Micro-entrepreneurs and Occupational Hazards: Why do poor people settle for low-return employment?

Riajul’s first job as an uneducated youth was to follow in his father’s footsteps, breaking bricks into chips to make concrete, a low-prestige and physically demanding task. He didn’t like it, and when he found he could get a loan from a Microfinance Institution (MFI) he took one and set up a tea-stall. It lasted two months. Disillusioned, he turned to pedalling a hired rickshaw, the stand-by job for poor men in Bangladesh. These days he pedals his own rickshaw, bought with the help of another loan. For the time being, he has no larger ambition than that.

Shiraz completed primary school and then worked as an assistant to a house-painter. He soon learned both the craft and the business skills, and when his boss moved away, set up his own painting business. It is running profitably, but Shiraz is not content. He wants to stop painting – and set up (that’s right!) a tea stall.

Why doesn’t Riajul learn some skills, take another loan and try another business that might raise his income? Why should Shiraz, who already has a profitable business and a good reputation, want to ‘downgrade’ from painting to running a tea-stall, especially when there are dozens of tea-stalls already in the area, many of them barely managing to survive?

We could call this question the ‘Ozler puzzle’, after Berk Ozler, an economist at the World Bank. Reviewing a program that offered cash grants to poor people for self-employment, he noted that within a few years most of the businesses had either closed or were stuck in a no-growth state. Ozler was puzzled.

Why is being a tailor or a welder or a hairdresser not better than working in a field or running a small kiosk in terms of earnings? If it is, why don’t more beneficiaries try to make those their main occupation rather than at best a side job?

Riajul and Shiraz are both respondents in a ‘financial diary’ research project in central Bangladesh which has been recording the daily transactions of low-income households since 2015. We can use these highly detailed records to offer some tentative answers to the Ozler puzzle.

Ozler asks two questions, and the first is the simpler: can you really earn more from running a higher-skilled business than from engaging in low-skilled casual daily work or petty trade? Our data provide an answer: broadly, yes.

Chart 1: Composition of income quartiles by earning strategy: 56 households

Chart 1 presents the diary-based evidence for this conclusion. We took 56 of our diary households and divided them into income quartiles based on their total earnings for the past 12 months . We then examined the composition of their earnings and allocated them to one of ten household ‘earning strategies’ (see the chart legend). Many households have more than one income source, so we have, for example, both ‘microenterprise’ and ‘microenterprise+’ (meaning they do something else as well as microenterprise). We included two diarists who run medium rather than micro-enterprises and as the chart shows they enjoyed the highest incomes. Next comes living off money remitted from family members working overseas: this is the ‘gold standard’ strategy for those bold enough to try it. What the chart plainly shows is that those who depend on unskilled casual employment and self-employment (like Riajul) dominate the lower quartiles while those running microenterprises (like Shiraz) do better.

This positive answer to Ozler’s first question leads to the second: if there is an earnings premium from running a microenterprise, why don’t more poor people go for it or, having achieved it, stick with it? This is a tougher question, and our answers will be tentative. To pursue them, we interviewed many of our diarists (including Riajul and Shiraz), quizzing them about the decisions they made and about how they think about occupations. At the same time, we scrutinised their transaction records.

What are the factors that lead households to their occupations? How did those factors influence the three strategies that dominate Chart One: overseas employment, micro-enterprise, and casual employment?

Overseas employment

There are several million Bangladeshis working overseas. They come from all over Bangladesh but some localities have managed to specialise, and the diary project’s working area is one of them. The rewards from overseas employment are everywhere evident, especially the large modern houses that are springing up, some of them in very poor neighbourhoods. Everyone knows it’s the way to make big money, and many try for it, including some of the poorest.

Kamrul's son helps his mother make breakfast

For example, Kamrul was working as a farm labourer, paid by the day, when he first determined to go abroad. By selling what was left of his family’s land, and borrowing heavily from relatives and neighbours, he made it to Singapore. He had a few successful years before he was sent home for lack of formal skills training. He brought back enough money to repay his debts and open a tea-stall. But the tea-stall failed for the same reason as did Riajul’s – neither of them were good at getting paid by people who took goods on credit.

He went abroad again, this time to Saudi Arabia. But he left his wife to discover, to her horror, the pile of debt he had left behind, from neighbours, family and MFIs. He is now remitting some money to her, but she is in considerable distress, paying off debts by incurring new ones, as we see day-by-day in her transaction record. She would like to start a shop but her husband won’t permit it, on grounds of religious propriety and family pride.

The example of Kamrul also shows there are ways to overcome financial constraints to migration. With enough determination even the poor can achieve their overseas dream, and with enough self-confidence to suppress any fear of risk, can try and try again. In Kamrul’s case, it seems a good dose of selfishness helped him offload some of the costs on to his wife.

Also both Kamrul and Riajul’s experience echoes a finding from a recent study in Bangladesh (UNCDF, 2018), which shows 73% of the merchants sell goods on credit to customers and many valued customer relationships over business profits even if this doesn't make good business sense. They often fear that they may lose their customers. Recovering cash for goods sold on credit is a leading business management challenge for micro-merchants.


It may be that the very existence of the opportunity to go abroad means that many of the most ambitious people – who might otherwise have chosen to set up a micro-enterprise – are diverted into going overseas.

The case of diarist Rameza suggests this. She runs a moderately successful cake-and-bun shop but, having raised her children and become fed up with an unsupportive husband, she has decided to go to Saudi Arabia. Her transaction record shows her selling her tin-and-timber shop building in early November 2018 and by the middle of the month she had a passport, a ticket, a promise of a job, new dresses and shoes – and some fresh debts. Her sons were at first dismayed – like Kamrul they worried about social disapproval – but seeing her determination, they now support her.

Arun, on the other hand, doesn’t want to go abroad. Capable, ambitious and shrewd, he’s from a poorer district and came to work as a construction labourer. By the time that ended he was married. He turned to rickshaw pedalling, but disliked it, especially the patronising behaviour of some of his customers. When a friendly shopkeeper suggested he set up a food stall, and offered to advance him some goods to get going, he leapt at the chance. Since then he has set up his teen-age son in the same business, and has recently branched out into a second outlet – a tuck-shop attached to a high school. He sells freshly-cooked goods, so he needs extra labour. For now he has called in a nephew from the village, but he realises he may have to employ someone from outside the family – a big step that is a major hurdle for enterprise expansion.

Shiraz (left) talks to diary manager Kalim in front of the new home he is building

Let’s return to Shiraz, whose case illustrates that expansion hurdle. He thought about going abroad, decided his health wasn’t up to it and sent his brother instead. When not busy painting, Shiraz spends his time supervising the building of a smart new home for the family, financed largely from the brother’s remittances. Shiraz is still young, and unmarried. Why does he now talk of giving up the painting business and opening a tea-stall? Of his many reasons, two stand out.

First, he doesn’t think it will be possible to grow his business, because competition is fierce in the area that he can serve from home and expanding it would entail much too big a leap – into multiple premises, complex arrangements for storing materials, and taking on more, perhaps a permanent staff. Second, he says that with the new home nearing completion his focus is now on stability, and a tea-stall, though it would return a much smaller income than painting, will provide a consistent flow with little fluctuation, no need of fresh capital, and low levels of supervision.

Unskilled casual work

Our photo shows Ranjit pedalling his rickshaw. His machine is old and muscle-powered, at a time when rickshaw drivers are quickly converting to battery-powered ones, which are faster and preferred by customers. Ranjit’s income is declining while he is still quite young, with a wife and three children at home.

Ranjit pedalling his rickshaw

Across the village Rahman, after failing as a self-employed mason, found someone willing to sell him a battery-powered rickshaw on a pay-as-you-go basis. He earns about 900 taka a day from driving all hours and pays off the debt at 350 a day. Our records show him paying consistently, and within a few weeks he had taken on a second similar rickshaw, this time paying back 400 a day. These days, he drives the second (newer) machine, and rents out the first one. Once the debts are paid off his income will be in the order of four times what it was before he started.

Why doesn’t Ranjit emulate Rahman? First, he says, he has nowhere at home to store the machine and nowhere to charge the battery (he pays to store his rickshaw overnight). Second, battery-powered rickshaws are expensive, so any damage or loss would be serious. Third, they need maintenance and batteries are liable to fail. These are valid concerns, but Rahman was able to overcome them, so why couldn’t Ranjit do the same? A likely reason is that Ranjit has a second occupation as a drummer in the village band, a side-line in terms of working hours but which makes him good money during the festival season. He has become more religious during the years we have known him, and his drumming is an important part of his spiritual life. He also asks ‘what would I do with an expensive rickshaw during the couple of months each year when I’m busy drumming?’ He admits he has a problem with declining rickshaw income but waves it aside with vague ambitions to change occupations at some unknown future date.


Within our diarist sample, households with micro-enterprises generally earn more than those mostly dependent on unskilled labour. That’s an answer to Ozler’s first question.

As for the second question, there are indeed those who neglect opportunities to shift up into micro-enterprise, and there are micro-enterprise owners content to let their businesses stagnate, or even to downsize to an unskilled occupation. Their reasons have to do with business opportunities, personal attributes, and social pressure. Under opportunities, finance, often thought to be critical, seems less of a constraint to expansion than day-to-day business issues like managing assets, staff, debt collection, and, to some extent, competition. Social norms can constrain: Kamrul forbade his wife to open a shop, and Rameza shocked her sons when she said she wanted to go abroad. Personal attributes like ambition, self-confidence, determination and openness to risk play a big role. Family relationships and even spirituality count. Education, in these samples at least, plays only a small part in answering Ozler’s puzzle: shrewdness may be more important than schooling.

If the answers to the Ozler puzzle lie in vaguely-defined ‘business issues’, ‘personality traits’, ‘social norms’ and the like, does that make our conclusions vacuous? Couldn’t we have assumed such factors a priori? Perhaps. But watching them play out in real cases that have been closely watched, day-by-day, for as much as three and a half years, transforms them from working assumptions into observed data. That is an advantage of the daily financial diary approach.

Stuart Rutherford and Rahul Chatterjee,

Hrishipara, Bangladesh, January 2019

Edited by Robin Gravesteijn, Idowu Ebuoma


  1. Ozler, B. (2018, Oct ). Cash grants and poverty reduction.
  2. UNCDF (2018 September). Landscape Assessment of Retail Micro-merchants in Bangladesh, written by Andrews, A. K. and Z. Aligishiev

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