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Do banks discriminate against women entrepreneurs?

Mohammad Amin's picture

Some studies such as Carter and Shaw (2006) show that the share of women among the self-employed is disproportionately small, that they run smaller businesses, that they are less likely to rely on venture capital and that their firms have lower debt-equity ratios. These differences in financing patterns could be due to two sorts of factors. First, bankers’ decisions about loan applications may differ across men and women whose businesses are similar in terms of solvency and creditworthiness (supply-side discrimination, associated with the work of economist Gary Becker). Second, male and female entrepreneurs may differ in terms of risk attitude, education, personal wealth, experience, etc., known as statistical discrimination. The challenge is to find out which of these (or both) factors hold.

A recent study by Muravyev et al. (forthcoming) attempts to do precisely this. The study is based on firm level data from the Business Environment and Enterprise Performance Survey (BEEPS, 2005), conducted in Europe and Central Asia by the World Bank’s Enterprise Surveys and EBRD.

Focusing on bank loans, the study finds substantial evidence of discrimination by banks against women entrepreneurs. For example, the probability of receiving a loan is about 5 percentage points lower for female-owned/managed firms than for male-owned/managed firms. This is a large difference given that only 58% of the loans are approved. Further, female entrepreneurs pay higher interest rates - about 0.5 percentage points more than male entrepreneurs do (the average interest rate is 12.2% per annum). However, the silver lining in the study is that discrimination against women decreases (almost vanishes) with the level of financial development of countries.

What is the reason for discrimination against women? The study reports evidence of “Becker-type” discrimination – the preference of the lender not to be associated with certain groups of borrowers - rather than “statistical discrimination” that arises when gender (race, etc.) is used as a proxy for risk factors that cannot be directly observed. In other words, banks discriminate against women not because they consider women to be more risky borrowers but because banks do not want to lend to women simply out of bias against women.

Comments

That's a very good question. First, there is a big difference between international microlending and microlending in the US. I work for a non-profit microlender (ACCION USA) and part of our mission is lending to minorities and women, which we do by looking at each loan application without regard to gender or ethnicity. We have an $11 million dollar loan pool and our loans go up to $25000, so we're looking for business owners to finance, and if they're women or Latino, or African American, then so much the better. It's very troubling to read about the biases traditional banks have, and I can attest that many people, both men and women, are having a heck of a time accessing credit - women certainly don't need any extra barriers. If the banks don't want their business we would love to have it! You can apply online for a loan at www.accionusa.org Internationally, some MFIs lend to men, but most do lend to women, and almost all group lending models have single gender groups to facilitate the loans. The first reason women are an MFI's focus is that in many developing countries women are particularly financially disenfranchised and the loans greatly empower, both financially and personally. An empowered woman, especially a head of the household, will use the money from her business to improve the lives of her children through the basics (food, shelter) and education. Studies have shown that women are statistically higher to use money from micro-businesses to support their families than men. It sounds like a harsh fact, but when looking to get the most community benefit from a micro-loan women have proven to be the most effective at leveraging profits to improve the lives of more people. If you want to lend specifically to men, check out www.kiva.org and choose an entrepreneur to fund! Kiva will soon be lending in the USA as well!!!!!

Submitted by dating on
Internationally, some MFIs lend to men, but most do lend to women, and almost all group lending models have single gender groups to facilitate the loans. The first reason women are an MFI's focus is that in many developing countries women are particularly financially disenfranchised and the loans greatly empower, both financially and personally. An empowered woman, especially a head of the household, will use the money from her business to improve the lives of her children through the basics (food, shelter) and education.

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