More Money Isn't Enough: Kenya Study Reveals the Secret to Creating High-Growth Businesses

A World Bank study of Kenya's MbeleNaBiz Business Plan Competition finds that rigorous entrepreneur selection delivers stronger long-term business growth and job creation than simply providing larger grants, with US$9,000 grants performing almost as well as US$36,000 grants over three years. The findings suggest governments and development partners can achieve greater economic impact and create more jobs by investing in better entrepreneur selection, business support and smaller, more cost-effective grants rather than increasing funding alone.

For decades, governments and development agencies have assumed that giving entrepreneurs more money would naturally produce bigger businesses and create more jobs. A new World Bank study from Kenya suggests that this assumption may be wrong. Based on one of Africa's largest randomized evaluations of entrepreneurship support, the research finds that identifying the right entrepreneurs is far more important than providing larger grants. The findings have major implications for policymakers, international development partners and private investors seeking cost-effective ways to stimulate employment, strengthen small businesses and promote sustainable economic growth.

The study examined Kenya's MbeleNaBiz Business Plan Competition, launched under the Kenya Youth Employment and Opportunities Project (KYEOP). More than 12,000 young entrepreneurs applied to the competition, allowing researchers to compare two policy approaches. One experiment tested whether a simple screening process performed as well as a rigorous multi-stage selection system. The second compared grants worth approximately US$9,000 with much larger grants of US$36,000. Businesses were then monitored for three years, tracking employment, sales, profits, business survival and investment decisions.

Better Selection Delivers Stronger Long-Term Growth

The research found that all grant recipients benefited during the first year. Businesses became more likely to remain operational, hired additional workers and expanded their activities. The US$36,000 grants generated the strongest early employment gains, adding an average of 5 workers per business, while the US$9,000 grants created about 2.6 additional jobs per firm.

However, the long-term results changed the picture. Three years later, businesses selected through the rigorous multi-stage process continued to perform well regardless of whether they had received US$9,000 or US$36,000. Employment gains remained strong at around 2.6 workers for larger grants and 2.0 workers for smaller grants, with no statistically significant difference between them. Monthly sales increased by US$982 for larger grants and US$839 for smaller grants, while monthly profits rose by US$211 and US$183, respectively.

By contrast, businesses selected through the streamlined screening process lost much of their early momentum. Employment gains declined to only 0.6 additional workers per business, while improvements in sales and profits largely disappeared. The evidence suggests that selecting entrepreneurs with stronger business potential delivers much more durable results than simply providing financial support.

Smarter Spending Can Stretch Public Budgets Further

For governments facing tight budgets, the findings offer an important lesson. The research shows that larger grants do not necessarily produce proportionally better outcomes. Once entrepreneurs overcome their initial financing constraints, additional funding generates diminishing returns unless businesses have the capability to use the extra capital effectively.

The study also found that entrepreneurs receiving both grant sizes spent money in similar ways. Most funding went towards inventories, raw materials, employee wages, rent and day-to-day business operations rather than major investments such as land, vehicles or expensive machinery. As a result, larger grants created temporary expansion but did not significantly improve long-term business performance.

The cost analysis strengthens this conclusion. The US$9,000 grants awarded through the rigorous selection process created jobs at an estimated cost of US$4,438 per job, compared with US$13,672 per job for the larger grants. This means governments could potentially support many more entrepreneurs with smaller grants while achieving similar employment outcomes.

What It Means for Development Partners and Investors

The findings are equally relevant for multilateral development banks, bilateral donors and international development agencies that finance entrepreneurship programmes across developing countries. Rather than focusing primarily on increasing grant sizes, future programmes could achieve greater development impact by investing in stronger entrepreneur selection, business mentoring, technical assistance and management training.

The research also supports a shift towards results-based financing, where funding is linked to measurable employment and business outcomes rather than simply the amount of money distributed. Development partners could improve programme efficiency by combining modest grants with advisory services that strengthen business management, innovation and market access.

Private-sector stakeholders can also draw important lessons. Commercial banks, venture capital firms, impact investors and SME financing institutions often struggle to identify businesses capable of sustained growth. The study suggests that rigorous business assessments and detailed evaluation processes may be more valuable than increasing investment size alone. Stronger screening can improve investment decisions while reducing the risk of financing businesses with limited long-term growth potential.

Building the Next Generation of High-Growth Businesses

The study concludes that entrepreneurship policy should move beyond the traditional focus on larger grants. Financial support remains important, but money alone cannot create successful businesses. Entrepreneurial capability, business quality and effective programme design ultimately determine whether firms continue growing after initial funding ends.

For governments, the priority should be strengthening competitive selection systems, supporting entrepreneurs with business development services and ensuring that limited public resources reach firms with genuine growth potential. Development partners can enhance programme effectiveness by combining finance with mentoring, digital transformation, innovation support and access to larger markets. Private investors can improve returns by strengthening due diligence and identifying entrepreneurs with the capacity to convert capital into sustainable business expansion.

The Kenyan experience demonstrates that successful entrepreneurship policy is not simply about investing more money. It is about investing more wisely. By prioritizing entrepreneur quality over grant size, countries can create more resilient businesses, generate lasting employment and achieve greater economic returns from every dollar invested.