Credit Markets and Well-being of Women Credit markets and Women Welfare • Credit markets- limited access to credit markets worsen the vulnerability of women exploitation by denying them access to economic opportunities • Credit accessibility help individuals to become entrepreneurs- who address the needs in a market; tap market opportunities to address the needs by setting up businesses • Business start-ups require capital , working capital etc • What are the possible sources of capital? Family, friends, financial institutions • Important issues: Comparison: Entrepreneurs vs workers- Entrepreneurs have higher incomesmore savings- faster wealth accumulation – greater access to credit (Mostly men!) • If women are disadvantaged in their access to credit, this affects their well being Credit markets and Women Welfare • Why the limited access to credit by women- The high premium placed on accumulated wealth/ assets- Men are wealthier than women • To the extent that there are more wealthier men than women, then more men than women access credit (cycle continues) • Assuming that one can either be an entrepreneur or be a worker- the ability to be an entrepreneur is dependent on the access to credit Why does access to credit by women matter? • Increasing women autonomy • Women are more altruistic with respect to their children needs than men, make better decisions for their children’s education, health • Improves the society welfare Why are women disadvantaged? The nature of credit transactions- Borrowing and repaying happens at different times- There is some risk in lending – Who would you rather lend to? Two may issues arise: 1) Shirking/ the incentive problem (apply less effort in their businesses than they would if the money was their own) 2) Information problems- If the creditor does not know the extent of the risk involved, borrowers may take up riskier businesses What is the result? -Creditors demand collateral to cover for the risk Women are then disadvantaged if they are less wealthy – hence limits both access to and the amount of credit they can access There is a gendered distribution of wealth- This is far less in developed economies than in developing economies What explains the gender gaps in entrepreneurial abilities Note- The gender gap in wealth is larger in poorer countries • Previous evidence, Thurik (2001)- women enterprises have less start-up capital • Women tend to work part-time-hence have smaller enterprises • Women enterprises offer them more work flexibility- motive for being entrepreneurs as compared to men whose motive is mostly career advancement • Gender differences in risk attitudes • Gender discrimination in credit markets?? Maybe not Stefani, M. L., & Vacca, V. (2015). Small firms’ credit access in the euro area: does gender matter?. CESifo Economic Studies, 61(1), 165-201. • Question: Does gender matter in the small firms’ financial structure and access to credit? • What explains lower access to finances by women firms- “demand effects (i.e. self-restraint in asking for credit due to fear of rejection) or significant tighter credit supply conditions (i.e. lower credit availability and/or worse cost conditions upon application)” • If this discrimination or can the differences be explained by the firms’ characteristics eg- business size, age, and sector? Does gender really play a role? • Data: firm-level dataset from the Access to Finance of SMEs survey in the Euro Area, run by the European Central Bank (ECB) and the European Commission • sample from the largest countries in the region (Germany, France, Italy, and Spain) • Gender measure: gender of the owner or director or CEO Some findings: Female owned firms use smaller amounts, access less heterogeneous sources of external experience a higher rejection rate, are less likely to apply for external funds, get more rejections once they apply Stefani, M. L., & Vacca, V. (2015)… Stefani, M. L., & Vacca, V. (2015)… See full table 3 in the paper: Compare the size of female and male SMEs using eg number of employees, annual turnover Compare the age.. The sectors… Ownership… Based on your comparison, what would you hypothesize about the ease of accessing external sources of funds- for male vs female owned firms? Later: See table 4 for comparison by country Now look at figure 1 and compare the use of external and internal funds by female and male owned firms- what does this imply? – (financial constraints?_ .. Stefani, M. L., & Vacca, V. (2015)… Questions- From table 5 • Who is more likely to demand for loans? • On the condition of having applied- are women any less likely to get the full amount that they applied for, as compared to men? • What about the chances of rejection? Stefani, M. L., & Vacca, V. (2015)… Estimated multinomial logistic functions • P(applying for external funds) =f(female; size; age; sector; country; type; ownership; wave) • P(getting external funds)=f (female; size; age; sector; country; type; ownership; wave) • The estimated coefficients are interpreted as whether each independent variable entails “either an increase or a decrease in the likelihood of getting the different answers by the firm, compared to the reference answer (base case)” • female = 1 if the firm is directed by a woman, 0 otherwise Stefani, M. L., & Vacca, V. (2015)… See paper for the full table Eq 1 results For the dummy for female firms, the marginal effects evaluated at the means are reported. For the controls- the sign &statistical significance are reported. Note: The base-case answer is not reported (‘Applied’). ***coefficient is statistically significant at 1 percent; **at 5 percent; *at 10 percent. Robust standard errors are reported in square brackets under the coefficient estimate. Estimated marginal effects evaluated at the mean are reported in italics. Stefani, M. L., & Vacca, V. (2015)… Answer TRUE or FALSE to the following, and justify your answer 1. no significant differences emerge for female firms compared to male firms with respect to demand/ application for bank loan. 2. no significant differences emerge for female firms compared to male firms with respect to demand/ application for non-bank sources of external finance, namely trade credit ? 3. The increase in the likelihood that female owned/directed firms did not apply for trade credit due to fear of rejection is 1.0 percentage point? 4. Medium sized firms are less likely to shy away from applying for external funds as compared to micro-firms. 5. Table 8 is reporting on both demand and supply factors that lead to access of funds by female owned and directed firms? Stefani, M. L., & Vacca, V. (2015)… After controlling for the firm size, age, sector etc- are female owned/ directed firms any less likely to be than male firms to acquire loans? Interpret the marginal effect under “Applied but refused because cost too high.” Extra! Some solutions to access to credit by women (especially in developing economies) The very interesting story of the Grameen Bank in Bangladesh- Muhammad Yunus Group lending and assortative matching – Especially in developing countries, to deal with the problem of adverse selection -How the problem of adverse selection is dealt with -Is it possible that this arrangement leads to poverty traps Another interesting read https://www.womensworldbanking.org/wpcontent/uploads/2013/07/wwb_white_paper_on_serving_women.pdf
