VoxEU Column Financial Markets

Are women discriminated against in credit markets in Italy?

In Italy, microfirms held by women pay a higher interest rate with respect to those firms managed by men. This column tests and rejects many possible explanations for this differential interest rate. Discrimination cannot be ruled out.

In Italy, microfirms and self-employment are particularly common - more than in other OECD countries – and women account for the 25% of these entrepreneurs. Bank overdraft facilities are an important source of credit for liquidity provisions for these firms. Within this category, microfirms held by women pay a higher interest rate (0.3% more) than firms managed by men. This is the result of the analysis carried out by Francesca Lotti, Paolo Emilio Mistrulli, and me (2008) based on more than a million overdraft facilities of 150,000 microfirms from January 2004 to December 2006.

How can we explain this differential interest rate between male- and female-owned firms on the same kind of loan? The first, natural answer is that female firms are more risky than their male counterparts. We looked at the data, and this was not the case. Female-owned firms tend to fail less than male-owned enterprises (in 2004, the failure rates were 1.9% and 2.2%, respectively) and are just as creditworthy, if not more so.

The differential could be simply explained by the fact that women establish credit relationships with some kind of banks. But again, the answer is no. Instead, we find that the same banks charge different interest rates to men and women. Maybe the presence of female firms is more pronounced in those areas (provinces) where the credit market is less efficient? Not so – these differentials are widespread all over the country.

The share of female firms is very different across sectors: for instance, their presence is negligible in the construction industry, while women own nearly half of the firms in the retail and hospitality sectors. Nevertheless, the differential is still high within sectors.

Is the differential due to an indirect effect of the bankruptcy law? Until 2006, the last year of our analysis, the law prevented a failed entrepreneur from opening a new business for a five-year period. This could have represented an incentive for a man with an outstanding bankruptcy procedure to list his new business in the name of a woman. For this reason, a “seemingly female” firm could pay a higher interest rate since its entrepreneurial profile would encompass the one of her relative. However, this phenomenon does not seem enough to explain the difference in the interest rates. In fact, we excluded from the sample those firms that were more likely to be “sham” business, but the differential persists. Also, for a bank – which has typically a good knowledge of the local productive system - it would not be too difficult to check on these possible doubtful practices and to eventually deny credit in case of sham listings. If this was the only explanation, the differential would be higher in those provinces with higher failure rates, but, again, this is not the case.

Another interesting result is that banks behave differently when there is a guarantor. When a bank asks for an external guarantee, it means that the borrower is perceived as riskier. In fact, interest rates for male-owned microfirms with a male guarantor are much higher than those for firms without a guarantee. Conversely, when a woman has a man as guarantor, she is charged lower interest rates than the average for female firms. The male guarantor is perceived as a signal of reliability, and banks treat theses firms as if they were male owned. The most striking result is that if a female firm is guaranteed by another woman, the interest rates are even higher. In particular, a woman owned firm backed up by another woman is charged an interest rate 0.6% higher. In short, a female guaranteed by another female is considered the absolute worst possible borrower by banks.

So, we asked ourselves whether this difference between interest rates charged to men and women decreases when the bank is managed by a woman. But we could not go on with our analysis: the presence of women on boards of banks is minimal. At most, there are 2 or 3 females on boards made of 10-15 members. It seems that, in Italy, banking is a business mainly for men.

Is it discrimination or simple prejudice? Is a woman is a worse customer for a bank only for the fact that she is a woman? Our result certainly does not rule out this hypothesis.


Alesina, A., Francesca Lotti & Paolo Emilio Mistrull, “Do Women Pay More for Credit? Evidence from Italy”, NBER Working Paper 14202

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