Discrimination and Access to Capital: Experimental Evidence from Ethiopia

• Development Workshop

Date and Location

Tuesday, May 3, 2022, 2:10 PM - 3:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Capital is a key accelerator for business growth, yet woman-owned businesses have
less access to capital than their male-owned counterparts. One explanation may be
gender discrimination by credit providers. We study whether financial providers in
Ethiopia discriminate against female applicants in a business plan competition. Using
an audit study design, financial providers were recruited to evaluate businesses in which
applicants’ gender was randomly assigned. In a sample of over 3,600 evaluations, we
find no evidence that financial providers considered the gender of the business owner
when evaluating businesses for capital or predicting future business performance. Our
tight confidence intervals exclude any meaningful gender differences in evaluations or
beliefs. Measuring the businesses’ survival and profit after 18 months, we find that
gender was indeed not predictive of business success among applicants to the competition, suggesting that the lack of discrimination was consistent with financial providers’
accurate beliefs and targeting capital towards high performing businesses. We discuss
how standard policies that increase female access to capital, through prioritizing female
businesses and quotas, affects equity and targeting of capital allocation decisions,