WUNRN
World Bank
WHY IS MORE CAPITAL NOT ENOUGH TO
GROW FEMALE BUSINESSES?
More
finance alone might not be enough to raise the incomes of many female-owned
businesses.
Business training and information may be needed to get women to work in
industries with higher prospects for growth, while greater empowerment for
women might also be needed
Finance
Research |
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David McKenzie, April 2009 The fourth in our impact series follows up on our first impact note, which presented the puzzling finding that the average female-owned microenterprise in Sri Lanka had no gain in profit from grants. This note presents the results of new research designed to understand why. A striking finding from a recent field experiment in Sri Lanka is that giving small grants of $100 and $200 to male-owned microenterprises increased monthly profits by 9 percent, but giving the same amounts to female-owned microenterprises resulted in no change at all in profits. These results challenge one of the central premises of the microfinance movement, which is that women are poorer and more credit-constrained, and so should benefit more from increased access to finance. It is thus important to understand why the returns to women are so low, and what types of policies may offer hope in raising the incomes of female businesses. The much lower returns to women aren’t the result of differences
between male and female business owners in education, entrepreneurial
ability, risk aversion, or reasons for going into business. Even after controlling for the differences between men and women in these dimensions, we still find the large gender difference in returns to capital persists. So while poorer, more able, women have higher returns to the grants than richer, less able, women, both earn less return than comparable men. Female-dominated industries often have a low optimal size and low
returns More empowered women appear to earn higher returns A standard unitary household model in which the household acts together to maximize income can not explain these results. Instead, one explanation may be that business decisions are made by women assuming that some of the income and assets of the business will be captured by other household members. A key insight of the paper is that small, liquid assets such as inventories might be more easily captured by a spouse than larger, less liquid assets, such as equipment. As a result, women might underinvest in inventories, and overinvest in equipment, using the equipment as a way of protecting assets from capture as well as for the business. As support for this speculation, the authors show that more empowered women invest more of the treatment in inventories, and earn higher profits from the treatment. These gender differences in returns do not appear to be unique to Sri
Lanka. Policy Implications 2. The focus of microfinance on empowerment might help, but needs
to be shown to work. If it worked, greater empowerment may lead women to invest money more efficiently, without having to worry about the threat of income and assets being captured by other household members. However, to date there is little in the way of serious evidence to show that empowerment sessions in microfinance groups do have this impact. 3. More impact evaluation of policies to help female-owned
enterprises grow is needed. |
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