Are Women More Credit Constrained? Experimental Evidence on Gender and Microenterprise Returns David McKenzie, World Bank (with Suresh de Mel, and Chris Woodruff)

Randomized Experiment Gave grants of $100 and $200 to randomly selected female-owned and male-owned microenterprises in Sri Lanka Aim was to use these randomly-allocated grants to estimate the return to capital.

Motivation for looking at Gender Differences Microfinance is heavily oriented towards women –One reason is belief that women are more credit constrained –If this is the case, they should have higher returns to capital. Household Bargaining Literature – intra- household bargaining may affect returns to males and females –Udry and Udry and Goldstein find female plots farmed less intensively in Burkina Faso – because females have less property rights.

Headline Results Men invest a lot of the grants in their businesses, and have very high (11% per month returns to capital) Women invest almost none of the smaller grant in their business, but as much if not more than men of the larger grant. Men invest a larger share of the grants in working capital whereas women put more in equipment. Women have zero return to capital from either grant! For both men and women investments in working capital appear to have higher returns than equipment investments.

Why these gender differences? Possible Explanation 1: Maybe the men and women who work in self-employment differ in terms of access to capital, entrepreneurial ability, or risk aversion? –But we find the results continue to hold even after allowing for such difference.

Why these gender differences? Possibility 2: Due to differences in the industries men and women work in. This explains some of the result: –Both investment levels and returns decrease as the proportion of women in the industry increases –Women in mixed industries like bamboo and retail trade see profits rise following $200 grant, but those in female-dominated industries like lace and coir see profits fall. However, even in relatively mixed sectors, gender differences in returns are still quite large.

Are women just spending the money on education and health? No.

A model with capture Key features of the model: –Owner can allocate wealth between consumption, investments in the business, and household durable assets. –Business investments can be as equipment or working capital. –Bargaining power of the owner determines how much of the profits owner keeps –Working capital is easier to capture than lumpy equipment.

A model with capture Predictions: –Returns to working capital should be higher than returns to equipment – owners overinvest in equipment since less risk of capture. –Women with stronger bargaining power should invest more in working capital, and if threat of capture is high enough, then more bargaining power => invest more of grant in business. –Women might choose to invest in equipment even if zero or negative returns, due to threat of capture if money is put in household. –To get women to invest none of the $100 in the business and most of the $200, need a non-convexity in either capture or investment – e.g. small equipment purchases (e.g. blender) might be easier to capture and resell than large equipment purchases.

Evidence of Inefficiency Would be more efficient to optimally allocate between inventories and equipment, then give lump-sum transfer.

External Validity? Non-experimental estimates from Mexico and Brazil also show women to have lower returns to capital than men. In Brazil main reason for gender differences seems to be industry, but controlling for industry doesn’t eliminate gender differences in Mexico.

Conclusions Men obtain a permanent increase in income from a one-off grant, while women do not. More speculative analysis suggests reasons for this are that women work in industries with lower optimal scale, and that threat of capture causes women to suboptimally allocate inputs. Need more work to understand what can be done to change this…