Gender Bias in Microfinance

This paper examines how a gender bias towards women affects MFI design and performance. Microfinance literature includes many studies on the effects of microfinance on female customers. Little knowledge exists, however, on whether bias towards women is good business for MFIs. The study uses a global dataset of 379 MFIs in 73 countries to investigate what characterizes MFIs that have a gender bias and how this bias affects various aspects of financial performance. Results indicate that gender bias:

• Is associated with group lending methodologies, international orientation, female leadership and non-commercial legal status;
• Is significantly associated with lower portfolio-at-risk and smaller loans;
• Does not significantly affect overall profitability measures.

These findings suggest that, from a financial perspective, focusing on women has positive and negative implications. Women repay better, thereby lowering MFIs' risk and increasing profitability. But MFIs that focus on women usually distribute smaller loans, increasing operational costs. Therefore, MFIs with a female focus have, on average, similar overall profitability measures.