DO WOMEN MAKE THE DIFFERENCE? THE EFFECT OF GENDER ON MICROFINANCE REPAYMENT RATES

Abstract

Since the financial crisis and the subsequent tightening of development assistance, foreign direct investment, and philanthropic donations, Microfinance Institutions (MFIs) have increasingly begun to push for financial independence as a means for ensuring their sustainability. Maximizing the rate at which microfinance loans are repaid by borrowers is key to financial sustainability, reducing the cost of credit and dependence on subsidies. Many MFIs have undertaken gender-targeting policies geared toward women in order to increase their impact on poverty reduction. The relationship between gender targeting and subsequent repayment rates has major implications for MFIs as they transition to financial independence. This study analyzes the effect of gender on the financial sustainability of MFIs by empirically examining the relationship between the proportion of female borrowers and repayment rates. Using the Microfinance Information Exchange's (MIX) global dataset covering 1,102 MFIs in 110 countries, the results indicate that female clients are associated with lower portfolio-at-risks and write-off-ratios than their male counterparts. Furthermore, the results suggest there is a `tipping point' (30% female borrowers) above which women begin to repay at greater rates than men. Thus, this paper finds that the twin MFI goals of financial sustainability and targeting of loans to women are not contradictory, in fact, they are mutually reinforcing.