By: Arielle Bernhardt, Erica Field, Rohini Pande, Natalia Rigol
Despite the prevalence of small female entrepreneurs in developing countries, recent research suggests women do not benefit from loans and grants in the same way that men do, leading to questions about the value of offering financial services to them. Researchers reexamined data from previous studies (2005-12) in Ghana, India, and Sri Lanka to measure the impact of credit and cash grant variations on microenterprise profits in households where women were the only entrepreneurs and in households where other members also had a business.
Easing financial constraints for female and male entrepreneurs in households with only one business led to comparable returns, but women attained lower returns when multiple household members had their own business, the evaluation showed. This suggests that poor financial returns to female entrepreneurs did not indicate lack of ability, but rather that females’ financial resources were often redirected to their husbands’ businesses.
In India, researchers randomly assigned 169 newly formed five-member loan groups to either a standard contract, in which instalments were due every two weeks, or to an alternative contract with a two-month grace period before the first biweekly loan instalment. Three years after loans were disbursed, researchers collected data on profits and household income. In the follow-up study, they measured household returns to having a grace period for the loan and examined whether profits varied depending on who in the household was an entrepreneur.
In Sri Lanka, a randomly assigned subset of 408 microenterprise owners were either offered unconditional cash grants, in-kind grants for business equipment or inventories, or served as a comparison group and did not receive a grant. Researchers collected data on these entrepreneurs during the two years following the grant disbursements. In Ghana, a randomly assigned subset of 793 entrepreneurs were offered either cash grants, in-kind grants, or served as a comparison group. In the follow-up study, researchers re-evaluated the impact of grants on business profits in the original Sri Lanka and Ghana studies, specifically examining differences by gender.
In India, giving loan clients a grace period increased household-level business profits by around 45%, but had no effect on female-run business profits on average. This suggests that the average female client largely invested her loan in other household members’ businesses. When the household had multiple entrepreneurs, i.e., the female entrepreneur had other investment opportunities, the grace period contract did not increase female-operated business profits. But when a female client was the sole entrepreneur in her household, her business profits increased by around 75% relative to the standard contract.
Results in Sri Lanka were similar to the India study, grants only increased female-run business profits when they were the only business owner in their household. In Ghana, when women were the sole entrepreneurs in their household, their returns from in-kind grants were the same as those for male entrepreneurs in households with multiple businesses. However, in households with multiple businesses, returns to female business owners were lower than those for men in multiple-business households.