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Discrimination and Access to Capital: Experimental Evidence from Ethiopia

Financial Inclusion Ethiopia

Picture Credit: Elisa Cascardi

Study Context

Capital is key for entrepreneurship, business growth and productivity, yet there is a well-documented profit gap among small and medium enterprises between woman-owned businesses and their man-owned counterparts in developing countries. Observable differences between individual male and female entrepreneurs explain only a small portion of these earnings disparities. Other factors such as gender discrimination may be inhibiting the success of female entrepreneurship. This study investigates whether financial providers discriminate against woman-owned enterprises.

Study Design

The researchers organized a business plan competition in Ethiopia in which they recruited 84 loan officers from 10 financial institutions to serve as judges to evaluate 916 real businesses. The gender of the business owner was randomly assigned to be shown as either male or female on applications provided to the judges. Each enterprise was scored for their performance at the competition and was evaluated in terms of expected business performance. The judges were also asked to indicate the likelihood that they would recommend each business for loan consideration to their financial institutions. The study involved a total of 3,600 evaluations, with each enterprise evaluated multiple times.

Eighteen months after the competition, researchers compared the judges’ assessment and the actual business performance of the samples by collecting data on the enterprises’ profits and other business characteristics.

Results and Policy Lessons

The researchers found no evidence that the judges discriminated against woman-owned businesses. Neither their evaluation scores nor the likelihood of recommending a business for a loan from their financial institution changed based on the randomly assigned gender on the application. Judges’ assessments of future business performance did not change based on gender. 

The follow-up survey 18 months after the competition showed that the judges’ assessments were mostly accurate, and the business survival and profits did not differ by the true gender of the business owner. Given that judges did not discriminate among applicants by gender, and true business performance did not differ by gender, the researchers were unable to use this context to compare algorithmic approaches to overcoming gender discrimination. However, they suggest that further research on gender-related constraints on access to capital could be a useful step to investigate the underlying causes of gender gaps in business performance.

Partners
  • Entrepreneurship Development Center
  • World Bank
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