MICROCAPITAL PAPER WRAP-UP: Microfinance and Gender: Is There a Glass Ceiling in Loan Size? By Isabelle Agier and Ariane Szafarz, published by Pontifical Catholic University of Rio de Janeiro and Universite Libre de Bruxelles

By Isabelle Agier and Ariane Szafarz, published by Pontifical Catholic University of Rio de Janeiro and Universite Libre de Bruxelles, March 2010, 37 pages, available at: http://ssrn.com/abstract=1573872

The microfinance industry is well-known for serving women in developing countries, and many microfinance institutions (MFIs), in fact, serve women exclusively. But that does not mean that MFIs serve them fairly. By analyzing 34,000 loan applications taken over the course of 11 years at the MFI Vivacred in Rio de Janeiro, Brazil, the authors of this paper examine whether there is discrimination against women in the provision of microcredit.

The authors conclude that there is no discrimination towards women in the approval rate of microloans; the approval standards for microcredit are essentially consistent between men and women. Though more research could be done on whether both male and female credit officers issue loans equitably.

While analyses showed that no significant discrimination exists in the approval rate of microloans, there does appear to be a “glass ceiling” for the amount of money loaned to women. The data revealed that all women who meet the standards for loan approval end up with the same loan size at Vivacred, whether or not they are more capable than men—or other women for that matter. The highest loan amounts were always reserved for the most able male candidates. The authors point out that the practice of limiting loan size to women is not only unfair to the women, it also limits the financial sustainability of the MFI: bigotry limits their income from valuable clients and costs them many clients that go to other institutions to borrow larger amounts.

The authors also raised doubts about two common assumptions made in empirical microfinance research. First, they argue that gender should not be used as a proxy for poverty when conducting research or making forecasts. Some organizations do this because women are statistically poorer than men worldwide. But the authors note a fallacy here by pointing out that (1) gender as a proxy mixes poverty and potential gender discrimination and (2) women tend to ask for smaller loans than men with similar financial characteristics.

Second, the authors argue that an MFI’s average loan size is an inadequate measure for MFIs to determine the success of their organization. Aside from potentially leading to cross-subsidization—charging higher rates to one group of people to subsidize lower rates for a different group—average loan size measurements may be artificially reduced through credit discrimination.

The paper includes positive revelations about the microfinance industry, but also shines light on a potentially disturbing reality: that discrimination against women appears to exist in the industry. The authors find this apparent discrimination particularly disturbing as several studies have confirmed that women in fact have lower microloan default rates, regardless of loan size, than men.

By John Howard-Smith, Research Associate

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