Co-funded by IPA’s Consumer Protection Research Initiative and Entrepreneurship and Private Sector Development Program and in collaboration with IPA Kenya, researchers are measuring whether loan discrimination against women exists and whether targeted digital interventions can improve women entrepreneurs’ take-up of formal credit. Results will be available in 2027.

The Challenge

In low- and middle-income countries, women entrepreneurs face persistent barriers to accessing formal business credit. Although women’s financial inclusion has expanded in recent years, women continue to own fewer loans, receive lower loan amounts, and face more burdensome collateral requirements than their male counterparts.¹ Research has largely focused on documenting the existence and extent of this gender gap, rather than identifying interventions that can close it, creating a significant research priority.

In Kenya, where mobile money penetration stands at approximately 75 percent and internet penetration at roughly 41 percent,² digital tools offer a promising avenue for addressing credit barriers at scale. Yet many creditworthy women entrepreneurs in Kenya avoid formal bank loans due to fears of over-indebtedness and post-contract harassment, including unregulated home visits and unlawful seizure of household property. Exploratory research by the research team found that women entrepreneurs also cite the complexity of the loan process, anxiety about default, and uncertainty about how to deploy borrowed funds effectively as reasons for preferring informal financing sources such as savings and credit cooperatives and informal savings groups. These demand-side frictions could lead to fewer women applying for bank loans and requesting smaller amounts. However, less is known about whether supply-side bias by loan officers further compounds this gap.

The Evaluation

Researchers are measuring whether loan discrimination against women exists and whether targeted digital interventions can improve women entrepreneurs’ take-up of formal credit in Kenya.

On the supply side of the market, researchers will assess whether loan officers systematically evaluate applications differently based on applicant gender, and whether supplementing applications with objective digital business data reduces any such bias. The intervention involves 80 loan officers from major Kenyan banks. Each officer evaluates 20 loan applications constructed from data collected on 50 entrepreneurs, with applicant gender randomized across applications. Officers are assigned to one of four groups:

• Standard application: Officers evaluate applications containing no supplemental data.
• Mobile money enhanced: Officers evaluate applications supplemented with the applicant’s recent mobile money transaction history.
• Consumer review enhanced: Officers evaluate applications supplemented with consumer review platform data, including star ratings and recent reviews.
• Transaction and review enhanced: Officers evaluate applications supplemented with both mobile money transaction records and consumer review data.

Co-funded by IPA’s Consumer Protection Research Initiative and the Entrepreneurship and Private Sector Development Program and with IPA Kenya, researchers will also assess whether demand-side information gaps and fears of post-contract exploitation are driving women’s avoidance of formal credit, and whether low-cost digital tools can address these barriers. A total of 1,024 women who own and operate small and medium enterprises in Nairobi have been randomly assigned to one of four groups:

• Personalized loan recommendation: Entrepreneurs receive access to an algorithmic tool that generates data-driven borrowing guidance based on their business profile, industry, sales history, and personal credit score.
• Interactive business planning: Entrepreneurs engage with a structured digital module designed to help them develop concrete plans for utilizing credit in their businesses.
• Digital know-your-rights: Entrepreneurs receive an interactive module covering legal protections against harassment, limits on property seizure for unsecured loans, and complaint procedures.
• Comparison: Entrepreneurs receive standard marketing and outreach materials from the partner financial institution, with no additional intervention.

Primary outcomes for loan officers include their acceptance and rejection decisions, recommended loan terms such as amount, interest rate, and guarantor requirements, and quality scores assigned to applications. For entrepreneurs, researchers are measuring credit uptake following the intervention, loan amounts requested, use of credit for productive investments, business performance, and trust in formal financial service providers.

Results

Results will be available in 2027.

Sources

^1. Cozarenco, A. and Szafarz, A., 2018. Gender biases in bank lending: Lessons from microcredit in France. Journal of Business Ethics, 147(3), pp.631-650; 

Demirgüç-Kunt, A., Klapper, L., Singer, D., Ansar, S. and Hess, J., 2020. The Global Findex Database 2017: Measuring financial inclusion and opportunities to expand access to and use of financial services. The World Bank Economic Review, 34(Supplement_1), pp.S2-S8. 

^2. Communications Authority of Kenya. 2024. Sector Statistics Report for the Fourth Quarter of the Financial Year 2023/2024 (April–June 2024). Available at: https://www.ca.go.ke/mobile-sim-datainternet-subscriptions-surge-3-months-june-2024?