Lending to Women in Microfinance: Influence of Social Trust and National Culture

Abstract

The preference of microfinance institutions for women borrowers is generally attributed to two reasons: women borrowers are more trustworthy and have greater social impact. However, the role of social trust with regard to this gender preference has not been adequately investigated. Controlling for the social outreach goals of MFIs, we document that MFIs favor women more in low trust countries, suggesting that women are targeted to offset low social trust. We also examine how the nature of trust formation affects this relationship between gender targeting and trust. Our results should be of considerable interest to policymakers and scholars.