Banking on Women: How Gendered Lending Practices Shape Microfinance Institution Financial Performance

Abstract

Microfinance institutions (MFIs) operate at the intersection of financial sustainability and social impact, aiming to provide underserved populations, particularly women, with access to credit. While women are often considered more reliable borrowers, existing research has not definitively established whether lending to women enhances MFI profitability. This study examines whether MFIs can achieve financial stability while maintaining their mission of empowering women. Using a dataset of almost 3,000 MFIs in developing countries from MIX Market, we analyze how gender-targeted lending influences MFI financial performance across three profitability measures. Our regression models incorporate key control variables, including institutional size, loan quality, and institution type, to isolate the effects of lending to women. Additionally, we assess whether supplemental non-financial services, such as female loan officers and microenterprise education, amplify the financial impact of gender-targeted lending, by addressing the unique challenges that women face in developing countries. Our results indicate that while targeting women does not significantly affect overall profitability, a higher percentage of female borrowers is associated with lower delinquency rates- a distinction not observed when measuring gross loan allocation to women. Additionally, we find that female loan officers reinforce these positive repayment effects and, among profitable institutions, enhance profitability. However, our analysis also reveals surprising inefficiencies in enterprise training services, which, contrary to expectations, appear to yield minimal or even negative effects. Our findings contribute to the broader discussion on the viability of social impact finance, shedding light on whether prioritizing women as borrowers strengthens or strains MFI financial sustainability.