Is your bank officer gender-biased? The case of SME lending in Turkey!

Use of financial services is growing globally, with more than 69 percent of adults worldwide getting a free account having a lender or via a mobile money service, based on the last Global Findex report. However, women are not as likely than men to possess a financial account. In developing countries, the gender gap has continued to be stable at 9 percentage points since 2011. This can be a challenge for ladies entrepreneurs, who typically run smaller sized companies. Gender disparities in medium and small-size enterprise (SME) lending might be impeding the development of countless women-brought firms. Some 70 % of formal women-owned SMEs in developing countries report being ignore by banking institutions or not able to get financial services on sufficient terms to satisfy their demands , facing an believed annual credit lack of $1.5 trillion.

Women-run companies generally have a smaller sized asset base and are more inclined to be employed in the informal economy – factors which will make it tougher for women to satisfy the needs for acquiring financing. In Poultry, for instance, 58 percent of loans require collateral once the clients are managed with a lady, versus 37 percent once the clients are operated by a guy (Enterprise Survey 2019) . One more reason for that observed gender gap in SME financing might be that even if women-and men-run companies have identical characteristics, banking institutions discriminate against women entrepreneurs. Our working paper examines a possible driver of those disparities: gender-biased loan officials. Our goal ended up being to determine whether gender bias exists in lending decisions and, if that’s the case, what’s driving the bias – to ensure that sufficient policies could be designed to address it.

What did we all do?

A ” new world ” Bank operation in Poultry concentrates on improving use of finance for ladies-owned enterprises. The Inclusive Use of Finance Project (P163225) provided a perfect testing ground to understand more about this gender bias issue in additional depth. We conducted a test on gender bias among loan officials in Turkish banks. Poultry is an especially interesting country with this analysis, because it has among the largest gender gaps in financial inclusion on the planet. Even though the situation has lately improved – 69 percent of adults are in possession of a free account in Poultry, up from 57 percent in 2014 – only 54 percent of ladies come with an account, in contrast to 83 percent of males. This 29 percent gender gap is roughly three occasions the size of the typical gender gap in emerging economies.

We at random selected Turkish bank branches after stratification by region, after which one SME loan officer per branch was contacted to sign up inside a survey. Laptop computer administered towards the 77 sampled loan officials incorporated financing application experiment, which is built to test the borrowed funds officer’s amount of gender bias by asking to examine making credit decisions on identical imaginary loan requests from women and men entrepreneurs.

What we should find

We discover that 35 % of loan officials are biased against women applicants, where gender bias is measured just like any positive distinction between how much money allotted to men versus women loan applicants within the experiment. Interestingly, this really is about two times up to the proportion of loan officials who think that Turkish banks are biased against granting credit to women entrepreneurs versus men entrepreneurs. Within the loan allocation experiment, women applicants received roughly $14,000 less. This matches women getting a 7.five percent lower amount borrowed in contrast to men. The main difference remains large and significant even controlling for a variety of loan officer and bank branch characteristics.

So what can explain this gender bias? Experience of the banking sector emerges because the key explanatory variable. Indeed, each additional year of expertise employed in the banking sector is connected having a 2 percent decrease in the quality of loan allocation biased against women entrepreneurs. The greater possessed a loan officer is, the not as likely they’re to turn to gender bias in making decisions. This relationship doesn’t seem to be driven by age or position inside the banking hierarchy it’s connected with years at work or non-gender biased (or indeed, pro-women applicant) loan officials surviving at work longer.

Do you know the policy implications?

We discover that gender bias in SME lending is prevalent and substantial. Furthermore, within our context, the primary driver of gender bias in SME lending isn’t an immutable characteristic such as the loan officer’s gender. Rather, it’s the quantity of experience credit officials have in evaluating loan requests. This really is consistent by using gender like a “rule of thumb” credit officials use to judge creditworthiness, given limited information and risk aversion. Quite simply, less experienced loan officials may depend on gender bias like a mental shortcut, while experienced loan officials tend to be more skilled in evaluating loan requests on their own merits and therefore exhibit less biased decisions.

Interventions for example sensitization around the prevalence of gender bias among loan officials, promotion of ladies entrepreneurs’ success tales, and knowledge around the rate of success of ladies-owned SME loans might be helpful in overcoming this gender bias. However, our results reveal that initiatives to assist loan officials gain on-the-job skills without addressing gender clearly will also help. This might include awarding additional time to newer loan officials to examine applications or supplying greater frequency and greater quality practicing less experienced loan officials to enable them to better discern application for the loan quality. Artificial intelligence (AI)-aided application for the loan review, whereby your application process isn’t automated with an formula but in which the loan officer can mix-check their decision with data from the wider selection of sources, can also be advantageous.[1]

Our findings highlight the urgent requirement for policy methods to address the outcome of gender bias on women entrepreneurs’ capability to obtain capital and also be their companies. Future research should reveal the mix-country relevance in our findings and pinpoint other causal mechanisms which may be playing.

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