Credit to Women Entrepreneurs: The Curse of the Trustworthier Sex

This paper examines the existence of gender discrimination in small business lending. Women entrepreneurs get smaller loans, despite reimbursing loans more quickly than men. They also have smaller scope business projects, on average and are poorer than men. The paper proposes a methodology to estimate discrimination in loan allocation and applies it to data from a Brazilian MFI. Findings indicate that:

• Gender discrimination exists in loan allocation;
• Women entrepreneurs receive smaller loans and induce smaller losses for the lender;
• Female-owned businesses are smaller in terms of profits and staff size;
• Women exhibit lower probability of delay in repayment than men, but similar probability of default;
• Reducing information asymmetry does not solve women entrepreneurs’ problem.

The paper advocates external intervention to combat gender discrimination. It recommends more transparency in MFI screening process. The paper highlights the importance of finding creative solutions to the lack of capital endured by women entrepreneurs, by demonstrating that even well-run socially oriented MFIs are not immune to gender discrimination.