Discriminatory Lending: Evidence from Bankers in the Lab

Abstract

We implement a lab-in-the-eld experiment with 334 Turkish loan ocers to document gender discrimination in small business lending and to unpack the mechanisms at play. Each ocer reviews multiple real-life loan applications in which we randomize the applicant's gender. While unconditional approval rates are the same for male and female applicants, loan ocers are 26 percent more likely to require a guarantor when we present the same application as coming from a female instead of a male entrepreneur. A causal forest algorithm to estimate heterogeneous treatment eects reveals that this discrimination is strongly concentrated among young, inexperienced, and gender-biased loan ocers. Discrimination mainly aects female loan applicants in male-dominated industries, indicating how nancial frictions can perpetuate entrepreneurial gender segregation across sectors.

Gendered Access to Finance: The Role of Team Formation, Idea Quality, and Implementation Constraints in Business Evaluations

“…Previous work has documented an investor bias against female entrepreneurs (Ewens & Townsend, 2020;Guzman & Kacperczyk, 2019;Hebert, 2020) and that female borrowers face tighter credit availability or less favorable loan terms (Agier & Szafarz, 2013;Alesina, Lotti, & Mistrulli, 2013;Asiedu, Freeman, & Nti-Addae, 2012;Bellucci, Borisov, & Zazzaro, 2010;Mascia & Rossi, 2017;Muravyev, Talavera, & Schäfer, 2009). Recent experimental work has pinpointed to loan officers' gender bias as a source of gender disparities in entrepreneurial finance (Alibhai et al, 2019;Brock & De Haas, 2023;Zhang, 2023). Closest to our study, Brock and De Haas (2023) provide causal evidence for gender discrimination in entrepreneurial lending.…”

“…Female entrepreneurs secure smaller loan amounts (Agier & Szafarz, 2013;Bartos et al, 2023;Bellucci, Borisov, & Zazzaro, 2010;Demirguc-Kunt et al, 2018), pay higher interest rates (Asiedu, Freeman, & Nti-Addae, 2012), are more likely to be denied a loan (Morazzoni & Sy, 2022), and are required to provide more loan guarantees (Brock & De Haas, 2023). Designing targeted policies to close the observed gender gap requires an understanding of whether the gap is driven by demand or supply factors, and to identify potential existing gender bias and its underlying mechanisms.…”

“…Using a lab-in-the-field experiment in Uganda, 451 loan officers of a large bank for entrepreneurship finance evaluate real-life business pitch decks, a short presentation of a business idea, where the gender and the team composition has been randomly manipulated by us. This design enables us to complement Brock and De Haas (2023) in isolating supply-side gender bias, and to disentangle underlying mechanisms for a potential gender bias in loan officers' evaluations, as we can distinguish gender differences in the evaluation of the business idea itself from that of the implementation challenges and capabilities of the entrepreneur.…”

Fintech: Financial Inclusion or Exclusion?

“…The digital gap could be explained by differences in preferences across genders, for example differences in risk aversion (Croson and Gneezy, 2009), or differences in the costs and benefits that consumers attach to the use of these new products. They could also result from gender-based discrimination (Bartlett et al, 2019), such as women's previous negative experiences with financial institutions (Brock and De Haas, 2021). Finally, the gap could also arise from social norms or laws that affect the cost-benefit trade-off differently across genders (Hyland et al, 2020).…”

Differentially Private Adversarial Auto-Encoder to Protect Gender in Voice Biometrics

“…This can occur through unauthorized data processing that puts individuals at risk of privacy concerns such as discrimination, invasive advertising, extortion, and other forms of abuse. As a specific illustration, the finance sector has been shown to exhibit gender-based biases in loan provision [6]. This raises concerns regarding the potential existence of discriminatory lending practices that pose greater barriers to women than to men in the pursuit of starting a business enterprise [9].…”