Sex and Credit

Is There a Gender Bias in Microfinance?

T.H.L. Beck, P. Behr, A. Madestam

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper examines the effects of group identity in the credit market. Exploiting the quasirandom assignment of first-time borrowers to loan officers of a large Albanian lender, we test for own-gender bias in the loan officer-borrower match. We find that borrowers pay on average 29 basis points higher interest rates when paired with a loan officer of the other sex. The results indicate the presence of a taste-based rather than a statistical bias, as borrowers’ likelihood of going into arrears is independent of loan officer gender. Ending up with an opposite-sex loan officer also affects demand for credit, with borrowers being 11.5 percent less likely to return for a second loan. The bias is more pronounced when the social distance, as proxied by difference in age between the loan officer and the borrower, increases and when financial market competition declines. This is consistent with theories that predict a tastebased bias to be stronger when the psychological costs of being biased are lower and the discretion in setting interest rates is higher. Taken together, the findings suggest that owngender preferences can have substantial welfare effects.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Volume2011-101
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-101

Fingerprint

Loans
Microfinance
Gender bias
Credit
Interest rates
Credit markets
Social distance
Group identity
Arrears
Welfare effects
Financial markets
Psychological
Assignment
Market competition
Discretion
Costs

Keywords

  • Identity
  • interest rates
  • gender
  • loan officers
  • microfinance

Cite this

Beck, T. H. L., Behr, P., & Madestam, A. (2011). Sex and Credit: Is There a Gender Bias in Microfinance? (CentER Discussion Paper; Vol. 2011-101). Tilburg: Economics.
Beck, T.H.L. ; Behr, P. ; Madestam, A. / Sex and Credit : Is There a Gender Bias in Microfinance?. Tilburg : Economics, 2011. (CentER Discussion Paper).
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title = "Sex and Credit: Is There a Gender Bias in Microfinance?",
abstract = "This paper examines the effects of group identity in the credit market. Exploiting the quasirandom assignment of first-time borrowers to loan officers of a large Albanian lender, we test for own-gender bias in the loan officer-borrower match. We find that borrowers pay on average 29 basis points higher interest rates when paired with a loan officer of the other sex. The results indicate the presence of a taste-based rather than a statistical bias, as borrowers’ likelihood of going into arrears is independent of loan officer gender. Ending up with an opposite-sex loan officer also affects demand for credit, with borrowers being 11.5 percent less likely to return for a second loan. The bias is more pronounced when the social distance, as proxied by difference in age between the loan officer and the borrower, increases and when financial market competition declines. This is consistent with theories that predict a tastebased bias to be stronger when the psychological costs of being biased are lower and the discretion in setting interest rates is higher. Taken together, the findings suggest that owngender preferences can have substantial welfare effects.",
keywords = "Identity, interest rates, gender, loan officers, microfinance",
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Beck, THL, Behr, P & Madestam, A 2011 'Sex and Credit: Is There a Gender Bias in Microfinance?' CentER Discussion Paper, vol. 2011-101, Economics, Tilburg.

Sex and Credit : Is There a Gender Bias in Microfinance? / Beck, T.H.L.; Behr, P.; Madestam, A.

Tilburg : Economics, 2011. (CentER Discussion Paper; Vol. 2011-101).

Research output: Working paperDiscussion paperOther research output

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N2 - This paper examines the effects of group identity in the credit market. Exploiting the quasirandom assignment of first-time borrowers to loan officers of a large Albanian lender, we test for own-gender bias in the loan officer-borrower match. We find that borrowers pay on average 29 basis points higher interest rates when paired with a loan officer of the other sex. The results indicate the presence of a taste-based rather than a statistical bias, as borrowers’ likelihood of going into arrears is independent of loan officer gender. Ending up with an opposite-sex loan officer also affects demand for credit, with borrowers being 11.5 percent less likely to return for a second loan. The bias is more pronounced when the social distance, as proxied by difference in age between the loan officer and the borrower, increases and when financial market competition declines. This is consistent with theories that predict a tastebased bias to be stronger when the psychological costs of being biased are lower and the discretion in setting interest rates is higher. Taken together, the findings suggest that owngender preferences can have substantial welfare effects.

AB - This paper examines the effects of group identity in the credit market. Exploiting the quasirandom assignment of first-time borrowers to loan officers of a large Albanian lender, we test for own-gender bias in the loan officer-borrower match. We find that borrowers pay on average 29 basis points higher interest rates when paired with a loan officer of the other sex. The results indicate the presence of a taste-based rather than a statistical bias, as borrowers’ likelihood of going into arrears is independent of loan officer gender. Ending up with an opposite-sex loan officer also affects demand for credit, with borrowers being 11.5 percent less likely to return for a second loan. The bias is more pronounced when the social distance, as proxied by difference in age between the loan officer and the borrower, increases and when financial market competition declines. This is consistent with theories that predict a tastebased bias to be stronger when the psychological costs of being biased are lower and the discretion in setting interest rates is higher. Taken together, the findings suggest that owngender preferences can have substantial welfare effects.

KW - Identity

KW - interest rates

KW - gender

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Beck THL, Behr P, Madestam A. Sex and Credit: Is There a Gender Bias in Microfinance? Tilburg: Economics. 2011. (CentER Discussion Paper).