Bank lending and financial discrimination from the formal economy: How women entrepreneurs get forced into involuntary bootstrapping

Abstract

The role of banks, their decision models, and their linkages with how entrepreneurs can act as providers to the formal economy have not been focused on much in entrepreneurship research. We explore the trend of transaction-based lending among banks on entrepreneurs’ engagement in informal economic activities (or involuntary bootstrapping activities) and how that relationship is moderated by gender. The results show that women entrepreneurs who encounter banks with transaction-based lending are forced to engage in much more informal economic activities compared to men, while this gender bias vanishes when entrepreneurs face banks with relation-based lending. We associate these results with gender stereotyping and suggest transaction-based lending to be costly for the development of formal economies.