Lending to Women and Credit Risk in Microfinance Institutions: The Moderating Effects of Patriarchy and Female Leadership

Female poverty and financial exclusion of women often reflect patriarchy, a societal logic that consists of norms, beliefs, and traditions that rationalise the marginalisation of women. Microfinance institutions (MFIs) have a developmental objective of promoting women’s empowerment through the provision of banking services. Yet, it remains the case that patriarchy not only influences the extent of outreach to women but also the relationship and contractual terms between MFIs and the female clients they serve. In this study, we revisit the debate on the relationship between lending to women and credit risk and test the moderating effects of the level of patriarchy in the host country and the existence of female leadership in the MFI. Using data on 415 MFIs, we find that patriarchy negatively moderates the impact of lending to women on credit risk. The results further show that the observed effect is less pronounced in female-led MFIs than in male-led ones. We argue that, in comparison to their male counterparts, female leaders of MFIs possess heightened skills and a deeper understanding necessary to effectively serve women in patriarchal societies.