Lenders favour female entrepreneurs over males
Credit constraint to micro, small and medium enterprises (MSMEs) is a well-known challenge in Ghana but a new study has revealed that small firms owned by female entrepreneurs are less affected by this development compared to their male counterparts.
Advertisement
The study, ‘SME Credit Constraints: Revisiting the Gender Dimension of an Old Development Policy Challenge,’ found that the gap was mainly due to female favouritism and not on merit.
The study examines credit constraint differentials between male and female manufacturing entrepreneurs, using firm level data from 16 Sub-Saharan African (SSA) countries, including Ghana.
The favoritism
A visiting Professor from the Department of Economics, University of Copenhagen, Denmark, Prof. John Rand, said if credit was allocated based on competences and individual capabilities, female-operated firms should be more credit constrained than male-operated ones.
However, he said, gender differences in credit constraints were small and, if anything, there was female favoritism rather than discrimination in the formal SSA credit markets.
He presented the study at the Development Policy and Practice Talks (DPPT) series, organised by the University of Ghana’s Development Policy Poverty Monitoring and Evaluation (DPPME) Centre of Excellence, in collaboration with the Institute of Statistical Social and Economic Research (ISSER) and Centre for Studies and Demography Development (CSED).
Policy implications
He said more focus might be needed on relaxing financial constraints on larger businesses. He added that care needed to be taken about introducing policies that favoured only smaller female businesses, as that might create unwanted incentives to stay small.
“Informality/small size is not necessarily “innocent”. It distorts natural creative destruction processes and creates an unnecessary competitive environment for those micro/small firms with potential of graduation,” he said.
Other Trending Stories
Focus on MSMEs
Prof. Rand said MSMEs had higher productivity and average returns to capital ,created more jobs because their production was less sophisticated and more labour intensive, but financial and institutional failures hindered their development.
He said MSMEs accounted for 50 per cent of GDP in high income countries and 10 per cent in low income countries. Again, they generated 60 per cent of employment in high income countries and 30 per cent in low income countries.
Consequently, he suggested that donors and policy makers, instead of calling for more credit to small female-owned firms, should rather improve on the functioning and competitiveness of the financial sector.
“The positive thing is it seems micro finance institutions have been very successful because they have actually targeted women entrepreneurs and given them credit but they have given more credit than fundamental merits they should not get even more. It’s not that we have done anything wrong but we have actually been successful and now we should stop,” he said.
He added that if female entrepreneurs were special to succeed in a male-dominated world, they had to be more innovative and have better capabilities than men.
How Africa can industrialise
Prof. Rand said the cost of doing business had to be reduced but care should be taken in order not to overshoot credit to MSMEs. — GB