Economic Research Forum (ERF)

Funding women entrepreneurs in MENA

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Do women entrepreneurs in the Middle East and North Africa face obstacles in funding their businesses, either from others’ behaviour, such as discrimination, or their own, such as self-selection? This column reports evidence from data collected on more than 6,000 enterprises in six MENA countries, documenting the financial behaviour of both owners and managers according to their gender.

In a nutshell

There is gender discrimination against women owners, but there is no statistical evidence of gender discrimination in the credit market against women managers in Egypt, Jordan, Lebanon, Morocco, Palestine and Tunisia.

One way to help to close the gender gap in accessing finance and to increase women’s demand for funding is to introduce tailored financial products – for example, loan guarantee schemes and basic social protection coverage.

Governments can help to develop these new products by strengthening the microfinance industry with a favourable regulatory and institutional framework.

Several investigations display pervasive stereotypes affecting women entrepreneurs, but few representative surveys have tackled this issue in MENA countries.Do women entrepreneurs in MENA countries face obstacles in funding their businesses, either exogenous, such as discrimination, or endogenous, such as self-selection?

The case of the MENA region is especially interesting because the pervasive patriarchal pattern hinders women’s ability to own and manage their own businesses. The gender gap in access to finance was 18% in North Africa in 2017, standing as the highest gap worldwide according to Findex, and the lack of access to funding from formal financial institutions is one of the major problems facing women entrepreneurs in MENA countries.

Evidence on discrimination and self-selection

Research evidence on women entrepreneurs in the MENA region is quite sparse and only a few qualitative studies are devoted to comparative analyses. To date, no study has addressed the funding issue in the six MENA countries from this WBES data source (Egypt, Jordan, Lebanon, Morocco, Palestine and Tunisia), apart from Morsy et al (2019) and Berguiga and Adair (2021), who focused on North Africa.

Gender discrimination occurs if women entrepreneurs with the same characteristics as their male counterparts – such as holding a bank account and providing requested collateral – are denied a loan when they apply for it.

Women entrepreneurs are supposedly more prone to risk aversion than men are, resulting from fear of failure, a hypothesis that has been little investigated in MENA countries. There is gender self-selection if a women entrepreneur forgoes a loan application from a bank, although she needs to borrow in order to fund working capital or fixed assets.

Descriptive patterns

We tackle the finance issue for women entrepreneurs in a set of six resource-poor and labour-abundant MENA economies: three North African countries (Egypt, Morocco and Tunisia) and three Middle Eastern countries (Jordan, Lebanon and Palestine).

We use a pooled sample from the 2019 World Bank Enterprise Survey (WBES), which includes a sub-sample of 767 women-owned businesses, almost one in eight among 6,253 businesses.

Almost two-thirds of women-owned businesses are micro or small, and the share is up to three in four women-managed businesses, which is also the share of both male-owned and managed businesses.

Firm registration of women owners and managers (from 98.8% to 99.4%) is overestimated due to the underestimation of informal micro-enterprises.

Discrimination

A probit regression model was estimated on a sub-sample of 648 businesses that applied for a loan, and it addressed discrimination from financial institutions. The results show the presence of discrimination against women owners but not managers. Noteworthy is that Ownership structure (Partnership), Sales Turnover, and the Zone of business location has an impact on the probability of rejection of a loan application from financial institutions.

Nine out of 10 businesses do not apply for credit, while only one out of 10 does. The proportion of women owners (16.97%) applying for a loan is twice as high as that of male owners (8.58%), but women enjoy a slightly lower acceptance rate (76.56%) than men (77.8%). Conversely, the share of loan applications granted to businesses run by women is almost identical to that of their male counterparts, suggesting that women managers are not discriminated against.

Almost all businesses owned or managed by women enjoy financial inclusion (bank accounts), which is not the case for their male counterparts, while women owners seem to face less favourable financing conditions than their male counterparts do. Three out of four women owners must pledge two assets and repay their credit within a (very) short time span, whereas three out of four male owners must pledge two assets, but less than three out of five do repay their credit within a (very) short time span.

Conversely, there is mixed evidence regarding women managers. On the one hand, they enjoy better funding conditions than their male counterparts do, with respect to collateral; less than three out of five women managers did get credit with at least two guarantees compared to three out of four male managers. On the other hand, three out of four women managers face (very) short loan repayment durations, compared to less than three out of five male managers. This suggests that both women-owned and women-managed businesses are more prone to finance working capital than fixed assets, but it does not necessarily imply that discrimination occurs.

Self-selection

We analysed a sub-sample of 5,320 businesses that did not apply for a loan, and tested for self-selection behaviour. The results show that the factors driving loan applicants to self-selection are the business characteristics (Size of businesses, Gender ownership, Industry, Ownership), the use of Personal loans, and the macroeconomic environment.

The findings suggest that women owners are more prone to self-selection than are their male counterparts. Very few businesses used personal loans to finance their activities and this use proves higher for businesses owned and managed by women than for their male counterparts.

Being a woman owner increases the probability of self-selection compared with that of male owners. Gender self-selection occurs for women owners, but not for women managers, running against Morsy et al (2019) and Berguiga and Adair (2021), who find that women managers in North Africa self-selected more than their male counterparts did over the period 2012-13.

Conclusion and policy implications

There is gender discrimination against women owners, but there is no statistical evidence of gender discrimination in the credit market against women managers in the six MENA countries. This is consistent with Morsy et al (2019) and Berguiga and Adair (2021) using the 2013 WBES sample for North Africa. But WBES samples are strongly biased (Berguiga and Adair, 2019) and should not be taken for granted.

There is statistical evidence of gender self-selection for both women owners and managers.

Among policy implications for closing the gender gap in accessing finance and increasing women’s demand for funding is to introduce tailored financial products (for example, loan guarantee schemes and basic social protection coverage). Governments can help develop these new products by strengthening the microfinance industry with a favourable regulatory and institutional framework.

Further reading

Berguiga, Imène, and Philippe Adair (2021) ‘Funding female entrepreneurs in North Africa: Self-selection vs. discrimination? MSMEs, the informal sector and the microfinance industry’, International Journal of Gender and Entrepreneurship 13(4): 394-419.

Berguiga, Imène, and Philippe Adair (2019) ‘Funding Micro-Small and Medium Size Enterprises in North Africa: is there a Mismatch between Demand and Supply?’, ERF Working Paper No. 1350.

Morsy, Hanan, Amira El-Shal and Andinet Woldemichael (2019) ‘Women Self-Selection out of the Credit Market in Africa’, African Development Bank Working Paper No. 317, Abidjan, Côte d’Ivoire.

WBES (2019) ‘World Bank Enterprise Surveys Data Catalog’, World Bank.

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  • Imène Berguiga
    Imène Berguiga
    Associate Professor in Finance, University of Sousse
  • Philippe Adair
    Philippe Adair
    Professor of Economics, Montpellier Business School, France

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