On why women‐owned businesses take more time to secure microloans

Abstract

Examining gender differences in business financing reveals important dimensions on which women- and men-owned businesses differ. Although considerable progress has been made in understanding gender differences in mobilizing resources, the role of time in business financing remains an underexplored topic, particularly among marginalized entrepreneurs, where decisions about and outcomes related to time play an important role in business success. Leveraging the literature on gender role congruity and risk preferences along with a sample of nearly 300,000 microloans funded on the kiva.org platform, we explore whether the timespan for women to reach their microloan funding goal differs from that of men and how borrowers’ strategies regarding the size and repayment duration of these microloans influence this gender difference. Valuation Insight: The plausible explanation of the paper’s finding that women-owned businesses need a longer time to obtain a desired microloan is that women are generally more risk averse. Accordingly, for a particular project, they look for more precautionary liquidity and a longer payback horizon to better manage potentially disappointing project earnings results. The project outcome becomes less risky, at the accepted cost of a somewhat lower expected net present value. However, larger amounts require a longer time to be fully funded, postponing the investment leading to an additional, deadweight loss in project net present value.