Episode 702: Nigeria, You Win!
Lariat Alhassan owned a tiny paint business in Abuja, Nigeria. Things weren't going great. She had no office. She was selling paint out of the trunk of her car. But one night, while Lariat was listening to music in her room, she heard an ad on the radio. At first, she was sure it was a scam. It said that the Nigerian government was offering millions of dollars to businesses. Practically no strings attached.
It was no scam. This was an experiment that the Nigerian government was taking on. A contest, meant to help the country's tiniest businesses get bigger. If it worked, it could help solve Nigeria's massive youth unemployment problem. And it could also point the way towards solving a big economic puzzle. In the developing world, how do you get a small business to become a medium sized business that can grow to become a big business? Because when that happens, it creates jobs, and wealth, and all kinds of other benefits.
There are tons of entrepreneurs who want to grow their businesses. But most of them get stuck at one or two employees. The big thing they need is money--but if you're a bank looking to make a loan, how do you tell a good two-person paint company, like Lariat's, from a bad one? How can you predict who will use the money wisely? Those loans end up looking really risky, and so banks often don't lend at all, or of they do, they charge a ton.
But if someone could figure out how to tell the tiny businesses ready to boom from the ones about to go bust, then it could help solve those big puzzles, like unemployment, and help fight poverty.
Nigeria had a plan. They'd hold a massive nationwide contest. They'd give out piles of cash like nobody else had before. And Lariat was in.
To learn more: Read Chris Blattman's blog post about the contest and its results. Also check out David Mckenzie's study for the World Bank, and this summary put together by Innovations for Poverty Action, a research and policy non-profit.
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