Commercial bankers play a crucial role in providing the capital necessary for business operations and growth. However, a pervasive gender bias results in women more frequently facing rejection than their male peers when they assess entrepreneurs seeking loans.
It is estimated that there is a $1.7 trillion global financing gap for small and medium-sized enterprises owned by women. Research indicates that even when women manage to secure business loans, they often do so for smaller amounts, have higher interest rates, and demand more collateral. This significantly curtails the economic potential of women-led businesses. The relationship between an entrepreneur’s gender and their access to bank financing is complex, showing inconsistent results across studies and underscoring the importance of the social context.
A surprising finding from new research conducted by the University of Notre Dame highlights that gender discrimination in startup financing intensifies in societies where women are more empowered. The study, “A Meta-Analysis of the Impact of Entrepreneurs’ Gender on their Access to Bank Finance,” soon to be published in the Journal of Business Ethics by Dean Shepherd of Notre Dame’s Mendoza College of Business, offers insights into narrowing this gender gap. Shepherd, alongside co-authors Malin Malmström from Lulea University of Technology, Barbara Burkhard and Charlotta Sirén from the University of St. Gallen, and Joakim Wincent from the Hanken School of Economics, drew from academic studies worldwide. Their research incorporated over one million unique data points and spanned over three decades, confirming a sustained global bias against women in entrepreneurial bank finance.
The study’s findings highlight the role of social gender norms in perpetuating gender bias in entrepreneurial bank finance. These norms often portray women as less suitable for entrepreneurial roles, associating masculine attributes with entrepreneurial success more than feminine ones. This leads evaluators to prefer male over female entrepreneurs. Shepherd, who specializes in entrepreneurship in adverse conditions, asserts that both women and men have equal potential for success in entrepreneurship. The challenges women face, therefore, stem from entrenched social norms and biases, not their own shortcomings.
The meta-analysis revealed that women’s business loan applications are more frequently rejected and their loan terms less favourable. It also highlighted significant variability in these outcomes, suggesting the influence of various moderating factors.
Two primary factors were identified as impacting women in entrepreneurial financing. In societies with conservative political ideologies, women entrepreneurs tend to receive worse credit terms compared to their male counterparts due to the upholding of structural gender differences. Furthermore, contrary to expectations, the researchers found that women’s empowerment in a society, which theoretically should dismantle gender norms, threatens male dominance in resource distribution, thereby intensifying protective responses to uphold existing gender norms.
The study’s findings underscore the need for continuous monitoring and intervention by policymakers to address gender bias in entrepreneurial bank finance. The researchers propose three strategic recommendations. Firstly, policymakers should monitor conditions continuously and develop intervention programs that cover various financial avenues such as bank finance, venture capital, governmental programs, and incubator access. Secondly, it is crucial for societies to normalize women’s empowerment, ensuring that women’s advancement is not hindered by prevailing patriarchal structures. This might involve redesigning organizational structures and refining recruitment processes to support women in achieving and sustaining leadership positions. Lastly, the implementation of regulations mandating gender audits in bank lending is crucial. These audits should assess gender equality in financial distributions, services, and project financings.
Dean Shepherd concludes by emphasizing the need for a collective admission of the resistance to women’s empowerment within political, cultural, and managerial spheres as a prerequisite to effectively tackling and dismantling gender inequality in entrepreneurial finance.
More information: Malin Malmström et al, A Meta-Analysis of the Impact of Entrepreneurs’ Gender on their Access to Bank Finance, Journal of Business Ethics. DOI: 10.1007/s10551-023-05542-6
Journal information: Journal of Business Ethics Provided by University of Notre Dame