Gender discrimination in small business lending: Evidence from a lab-in-the-field experiment in Turkey!

Gender discrimination in provision of finance can prevent women from exploiting their entrepreneurial potential. Supplying rigorous evidence on such discrimination is challenging not less than two reasons. First, variations in way to obtain credit by gender also reflect variations sought after. For instance, women may self-select into industries which are less capital intensive or that operate in a smaller sized scale and therefore tight on requirement for bank finance. Second, gender discrimination could be both indirect and direct. Even when loan officials reject female credit applicants at similar rates to male applicants, they might apply problems that make credit de facto unattainable for a lot of women. Previous non-experimental evidence shows that guarantor needs can be a supply of such indirect gender discrimination (Alesina et al. 2013).

Within our recent paper (Brock and De Haas, 2019), we make use of a lab-in-the-field experiment to check for the existence of both indirect and direct gender discrimination within the way to obtain small company finance in Poultry. Throughout the experiment, loan officials evaluated credit applications with at random assigned applicant gender. We measured various loan officer characteristics which are normally unobservable, including implicit gender bias and risk preferences.

The experiment the bottom line is

We conducted our test out 334 employees of a big commercial bank in Poultry. Each participant evaluated eight credit applications. Participants made the decision whether or not to approve or reject each application and, in situation of initial approval, whether or not to request a guarantor or otherwise. We indicated the gender of every application with at random assigned men and women names.

All applications exist in the information multiple occasions, sometimes as from a male applicant and often from the female applicant. This enables us to acquire a within-application estimate of gender discrimination. Importantly, loan officials assessed applications our partner bank had received recently, therefore we understand how loans subsequently performed the truth is (Cole et al. 2015 consume a similar approach). We incentivised all lending decisions consistent with common bank incentive schemes.

To determine implicit bias, use used an implicit association test (IAT). As the IAT scores range broadly, 87% of lending staff possess a positive score, indicating they subconsciously affiliate business more with men compared to women. This inclination is more powerful among women than among men (Figure 1).

Figure 1. Participants’ implicit gender bias (IAT score)

Notes: The figure shows a smoothed local polynomial density plot of participant gender bias (IAT) for male (blue) and feminine (red) participants, correspondingly, with 95% confidence times. The combined two-sample Kolmogorov-Smirnov test statistic is .181 and it has a p-worth of .01.

Primary results

Our lab-in-the-field test out Turkish loan officials yields four primary results:

We discover no proof of direct gender discrimination. We neglect to reject that the same credit application includes a greater possibility of denial whenever we present it having a female as opposed to a male applicant name. We find no proof of direct gender discrimination among specific sub populations of loan officials, for example male versus female loan officials or officials with increased versus less lending experience.

While unconditional approval minute rates are similar for men and women applicants, loan officials do discriminate against women not directly. Particularly, they’re 30% more prone to need a guarantor whenever we produce an application as from a female rather of the male.

With this indirect discrimination, we discover a regular and intuitive pattern of statistically significant heterogeneous treatment effects. Whenever we present the applying as from a lady rather assertive, loan officials who’re less experienced, more youthful, and/or display more implicit gender bias are more inclined to request a guarantor. Importantly, there’s no distinction between men and women participants in the way they treat female applicants. This means that earlier evidence according to observational studies (e.g. Beck et al. 2013), and which recommended that men and women loan officials treat female loan applicants differently, may partially reflect much deeper personal characteristics which are usually unobservable (for example implicit gender bias) instead of loan officers’ gender by itself.

Lastly, we discover that discrimination is targeted among loans that performed well in tangible existence, which makes it potentially pricey towards the bank. The bars in the centre and also at the best of Figure 2 reveal that for lower-quality applications it doesn’t matter whether we present them as originating from man or woman entrepreneurs. In comparison, the very first two bars show a sizable and statistically significant gender difference. Controlling for loan officer covariates in addition to file and city fixed effects, women rich in-quality applications are 12.4 percentage points more prone to be requested for any guarantor.

Figure 2. Guarantor needs, by loan quality and applicant sex

Figure 2 Guarantor needs, by loan quality and applicant sex

Notes: The figure shows the proportion of loan requests which were approved throughout the experiment as well as for which participants requested a guarantor. Separate bars are proven for approved loans which were paid back in tangible existence (left), approved loans which were defaulted on in tangible existence (middle), and loan requests which were rejected in tangible existence (right). In every situation, separate bars indicate applications which were proven to participants as from a female (red) or male (blue) entrepreneur. The whiskers indicate one binomial standard deviation. The sample is fixed towards the first round from the experiment.

Policy implications

Our answers are mostly consistent with types of implicit gender discrimination. As a result, policies to mitigate the outcome of loan officers’ implicit biases might be known as for. This might include simply ensuring loan officials have adequate time for you to evaluate loan requests, or setting bank-wide or branch-wide goals for lending to women with no guarantor. Management could then hold staff accountable through comply-or-explain procedures. Interventions such as these might be more efficient than explicit diversity training programs, that make gender variations more salient as well as produce a backlash (Bohnet 2016). Calculating the potency of interventions made to address the negative impact of implicit gender bias among loan officials supplies a fruitful position for future experimental research.

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