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Sex and credit: Is there a gender bias in lending?

Does your gender affect your chances of getting a loan? Looking at loan-level data from a large Albanian lender, this column discovers evidence for an own-gender bias of loan officers affecting the demand and supply of credit. The effect is larger when officers have little prior exposure to borrowers of the opposite sex and when they have more discretion to act on their gender beliefs.

Group identity in the form of family, ethnicity, and gender is a powerful predictor of social preferences (Akerlof and Kranton 2000; Chen and Li 2009; Benjamin et al. 2010). In particular, people generally favour in-group over out-group members. Favouritism vis-à-vis group members can lead to inefficient transactions and/or lost opportunities. However, group identity may also entail trust, reciprocity, and efficiency due to shared norms and understandings. In recent research, we examine one important form of group identity, gender, and the consequences of own-gender preferences for outcomes in the credit market (Beck et al. 2012).

Using a large dataset of loan transactions from a commercial microlender in Albania, we investigate whether the officer-borrower gender match influences the likelihood that borrowers return to the lender for additional credit. Specifically, we employ data for up to 7,300 first-time borrowers, with detailed information on loan conditions, arrears, and borrower characteristics. Critically, we have information on gender of both borrower and loan officer as well as data on loan officers’ previous experience. Unlike other papers that examine credit market discrimination, we can study both credit supply and demand and trace the importance of prior exposure to opposite-sex borrowers (Boisjoly et al. 2006; Beaman et al. 2009). In addition, we use variation in financial market competition and in the number of officers employed in a given branch across bank branches and over time to gauge the variation of a possible own-gender bias with loan officers’ discretion (Becker 1957). More competition offers borrowers better outside options inducing them to leave the bank if they are biased against. This lowers profits and prompts the lender to monitor loan officers more carefully to detect mistreatment of their clients. Along the same lines, it may be easier to replace a given officer in large branches with many employees, leaving officers less discretion of indulging their own-gender preferences.

Identification challenges and solutions

Estimating the effect of own-gender preferences presents two main challenges.

  • First, if male or female borrowers with certain characteristics are more likely to be assigned to the same or opposite-sex loan officers, the true effect of loan officer gender would be biased.
  • Second, if unobserved borrower traits are correlated with borrower gender, and if these can be observed by the loan officers but not by the researchers, it is not clear whether a significant coefficient on gender is due to a loan officer bias or the unobservable traits.

We address these issues by exploiting a quasi-random component of the institutional setting of the lender: the fact that first-time borrowers are arbitrarily assigned to their respective loan officer, with the sector of activity and year of application being the only factors driving the match with a specific officer. Conditional on sector and year, the random assignment of borrowers to officers ensures that unobservable borrower characteristics are the same across all officers, regardless of officer gender. In particular, we compare the difference in credit market outcomes for male and female borrowers obtaining loans from male loan officers to the difference between male and female borrowers obtaining loans from female loan officers.

Our findings

Regressing different credit market outcome variables (probability of returning for a second loan, interest rate on first loan, loan amount of first loan and arrear probability on first loan) on the borrower-loan officer gender mismatch we find that:

  • Borrowers assigned to opposite-sex loan officers are 7.26 percentage points less likely to apply for a second loan with the same lender as compared to borrowers paired with same-sex officers. The impact of the gender mismatch is economically significant given that 66% of all first-time borrowers apply for a second loan. It implies that the fraction of borrowers paired with an opposite-sex officer that do not return for a second loan is about 11%.
  • This effect is particularly strong in the case where loan officers have limited experience with borrowers from the other gender, suggesting that the bias fades away with gender-specific learning-on-the-job. We also show that the effect only exists when loan officers have a sufficient degree of discretion. Specifically, we find evidence for an own-gender bias in branches with above-median competition from other financial institutions and in branches with a larger number of loan officers.
  • First-time borrowers assigned to officers of the other gender pay, on average, 35 basis points higher interest rates compared to borrowers assigned to same-gender officers. Again, these effects are more pronounced (around one percentage point) when officers have less opposite-sex experience and more discretion (weaker outside competition and smaller branches). While this bias might seem small, it compares with an average interest rate of 14%.
  • Borrowers matched with officers with less exposure to the other gender and a large degree of discretion also receive between 4% to 24% lower loan amounts.
  • Loan arrears are independent of the officer-borrower gender assignment. We cannot find any significant difference in arrear rates across first-time loans given by opposite-sex and same-sex loan officers.

If information asymmetries between officers and borrowers were important, the variation observed in interest rates or loan amounts should be reflected in different arrear outcomes. The lack of any differential arrear outcome supports the existence of an initial taste-based bias rather than the notion of an information hypothesis where loan officers are more efficient when transacting with own-gender as compared to opposite-gender borrowers. This initial taste bias decreases with loan officers’ exposure to the other gender and is conditional on his/her discretion.


Our results suggest that own-gender preferences affect credit market outcomes. The own-gender bias does not seem to stem from pure prejudice nor is it consistent with loan officers initially treating borrowers of their own gender more efficiently, at least not as reflected in the level of ex-post risk as measured by the likelihood of entering into arrears.

Our findings have important repercussions both for financial institutions and for policymakers.

  • First, our results should affect firms’ human-resource practices as loan officers’ opposite-gender experience has repercussions for the size of the own-gender bias.
  • Second, from a policy perspective, our findings support the conjecture that financial market competition can be a powerful tool in dampening the biases of loan officers, and, ultimately, banks, against borrowers of a certain gender.

Akerlof, GA and RE Kranton (2000), “Economics and Identity”, Quarterly Journal of Economics, 115(3):715-753.

Beaman, L, R Chattopadhyay, E Duflo, R Pande, and P Topalova (2009), “Powerful Women: Does Exposure Reduce Bias?”, Quarterly Journal of Economics, 124(4):1497-1540.

Beck, Thorsten, Patrick Behr, and Andreas Madestam (2012), “Sex and Credit: Is There a Gender Bias in Lending?”, CentER Discussion Paper, 2012-062.

Becker, G (1957), The Economics of Discrimination, University of Chicago Press.

Benjamin, DJ, JJ Choi, AJ Strickland (2010), “Social Identity and Preferences”, American Economic Review, 100(4):1913-1928.

Boisjoly, J, GJ Duncan, M Kremer, DM Levy, and J Eccles (2006), “Empathy or Antipathy? The Impact of Diversity”, American Economic Review, 96(5):1890-1905.

Chen, Y and SX Li (2009), “Group Identity and Social Preferences”, American Economic Review, 99(1):431-457.

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