Working Paper 317 - Women Self-Selection out of the Credit Market in Africa

Women are disproportionately disadvantaged in access to finance in Africa. While supply-side detriments, such as high interest rates and collateral requirements, are well documented in the literature, little is understood about how demand-side factors contribute to the observed gender gap in access to finance. This paper provides the first empirical evidence on how women managers’ perception about their creditworthiness contributes to the large gender gap in Africa, particularly in the Northern region. One of the innovations of the paper is introducing a theoretical model using the credit market framework with imperfect and asymmetric information to explain what may drive loan applicants to self-select. We use firm-level data for 47 African countries from the World Bank Enterprise Survey. We find that women entrepreneurs in Africa, in general, and in North Africa, in particular, are more likely to self-select themselves out of the credit market due to low perceived creditworthiness compared to their men counterparts. The results also suggest that the observed self-selection behavior is not a response mechanism to current discriminatory lending practices by the banks. The results are robust to different empirical specifications. The findings will inform policies towards greater financial inclusion of women in the region.