Commercial bankers play a crucial role in providing capital for businesses to operate and expand. However, studies reveal that gender bias often leads to women entrepreneurs being denied loans more frequently than men.
There’s a staggering $1.7 trillion financing gap worldwide for small- and medium-sized enterprises owned by women. Even when women secure loans, they typically receive smaller amounts, face higher interest rates, and must provide more collateral, limiting the economic potential of their ventures.
Surprisingly, new research from the University of Notre Dame suggests that gender discrimination in startup financing is exacerbated in societies with greater women’s empowerment. The study, which analyzed data from over 1 million data points spanning three decades, confirms a persistent bias against women in accessing entrepreneurial bank finance.
Unfair stereotypes
This bias stems from social gender norms that portray women as ill-suited for entrepreneurship, favoring masculine traits for entrepreneurial tasks. Consequently, evaluators often prefer male entrepreneurs over their female counterparts, perpetuating the gender gap in access to financial resources for business ventures.
“We believe women and men are equally capable of being successful entrepreneurs,” the researchers explain. “These obstacles are not from the women’s own making but from social norms and biases. Women face adversities men do not.”
The study presents compelling evidence showing that women entrepreneurs face greater hurdles in accessing business loans compared to their male counterparts. Not only are their loan applications rejected more frequently, but they also encounter higher costs associated with borrowing. Importantly, these disparities vary significantly, indicating the influence of certain factors that need closer examination.
Two critical factors emerged from the study that significantly impact women in entrepreneurial financing. Firstly, in societies characterized by conservative political ideologies, women entrepreneurs tend to receive less favorable credit terms compared to men. This disparity is rooted in conservative ideologies that reinforce traditional gender roles, perpetuating structural inequalities in society.
Secondly, contrary to the belief that women’s empowerment fosters gender equality, the study found that increased empowerment threatens male dominance in resource distribution. As women ascend social hierarchies, they are perceived as threats to the status quo, triggering protective responses aimed at preserving existing gender norms.
False assumptions
The study’s findings underscore the inadequacy of assuming that greater female representation in leadership positions automatically translates to improved gender equality in funding distribution. To address these biases, the researchers offer several recommendations for policymakers and financiers:
- Policymakers should actively monitor and intervene in bank finance, venture capital, government programs, and other financial sectors to mitigate gender bias. This includes promoting gender diversity in decision-making roles and fostering equitable access to resources.
- Societies must work towards normalizing women’s empowerment to dismantle patriarchal structures that hinder women’s advancement. Efforts should focus on creating inclusive organizational environments and providing support for women to attain leadership positions.
- Regulations mandating gender audits in bank lending can help identify and address biased practices. These audits should assess the distribution of financial resources and funding projects to ensure gender equality.
By implementing these recommendations, policymakers and financiers can take meaningful steps toward addressing gender bias in entrepreneurial bank finance and promoting greater gender equality in access to financial resources.
“Resistance to women’s empowerment remains within politics, culture, and management,” the researchers conclude. “We must first admit this before we can address and then dismantle gender inequality.”