal of Business Venturing, Dr. Kimmitt and his colleagues Professor Pablo Muñoz, Professor of Entrepreneurship at the University of Liverpool Management School, and Dr. Robert Newbery, Reader in Enterprise and Innovation at Newcastle University Business School, analyzed data from 166 farm households in rural Kenya. Their aim was to reveal how different types of entrepreneurs take opportunities in seemingly identical poor communities.

Rather than focusing on financial success as an outcome, they looked at the betterment of the family – ‘future prosperity expectations’. By conducting surveys twice in a year, they collected data that revealed three different types of entrepreneurship. Notably, financial success was only an important factor for one. The other two groups of entrepreneurs focused on other, non-financial factors. Dr Kimmitt, explained that this suggests we need to rethink how we approach support for entrepreneurs in developing countries.

“We always think of success as meaning money; if we push back from that idea a little bit and broaden it, it might actually change a lot of assumptions that we make about how we support entrepreneurs and the things that we do to help develop them. It might open up a new line of inquiry or a new line of thinking. I think that slight change of perspective makes an enormous difference.”

munoz-newbery-Kimmitt

Three types of entrepreneurship

The research revealed three distinct approaches to entrepreneurship among farmers in Kenya:

  • Family-frugal – future prosperity expectations can improve when family relationships and physical health improve
  • Individual-market – life satisfaction and improvement in income are central to future prosperity expectations
  • Family-inwards – entrepreneurs on more isolated farms counteract challenges like lack of access to markets through a very strong family unit

rural-farming

A holistic approach to support

The results of the study suggest the current hedonic approach to supporting entrepreneurs in developing countries might not be the best way to tackle poverty. In the classic microfinance model, for example, entrepreneurs in developing countries effectively take out a loan to invest in their business – a hedonic approach. With a more eudaimonic approach, they could, for example, also be incentivized to consider a health insurance package alongside the loan to improve their family’s health. Dr. Kimmitt said,

“If what's important here is protecting family wellbeing, then maybe things need to be built into the financial services that are on offer – they need to build in other services to help accommodate that need,”.

There is more to be understood from this eudaimonic approach, including in indigenous communities. Dr. Kimmitt and Prof. Muñoz are in the process of applying for funding to carry out research in Latin America, to look in more detail at things like indigenous knowledge and religion, which are often sidelined in entrepreneurship research but are so important to people's lives.

A conversation with Dr. Jonathan Kimmitt

I spoke to author Dr. Jonathan Kimmitt about how entrepreneurship can alleviate poverty, where the research should be going and how we can better support entrepreneurs in developing countries. podcastListen now.

What is the general theme of your research?

Kimmitt: I look at issues at the intersection between entrepreneurship and poverty and international development, raising incomes of people living under the poverty line. For the last few years, including my PhD research, I've been looking at various initiatives associated with using entrepreneurship to improve people's lives, in particular, looking at how businesses are designed to help solve social problems. I've done a lot of research on micro finance, designed to develop financial services for people who do not traditionally have access to financial services, usually the income poor living in developing countries.

How can entrepreneurship improve life circumstances?

Kimmitt: If you take something like the microfinance initiative I mentioned, the route to improving people's circumstances is seen through the lens of income improvement: we assume that because entrepreneurship is about starting a business, it is therefore about making money. And a natural outcome of that means that if you're a successful entrepreneur, you have more money and therefore your life is better. What we actually discovered within this paper is that that link is not quite as clear cut as we previously thought. If people's income doesn't actually improve, can their wellbeing improve? When you think of the outcome of entrepreneurship as being an improvement in the family unit, income improvement is not always relevant. This suggests that maybe income shouldn’t be the sole focus of these initiatives to support entrepreneurs in developing countries.

You looked at the relationship between entrepreneurship and poverty from a eudaimonic perspective, what is that?

Kimmitt: The literature on wellbeing is generally around improvements in life satisfaction and improvements in income. This eudaimonic view takes a broader view of wellbeing saying that wellbeing is what you value it to be. So if you have a set of entrepreneurs whose valued wellbeing is not income but rather the wellbeing of their family, that's a broader perspective. We took this eudaimonic view in order to be able to look at family wellbeing as an outcome. That then allowed us to observe whether or not income and life satisfaction were important inputs into achieving that particular outcome.

What did you do in your research?

Kimmitt: The paper started with the work that my colleague Robert Newbery, who a reader in enterprise at Newcastle University Business School, has been doing research in rural Kenya for a number of years now. He did the groundwork for the study – the data collection was done by him and the team he assembled in Kenya. We got together a couple of years ago to talk about some of our thoughts around the paper and what seemed to be interesting in the data and where we could potentially take it. We were talking about life satisfaction and income, and because the people he was working with were farmer entrepreneurs, we were able to observe the changes in things like income over one of the agricultural seasons, giving us a before and after, measuring social, environmental and personal conversion factors.

What you found suggests that the current approach to poverty alleviation and the focus on finance is perhaps not always the best approach. Can you expand on that?

Kimmitt: One would expect that the more money you bring into a family business, the more you can then reinvest into different aspects of your life, which might include sending children to school, putting people into jobs and so on. But actually, in two out of the three situations we studied, we found that income is not important at all. If we're trying to think about how to support those particular sets of entrepreneurs, what is the important input that we should be giving them? If finance isn't the important thing, then how would we design something to help support those entrepreneurs? Should we be offering support at all? Support through financial services might be the way to go for some, but what would a support package look like for entrepreneurs for whom income wasn't particularly important?

And what might that look like?

Kimmitt: Of the social conversion factors that we talk about, we identify that family relationships and family physical health are really important to family wellbeing for these entrepreneurs. So it may be that you don't necessarily need to support the enterprise directly. If an entrepreneur has family members who can't work or are not very well, and they struggle with access to health services, maybe a more important intervention would be health services. That in itself would have an indirect effect on the business and will help improve the wellbeing of the family.

How do you think your findings could be used?

Kimmitt: It's about broadening the scope of the support offered to entrepreneurs, and not necessarily just thinking about the sorts of services they're offered as being around stimulating aspects of the business. If we take the idea that entrepreneurs work and live in complex environments, different aspects of all of the different complex things that exist in their life are going to help shape and determine the success of the business. We also need to help look at other ways to support those things as well.

event munoz

About Journal of Business Venturing

The Journal of Business Venturing is dedicated to entrepreneurship. It acts as a forum for sharing scholarly content related to entrepreneurship, including useful and interesting theories, narratives and interpretations of entrepreneurship. Articles cover everything from its antecedents to its consequences. The journal is multidisciplinary, publishing research from areas like economics, psychology and history, as well as finance, management and marketing, and all the way to medicine and even music.

Contributors


https://www.elsevier.com/__data/assets/image/0009/184968/Lucy-Goodchild-van-Hilten.jpg
Written by

Lucy Goodchild van Hilten

Written by

Lucy Goodchild van Hilten

After a few accidents, Lucy Goodchild van Hilten discovered that she’s a much better writer than a scientist. Following an MSc in the History of Science, Medicine and Technology at Imperial College London, she became Assistant Editor of Microbiology Today. A stint in the press office at Imperial saw her stories on the front pages, and she moved to Amsterdam to work at Elsevier as Senior Marketing Communications Manager for Life Sciences. She’s now a freelance writer at Tell Lucy. Tweet her @LucyGoodchild.

6 things to consider when transitioning from academia to industry
Beyond Reduce, Reuse, Recycle
Increasing (gender) diversity on a journal: a case study

Comments


comments powered by Disqus