Funding female entrepreneurs in North Africa: self-selection vs discrimination? MSMEs, the informal sector and the microfinance industry

This paper aims to address the following research question: Is loan funding to female entrepreneurs in Egypt, Tunisia and Morocco affected by self-selection from borrowers or/and discrimination from lenders? This paper sheds light on empirical literature review, which displays mixed evidence.

The authors use a pooled sample of 3,896 businesses in Egypt, Morocco and Tunisia drawn from the 2013 World Bank Enterprise Survey (WBES). Despite selection biases and overweighing, the sample provides descriptive statistics upon gender ownership and gender management (human capital characteristics and financial data). The authors design two regression logistic models with interaction to investigate loan demand and loan granting with respect to self-selection vs discrimination. Female management is disentangled from female ownership with respect to entrepreneurship.

Neither self-selection nor discrimination affects female owners compared with their male counterparts, whereas female managers do self-select themselves. In as much as the WBES female subsample include several biases, the authors eventually emphasise the importance of the non-surveyed informal sector, which includes most (micro-)businesses, and loan funding provided by the microfinance industry to these female businesses. Microfinance fills the gap for working capital but not for fixed assets. The size of the business is a major factor explaining both self-selection and discrimination.

Findings of this study have important policy implications for closing the gender gap in accessing finance. In addition to supply-side factors, demand-side factors should be addressed. Informality also needs to be addressed, as many micro and small enterprises owned or managed by women are informal entities without registration or/and social protection. One way to increase women's demand for financial services is to introduce financial products to meet their needs (e.g. social protection basic coverage). Governments can help develop these new products by strengthening the microfinance industry with a favourable regulatory and institutional framework. The authors also wonder about the extension of this study. Thus, a new cross-sectional analysis of the most recent surveys in the North African region would allow the authors to enlarge the overall sample and measure the evolution of the gender gap over time.

So far, funding female entrepreneurship remained little investigated in these North African countries. Several sampling biases in the WBES – small businesses underestimation and manufacturing industry overweighting, which have been overlooked so far, explain the absence of self-selection and discrimination. In contrast, size plays an important role. Hence, the focus on microenterprises (the informal sector) and the microfinance industry suggests indeed that female entrepreneurs operating in small businesses have to cope with both self-selection and discrimination.