The interaction effect of gender and ethnicity in loan approval: A Bayesian estimation with data from a laboratory field experiment

• Published date: 01 August 2020
• Author: Rolando Gonzales Martínez,Patricia Aranda Blanco,Andrea Rojas‐Hosse,Gabriela Aguilera‐Lizarazu
• DOI: http://doi.org/10.1111/rode.12607
• Date: 01 August 2020

726

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wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2020;24:726–749.

© 2019 John Wiley & Sons Ltd

Received: 16 October 2018

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Revised: 26 March 2019

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Accepted: 13 May 2019

DOI: 10.1111/rode.12607

SPECIAL SYMPOSIUM: PROMOTING YOUTH AND FEMALE

ENTREPRENEURSHIP IN DEVELOPING COUNTRIES

The interaction effect of gender and ethnicity in loan

approval: A Bayesian estimation with data from a

laboratory field experiment

RolandoGonzales Martínez1,2

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GabrielaAguilera‐Lizarazu2

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AndreaRojas‐Hosse2

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PatriciaAranda Blanco2

1University of Agder, Kristiansand,

Norway

2Bayesian Institute for Research &

Development, La Paz, Bolivia

Correspondence

Rolando Gonzales Martínez, University of

Agder, 4630 Kristiansand S, Norway.

Email: Rolando.gonzales@uia.no

Funding information

This research work was carried out with

financial and scientific support from the

Partnership for Economic Policy (PEP)

(www.pep-net.org) with funding from the

Department for International Development

(DFID) of the United Kingdom (or UK

Aid), and the Government of Canada

through the International Development

Research Center (IDRC).

Abstract

Microfinance targets women and uses loan provision as a

tool for empowerment, which translates into better household

nutrition, improved education, and a scale down of domes-

tic violence. However, ethnic discrimination in microfinance

may exist in countries with a segregated indigenous popu-

lation. We assessed this possibility with a field experiment

in Bolivia. The controlled laboratory experiment evaluated

whether credit officers rejected microloan applications based

on the interaction effect of ethnicity and gender of potential

borrowers. Point estimates of a Bayesian mixed‐effects logis-

tic regression, estimated with the experimental data, indicate

that nonindigenous women have double the chance of loan

approval, but indigenous women have only 1.5 times the

chance of loan approval when compared with men. While the

findings about gender are limited, the evidence for the inter-

action of gender and ethnicity is more robust and suggests the

existence of positive taste‐based discrimination favorable for

nonethnic women in Bolivia. We conclude that the affirma-

tive actions towards women promoted by development agen-

cies and microfinance institutions must not overlook ethnicity

as an important factor for financial policies of sustainable

This is an open access article under the terms of the Creat ive Commo ns Attri bution-NonCo mmercial License, which permits use, distribution

and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

© 2019 The Authors. Review of Development Economics published by John Wiley & Sons Ltd

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GONZALES MARTÍNEZ ET AL.

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INTRODUCTION

Microfinance institutions (MFIs) tend to shows preferences in loan disbursement for women. Following

the original model of Grameen Bank, in Bolivia female microcredit borrowers are targeted by microfi-

nance organizations such as BancoSol and nongovernmental organizations (NGOs) such as ProMujer.

Abbink, Irlenbusch, and Renner (2006) explain that microfinance organizations target women be-

cause these institutions see women’s empowerment as a goal but also because women are often seen as

more reliable borrowers. Rasmussen (2012) relates the gender focus to women’s economic resilience,

since savings enable women to handle income shocks and confront unforeseen emergencies such as

illness or loss of employment (Ghosh & Vinod, 2017). Guha and Gupta (2005) add that the main rea-

son of microfinance for targeting women over men is based on the premise that women make a higher

contribution to family welfare, since women give priority to spending their earnings on their children,

thus helping to improve nutrition and reduce child mortality.

In Bolivia, despite the efforts to reduce discrimination and eliminate barriers in the credit

market1

, discriminatory practices limiting the access to financial services for women from ethnic

groups may still exist. According to World Bank (2015), in Bolivia, extreme poverty for people belong-

ing to indigenous groups in rural areas is still twice that of nonindigenous people—51.6% compared

with 22.5%—and 64% of the household heads in extreme poor households were indigenous, compared

to 22% of the nonpoor household heads. Lundvall, Garriga, Bonfert, Tas, and Villegas‐Otero (2015)

add that women who belong to indigenous groups in Bolivia have lower education outcomes than any

other group. For example, the literacy rate for indigenous women is 15 percentage points lower com-

pared with nonindigenous men, creating a structural barrier for financial access.

Gender and ethnicity are thus relevant issues to focus on when analyzing financial inclusion, since

both could be a source of discrimination in credit access. While gender is recorded when applying for

a loan, there are no records of ethnicity in credit scoring (since this would be a discriminatory prac-

tice itself) and thus it is not possible to use administrative information from financial institutions to

assess the extent of discriminatory practices during loan provision. Nevertheless, a laboratory–field

experiment can be performed to evaluate if ethnic/gender discrimination is a barrier limiting access to

financial services for micro and small entrepreneurs.

This study presents the results of a laboratory–field experiment carried out to test the existence

of loan discrimination for ethnic women in the credit markets of the cities of La Paz and El Alto in

development. In practice, these policies should be aimed at

identifying and reducing both social desirability bias and

the structural barriers to financial inclusion that indigenous

women may face when trying to obtain access to a loan.

KEYWORDS

credit access, gender gaps, indigenous peoples, discrete choice, Bayesian

analysis

JEL CLASSIFICATION

G21; J15; C25; C11