23 June 2011

Unpacking Kiva Lenders' Bias

A month-long study of donor activities on Kiva.org yielded some very striking results.
We find that donors discriminate on the basis of attractiveness, skin color, and weight, preferring borrowers who are more attractive, who have lighter skin, and who are not overweight. The effects are statistically significant and robust, persisting across a variety of specifications and conditional on a full range of controls including country fixed effects, MFI fixed effects, economic sector and activity fixed effects, and date fixed effects. The effects are quantitatively significant. A borrower at the 75th percentile in terms of skin color (darker skin) is estimated to require 20% more time to have his or her loan funded than a borrower with lighter skin at the 25th percentile; similarly, a borrower at the 75th percentile in attractiveness (more attractive) requires almost 25% less time to receive full funding.

We also find evidence that donors appear to strongly prefer lending to women compared to men, making group loans instead of individual loans, and lending to borrowers from poorer countries. We conjecture that these preferences are in part driven by the substantial evidence circulated in the media on the success of microfinance institutions which concentrate on group lending and lending to women. However, our evidence on the strong impact of attractiveness, skin color, and weight are difficult to reconcile with any consensus or even popular evidence on the value of increased capital access to more attractive, lighter skinned, skinny individuals when it comes to economic development. We thus interpret our findings as suggesting the presence of significant discrimination on the part of donors in microfinance.
The authors speculate that weight has to do with perceptions of need. They say that previous studies show that people want their money to have the greatest impact and believe that it often believed that the person with the greatest need will maximize impact. Attractiveness does not seem very surprising to me and the same goes with skin color.

Gender something which alarms me a bit, but also seems to make sense. Microfinance has been packaged to be something which is portrayed as aimed at women. In fact many MFIs will only offer their services to women. With that picture established, I speculate that potential lenders believe that there is validity in giving to women and lean towards them for a loan. I do not mean to undermine the premise that women could be a better investment, but the study which made that claim has come under heavy scrutiny recently.

I would like to know more about why women received greater support as well as if gender does have an impact on the safety of an investment. It is possible that there is no difference in gender or that it is not the same for each country or even that different businesses will have more or less success depending on the gender of the owner. These are questions that have yet to be answered, but the narrative of microfinance continues to act as if they have.

This is also only one study of one site for one month. Jumping to immediate conclusions would be wrong. A more expansive study is definitely in order and it would be worth offering some tweaks to see what can support those who are hampered by lender bias. As it always seems, studies like this one bring up more questions than it answers them and ends with the desire for more research...