Access to finance is essential for firm growth, but women-led businesses often face significant demand-side and supply-side barriers to access. This column presents an analysis of World Bank Enterprise Survey data from 61 countries. While women-managed firms are equally likely to apply for and receive credit as their counterparts managed by men, they receive lower amounts of credit. This disparity is not due to differences in risk profiles, profitability, or productivity. Women-led firms show a 15% higher average return on capital, suggesting that there is gender-driven capital misallocation, especially in countries with stringent social norms.
Access to finance is essential for firm growth, yet women-led businesses often face significant barriers. Both demand-side barriers, such as social and cultural norms affecting female entrepreneurs’ ability to apply for credit, and supply-side barriers, including loan officers’ implicit biases against women, contribute to these gender gaps (Asiedu et al. 2013, Alesina et al. 2013). Additionally, contextual factors such as regulatory and legal restrictions, social perceptions, and gender-based violence further constrain the growth of women-led firms (Ubfal 2023). This column summarises the findings of our recent paper (Grover and Viollaz 2025) that systematically documents the financial constraints faced by women-managed firms and their broader implications for capital misallocation.
Using micro-data from the World Bank Enterprise Surveys (2008–2023) covering 61 countries, our analysis examines formal firms with at least five employees, focusing on both extensive and intensive margins of credit access. Countries are classified as ‘more traditional’ or ‘less traditional’ based on social perceptions about women’s roles from the World Values Survey. Specifically, countries where more adults agree that “[w]hen jobs are scarce, men should have more right to a job than women” are deemed more traditional.
Gender differences in opportunities and constraints breed inequalities, which have significant implications for allocative efficiency (Pan et al. 2025), capital misallocation (Morazzoni and Sy 2022, Ranasinghe 2024), and aggregate productivity (Goldberg and Chiplunker 2021). Following this literature, we construct two empirical indicators of capital misallocation – average return to capital and a measure based on the marginal revenue product of capital – to help assess whether women-led firms operate with sub-optimal levels of capital compared to their male counterparts.
There are no gender gaps in financial access on the extensive margin
Women-managed formal firms do not face credit constraints on the extensive margin, as they are equally likely to apply for credit and are 5 percentage points less likely to have their applications rejected compared to firms mamanged by men (Panel A of Figure 1). This lack of a gender gap in the likelihood of applying for credit holds across different social and cultural norms. However, in traditional countries, women-led firms are 12 percentage points less likely to face credit application rejection.
Prima facie, this is a surprising finding. However, this may be the result of a stronger selection process, where only the most capable women in traditional countries become managers of formal firms. This aligns with the findings of Morazzoni and Sy (2022) for the US, who show that only the most capable women enter entrepreneurship.
Figure 1 Gender gaps in financial access
Notes: Panel A shows the estimated gender gap in credit application and credit rejection in percentage points, while Panel B shows the gender gap in the amount of debt in percentages. Dark colours reflect results that are statistically significant at the 10% or lower level; light colours, those that are not.
Gender gaps in financial access are significant on the intensive margin, especially in countries with stringent social norms
Women-managed firms are credit-constrained on the intensive margin, receiving 39% lower loan amounts than firms managed by men, conditional on credit applications being approved (Panel B of Figure 1). In traditional countries with stricter social and cultural norms, this gender gap increases to 54%, while in less traditional countries, the gap is 32%. Cultural barriers, including explicit discrimination in credit allocation and implicit biases that demand additional guarantors (e.g. Brock and De Haas 2023) or limit access to information and networks, may explain these results.
These differences are not explained by underlying performance metrics or risk profile
This disparity in the amount of credit received is not explained by gender differences in firms’ risk profiles, profitability, or productivity. In fact, women-managed firms are, on average, more profitable than those managed by men, which may help explain the lower credit-application rejection rates for women-managed firms (Figure 2). Women-managed firms do have lower sales per worker, thereby suggesting higher friction in accessing product and labour markets for better firm-to-worker matches.
Figure 2 Gender gaps in risk appetite and performance
Notes: Estimated gender gaps in leverage and profits-to-revenue ratio, in standard deviations from each country’s mean value. Estimated gender gap in sales per worker in percentages. Dark colours reflect results that are statistically significant at the 10% or lower level; light colours, those that are not.
Gender gaps in credit may breed capital misallocation
Despite women-managed firms being comparably risky and productive and, in fact, more profitable than their counterparts managed by men, they operate with lower credit levels, indicating potential sub-optimal credit allocation. While our data do not allow us to precisely identify the source of sub-optimal credit allocation, they suggest a potential misallocation of capital, particularly when considering the higher profitability of firms managed by females compared to male-managed firms.
We examine empirical indicators of capital misallocation to test whether accessing lower amounts of credit has an impact on the allocation of resources between firms managed by women and men. Our results show that women-managed firms have a 14.7% higher average return to capital, an empirical measure of capital misallocation (Figure 3). By comparison, Morazzoni and Sy (2022) estimate this difference to be 12% for the US.
Figure 3 Gender gaps in capital misallocation
Notes: The figure shows the estimated gender gap in the average return to capital in percentages. Dark colours reflect results that are statistically significant at the 10% or lower level; light colours, those that are not.
The gender difference in the average return to capital is heightened in more traditional countries, where women-managed firms have a 29.6% higher return to capital compared firms managed by men. Our findings may be interpreted as a sign of capital misallocation; that is, women-managed firms could potentially benefit from increased levels of capital to align their relative returns with those of firms managed by men.
If discrimination on the intensive margin partly explains the extent of capital misallocation, then the difference in the empirical indicator would be stronger for firms that receive credit. In fact, this appears to be particularly true for traditional countries (Figure 3). We show that being able to borrow more could relax the credit constraint of firms and reduce capital misallocation for women-managed firms in more traditional countries.
Discussion
Our results show that women-led firms are not any less profitable or riskier than firms managed by men and yet are discriminated in allocation to credit. Policy options to address these disparities include blended finance solutions that mitigate inequalities in lending to female entrepreneurs (Aydin et al. 2024), gender-inclusive financial products, enhanced market access for women entrepreneurs, and fair lending practices. Legal and regulatory reforms that address the barriers women entrepreneurs face are also crucial. Fostering an inclusive financial environment can unlock the full potential of women-led firms, contributing to more efficient resource allocation.
Source : VOXeu
