Ethnicity and Credit in African Manufacturing

This paper investigates whether market interaction can, by itself, perpetuate the lack of ethnic diversity that is observed in the business communities of many developing countries. The authors use case study data on manufacturing firms in Kenya and Zimbabwe and find that:

• There is no evidence that black individuals or women are disadvantaged in the attribution of bank credit once firm size and other observable characteristics are taken into account;
• An ethnic and gender bias is noticeable in the attribution of supplier credit.

The authors conclude that although discrimination cannot be ruled out, the bulk of the evidence indicates that network effects play an important role in explaining this bias. The paper recommends that more emphasis should be put on policies that foster personal connections and information sharing between social and ethnic groups.