Start-up financing gender gaps greater in societies where women are more empowered

April 28, 2024

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Start-up financing gender gaps greater in societies where women are more empowered

Commercial bankers provide capital to fund the operations and growth of businesses. However, as these lenders evaluate entrepreneurs who apply for loans, gender bias leads to women being denied more often than their male counterparts.

Estimates show a $1.7 trillion financing gap worldwide for small and medium sized enterprises owned by women.

Studies show that when women do secure business loans, the amounts tend to be smaller, have higher interest rates and require more collateral, which restricts the economic potential of women-led ventures. However, findings on the relationship between entrepreneurs’ gender and bank financing are inconsistent and reveal a need for social context.

New research finds, surprisingly, that gender discrimination in startup financing is magnified in societies with greater women’s empowerment. The study, in the Journal of Business Ethics, offers suggestions to help close the gender gap.

The team summarized evidence from academic studies published around the world, containing more than 1 million unique data points and spanning more than three decades. The analysis confirmed the prolonged and global bias against women in entrepreneurial bank finance.

The team found that social gender norms characterize women as incompatible with entrepreneurship. The social norms consider masculine attributes to be better associated with entrepreneurial tasks than feminine attributes, and therefore evaluators prefer male entrepreneurs over their female counterparts.

What the researchers say: “I believe women and men are equally capable of being successful entrepreneurs,” said the lead author. “These obstacles are not from the women’s own making but from social norms and biases. Women face adversities men do not.”

The study provides evidence that women entrepreneurs’ business loan applications are rejected more often than those of their male counterparts; female entrepreneurs’ business loans are more costly than men’s; and there is considerable variance in these relationships, indicating the need to consider moderators.

They found two key factors that affect women in entrepreneurial financing.

“In societies dominated by a conservative rather than a liberal political ideology, women entrepreneurs receive poorer credit terms compared to men entrepreneurs because conservative ideology upholds structural gender differences in society,” the lead author said. “And, while research has suggested that women’s empowerment in a society can help break down social gender norms to promote gender equality, we show the opposite —women’s empowerment threatens male dominance in resource distribution.”

They show that as women climb societal ladders, the perception that they are a threat increases, prompting protective responses to safeguard existing societal gender norms.

The team’s findings provide three recommendations for policymakers and financiers in navigating gender bias in entrepreneurial bank finance.

• Policymakers should continually monitor conditions and develop intervention programs in bank finance, venture capital, governmental programs, incubator access and gender representation in boardrooms and other executive roles.

• Societies should normalize women’s empowerment so their opportunities for advancement are not limited by existing patriarchal structures. Efforts could include organizational structures and recruitment tools to help women achieve leadership positions and support those who do.

• Regulations should be established to mandate gender audits targeting biased bank lending. This can include assessing gender equality in the distribution of budgets, financial services and financing projects.

“Resistance to women’s empowerment remains within politics, culture and management,” the researchers said. “We must first admit this before we can address and then dismantle gender inequality.”

So, what? This is fascinating. What it shows is the power of unconscious bias in organizations and in society generally—a subject which Alicia and I have been talking a great deal about recently. The bankers and lenders observed in this study are probably quite unaware of their gender bias.

And it’s not just males who are biased against women leaders and entrepreneurs. A number of recent studies (some noted in recent TR editions) have shown that women are equally biased against women and believe that men make better leaders and are less risky bets as entrepreneurs.

In fact, the reverse is true. Women make better leaders than men on the whole, and, given equal opportunities, make more successful entrepreneurs.

Dr Bob Murray

Bob Murray, MBA, PhD (Clinical Psychology), is an internationally recognised expert in strategy, leadership, influencing, human motivation and behavioural change.

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