Gender and micro-credit: who repays? Evidence from a Canadian individual-lending approach

Abstract

The emergence of micro-credit and its ability to reduce poverty through unique lending models has gained the attention of the banking world and academia alike. The growing literature in micro-finance affirms the validity and benefits of micro-credit programs on multiple levels and in various communities and contexts. Many institutions offering micro-credit through group-lending models have shown that risks of default are reduced through joint liability and lending to women. To date, there is a limited amount of research investigating repayment by gender using individual-lending models, particularly in the Canadian context. This study assessed the application of micro-credit to both women and men over a 10-year period at a Canadian micro-finance institution through an individual-lending model, making the study unique, both in terms of the availability of gender-based data and its relationship to the Canadian context. The results from a logistic regression model affirmed that the repayment rate among women borrowers was slightly higher than the repayment rate among men borrowers. As the research findings were based on individual-lending models, these observations suggest that women are slightly a better credit risk for institutions, even in the absence of joint liability in a group setting.

RÉSUMÉ

L’émergence du microcrédit et sa capacité à réduire la pauvreté à travers des modèles uniques de prêts a retenu l’attention, aussi bien de l’univers bancaire que du milieu académique. L’intérêt croissant de la recherche pour la microfinance atteste la validité et les avantages des programmes de microcrédit à des niveaux multiples et dans divers contextes et communautés. De nombreuses institutions offrant des facilités de microcrédit à travers des modèles de prêts collectifs ont démontré que les risques de défaillance diminuent avec la responsabilité conjointe et les prêts accordés aux femmes. À ce jour, il existe peu de recherches sur les remboursements en fonction du genre et fondées sur l’utilisation de modèles individuels de prêts, en particulier dans le contexte canadien. Cette étude a évalué la mise à disposition du microcrédit auprès de femmes et d’hommes, pendant une période de dix ans, par une institution canadienne de microfinance qui a employé un modèle de prêt individuel. Elle est unique, aussi bien en raison de ses données fondées sur le genre que de son rapport au contexte canadien. Les résultats de l’analyse de régression logistique montrent que les taux de remboursement des prêts est légèrement plus élevé parmi les femmes que parmi les hommes. Étant donné que les résultats sont basés sur des modèles de prêts individuels, ces observations laissent entendre que les femmes représentent un risque de crédit légèrement plus faible pour les institutions financières, même en l’absence d’une responsabilité collective.

KEYWORDS:

• Micro-credit
• gender
• social innovation
• individual lending
• financial sustainability

Mots-clÉs :

• Microcrédit
• Genre
• Innovation sociale
• Prêt individuel
• Viabilité financière

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 In Canada, micro-finance activity takes place in the nonprofit sector. The term “micro-finance institutions” is used in this study when cited in the literature.

2 The poverty line in this case is derived from the Low-Income Cut-off (LICO) measure computed by Statistics Canada. According to Statistics Canada, the LICO is an income threshold below which a family will likely devote a larger share of its income on the necessities of food, shelter, and clothing than the average family.

3 Collateral is noted in some client files and registered; however, in the files observed there were no cases where collateral was seized. In legal terms, collateral, although registered with SJCFL, cannot be seized by the SJCLF should a borrower default on a loan. It is hypothesized that collateral is used only to encourage repayment.

4 Files included a loan application form and any other pertinent information (e.g. credit score, collateral registration form, credit card statements). The SJCLF stated that this was a complete set of files over the 10-year period.

5 All information collected follow policies approved by the University of New Brunswick Research Ethics Board in accordance to the policy on confidentiality and privacy.

6 The missing data include three files that were incomplete from the same borrower, i.e., the file did not have a completed application form and did not have any information except for the business name, loan type, and amount.

7 Joint loans and other loans were excluded as there were not enough observations in each of these categories. The previous analyses determined statistically that these variables added no value to the model.

Additional information

Notes on contributors

Jasmine Alam

Jasmine Alam, is an assistant professor of Strategy and Entrepreneurship at the Shannon School of Business, Cape Breton University. Her research interests include Microfinance and Social Business.

Rob Moir

Rob Moir, is an associate professor of Economics at the University of New Brunswick, Saint John. His research interests include behavioral economics, microfinance, and innovative policy for poverty reduction.

Mustapha Ibn Boamah

Mustapha Ibn Boamah, is an associate professor of Economics at the University of New Brunswick, Saint John. His research interests include institutional finance, and microfinance.