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Sex (mis)matching influences microfinance interest rates

June 28, 2012
Image ‘Gender Reveal party cupcakes’ by kristin_a (CC BY-ND 2.0)

In the study “Sex and Credit: Is There a Gender Bias in Microfinance?” (2011), the researchers analyzed data from a major provider of microfinance in Albania. They focused on the question whether gender matters in determining interest rates for these types of small loans. The microcredit market does not work with standard interest rates, as is custom in conventional bank lending to small and medium-sized enterprises. Therefore, these credit transactions rely heavily on the interaction between loan officers and borrowers and the exact interest rate is set at the loan officer’s discretion.

Gender mismatch

In the process of judging the clients’ particular circumstances, the Albanian data show that a so-called “gender mismatch” occurs: male bank employees calculate a lower interest rate to male customers than to female customers, and vice versa, female employees charge a lower interest rate to female than to male customers. On average, borrowers pay 29 basis points (0.3 percentage points) higher interest rates when paired with a loan officer of the other sex.

Insiders vs. outsiders

The results of this study are consistent with previous studies on the predictive power of group characteristics on people’s social preferences. Not only group identity in the form of gender, but also in the form of age, ethnicity and family backgrounds (Akerlof and Kranton, 2000[1]; Chen and Li, 2009[2]; Benjamin et al., 2010[3]). Beck: “People make a distinction between insiders and outsiders and — consciously or unconsciously — favor their fellow group members.” Economically, this leads to inefficiency and missed opportunities. “It’s purely a matter of taste. After all, there is no evidence that a gender match between the loan officer and the borrower predicts the likelihood of falling into arrears — which allows us to distinguish between taste-based and statistical bias,” says Beck.

Social distance

In the Albanian situation, this inefficiency becomes clear from the fact that the customers who are paired to an employee of the opposite sex less often come back for a second loan. The chance of this group returning to the bank is 11.5 percent smaller. That has nothing to do with Albania or with the conditions there, contends Beck. “The pattern of insiders versus outsiders has been shown in several other studies performed in various cultures.”

Furthermore, in the Albanian data, the factor “age” also proved to be a distinguishing feature: a bigger age difference between loan officer and client was associated with higher interest rates for the microcredit. "This can be seen as the economic result of the greater social distance between loan officer and customer," Beck concludes.


  1. Akerlof, G.A., Kranton, R. E., 2000, Economics and Identity, Quarterly Journal of Economics, 115(3), 715-753.
  2. Benjamin, D.J., Choi, J.J., Strickland, A. J., 2010, Social Identity and Preferences, American Economic Review, 100(4), 1913-1928.
  3. Chen, Y., Li, S.X., 2009, Group Identity and Social Preferences, American Economic Review, 99(1), 431-457

This article is derived from a previously published article on Econtrack (in Dutch).

This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “Sex (mis)matching influences microfinance interest rates”, Thorsten Beck,, June 28, 2012.

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Thorsten Beck
Professor of Economics, Tilburg University

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