This document summarizes a research paper on how access to credit markets affects indicators of gender inequality. It finds that women face discrimination in credit markets for reasons such as men running larger businesses and being seen as heads of households. Access to credit can empower women and increase their bargaining power at home by giving them control over resources. It also deters domestic violence by enabling scrutiny from peer borrowers. However, credit markets also present problems, as small loans are less profitable and subsidized credit can displace informal lenders that the poor rely on. Overall, the document argues that gender equality, economic development, and poverty reduction are interconnected issues that microcredit aims to address by granting women greater participation in financial systems.

1. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
1
Women, Access to Credit Markets, and how it Affects Other Indicators of Gender
Inequality both Inside and Outside the Household (Week 8 Question)
Introduction:
Economic development and increase in welfare are major criteria that all countries in the world
aim to tap into. The irony behind this is that government strives to improve the economy without
digging into the topic of gender equality. Development can only go so far before it plateaus if
gender equity is a topic that is not being dug into. As many countries would have realized,
economic development and gender equality are two very complicated subjects with intricate
layers that needs to be touched upon, before getting to the core of the problem.
Gender inequality, economic development, credits, education, and bargaining power are some of
few topics that are intertwined with each other and leads to a lot of questions about why third
world countries still struggle to catch up with second and first world countries. With an attempt
to empower women and strive for economic development, Bangladesh, a third world country,
has pioneered a microfinance organization called the Grameen Bank that aims to provide small
loans to the impoverished without requiring collateral (Armendáriz and Morduch 1). This paper
will explore the different reasons why women are discriminated against in credit markets and
also, how access to credit affect other indicators of gender inequality both inside and outside the
household.
Women, education, and credit markets:
In poor countries, it is rare that women get any access to neither education nor credit markets.
Education is a fundamental key towards economic development and to get to economic
development there has to be gender equity and equal access to credit markets. The core reason to
why third world countries are still in a state that they are in is because people, especially women,
are not getting the foundation of knowledge that they are supposed to be receiving. When the
population gets access to education, people gain more knowledge about managing assets and
ways to lead a sustainable lifestyle. With that, people can further strive to invest and start small
businesses that will help to sustain a cycle of steady income for the family. Microfinance can

2. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
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offer powerful ways for the poor to unlock their productive potential by growing small
businesses (Armendáriz and Morduch 1).
Women are amongst the most discriminated groups when it comes to gaining the chance to have
a better life or being qualified in the credit markets. In traditional families and patriarchal
society, women must be obedient, quiet, humble, and submissive (Yousafzai). She will have to
accept the decision of her parents and elders, without questions, even if she does not like them.
(Yousafzai). In the Western world, education is taken for granted because men and women have
almost equal access to it. In many poor countries, admitting to a school is a big event for the life
of a girl. It means recognition of her identity and her name and it allows her to enter the world of
dreams and aspirations where she can explore her potentials for her future life (Yousafzai).
Globally, we have policies, international instruments, and great people who have made
commitments to promote women gaining access to education. The UN even has the Convention
on the Rights of the Child. All of these great works by great people aimed at getting young
people to where we want to get them in terms of education has failed in the eyes of many women
around the world (Gbowee).
To many patriarchal societies, the idea of educated girls is one of their worst nightmares (Kristof,
What’s So Scary About Smart Girls?). There is no force more powerful to transform a society
than girls being educated because it changes the demography. You educate a boy, and he’ll have
fewer children, but it’s a small effect. You educate a girl, and, on average, she will have a
significantly smaller family (Kristof, What’s So Scary About Smart Girls?). In addition, girls’
education can almost double the formal labor force because it boosts the economy, raise living
standards, and promotes a virtuous cycle of development (Armendáriz and Morduch 14). An
example, educating girls and moving them from the villages to far more productive work in the
cities built Asia’s economic boom. Also, for Bangladesh’s situation, educated women became
the backbone of Grameen Bank, development organizations like BRAC and the garment industry
(Kristof, What’s So Scary About Smart Girls?). So overall, educated women often become the
force multipliers for good and this is a good start towards economic development.

3. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
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In the West, government invests overwhelmingly in the military toolbox but not so much in the
education toolbox that has a far better record at defeating militancy (Kristof, What’s So Scary
About Smart Girls?). Women and education is the key component towards a brighter future.
Looking into the past, a lot of financial situations arose due to a variety of reasons but people
should evaluate on whether or not it has anything to do with gender inequality. “Would [we] be
in the same mess today if Lehman Brothers had been Lehman Sisters. The consensus is that the
optimal bank would have been Lehman Brothers and Sisters” (Kristof, Mistresses of the
Universe). In today’s financial world, we can see that Wall Street is one of the most male-
dominated bastions in the business world.
Why women are discriminated against in credit markets:
As we continue to evaluate women’s access to education and credits, there are several reasons to
why women are discriminated against in the credit market. Before we dig into those reasons it
apparent that besides gender, some of the biggest sources of inequity and inhibition towards
credit markets are discrimination on the basis of race, gender, ethnicity, social class, or religion
(Armendáriz and Morduch 38). Although gender issues are particularly region and culture
specific and what holds in one case may not transfer to other contexts, microfinance is still only a
small part of a global agenda on gender mainstreaming and women’s rights (Armendáriz and
Morduch 213).
The first reason why women are discriminated against in the credit market is because formal-
sector commercial banks tend to favor men, mainly because men run the larger businesses that
commercial banks favor, and men tend to control the assets that banks seek as collateral
(Armendáriz and Morduch 216). Women are seen to be domestic and their duties are to be at-
home moms and take care of children so they have no place in the business world. This
stereotype is one of the main causes to why the financial world lacks of diversity. The public eye
takes men as people who are particularly likely to make high-risk bets when under financial
pressure and surrounded by other males of similar status (Kristof, Mistresses of the Universe).

4. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
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Second reason is that men are often considered the de facto head of household (Clayton-Dye
5/20). With that in mind, they are also stereotypically the breadwinners. This means that they get
better access to the credit market and loans so that they can continue business or earn money for
the family. This goes back to the same reason as to why men are more likely to succeed and be
hired in CEO positions compared to women. In contrast to women, men are seen to be more
likely to commit and take big leaps instead of lingering around to evaluate tiny decisions.
As mentioned in the earlier paragraph, the Grameen Bank is one of the most successful and well-
known microfinance banks in the world. On average, it lends out $120 loans but this is
something traditional commercial banks would avoid. This brings us to the third reason, which is
because since the loans are so small, the profits are hard to find (Armendáriz and Morduch 2).
Lending seems risky since borrowers are too poor to offer much in the way of collateral. All
banks are concerned about collateral but the ASA reported that the loan recovery rate of the
Grameen bank is 99.6% (Armendáriz and Morduch 3). Going back to the idea that men are more
likely to take bigger risks, when it comes to microcredits, men are willing to take out bigger
loans than women. This is not always the best choice and since commercial banks are a fan of
larger loans, women tend to be discriminated from the credit market.
The Fifth reason is that women tend to be more risk-averse than men and more conservative in
their choice of investment projects (Armendáriz and Morduch 216). Although it helps women
create reputation for reliability and makes it easier for the bank to secure debt repayments, many
banks are willing to gain customers who are looking into taking more risks in the financial
market.
Affect of access to credit on other indicators of gender inequality both inside and outside the
household:
The other aspect that this paper is exploring is that, access to credit has an affect on other
indicators of gender inequality both inside and outside the household. Since the majority of
people living in poverty are women, endowing women with more microcredits can be growth
enhancing in principle. If women have less access to capital than men, returns to capital for

5. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
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women should therefore be higher than for men (Armendáriz and Morduch 216). The positive
aspect is that microfinance can increase women’s bargaining power within the household
(Armendáriz and Morduch 227). Women will become “empowered” and enjoy greater control
over household decisions and resources.
The access to credit also has an affect on another indicator of gender inequality inside the
household and that is domestic violence. Since microcredit lending at the Grameen Bank works
on the basis of group lending, which is mechanism that allows poor borrowers to act as
guarantors for each other, domestic violence by men against women can now be subject to third
party scrutiny (Armendáriz and Morduch 12). With group lending, peer borrowers will want to
find out why a woman in their group has stopped attending repayment meetings. “This in turn,
should act as deterrent against domestic violence, and, more generally, as an instrument for
women to promote rights and improve their bargaining power vis-à-vis their husbands or other
male family members” (Armendáriz and Morduch 227).
The concept of group lending can be seen as a positive affect on gender inequality outside the
household. Women gaining access to credit markets with a high loan recovery rate is due to
women’s reliable nature. The group lending mechanism is one in which each loan taken from the
bank is based on a group of five borrowers. The loans go first to two members, then to another
two, and then to fifth member. If one member defaults and fellow group members do not pay off
debt, all members in the group are denied subsequent loan (Armendáriz and Morduch 12). This
mechanism relies on informal relationships between neighbors that facilitate borrowing for
households lacking collateral (Armendáriz and Morduch 13).
Problems with credit markets:
Besides women being discriminated against in credit markets and its affect on other indicators of
gender inequality, the credit market and microcredit organizations themselves can also be seen as
problems. The first one is that when banks cannot easily determine which customers are likely to
be more risky than others, they tend to be very hesitant to give out small loans (Armendáriz and
Morduch 8). Banks like to implement charges and fees on riskier customers more than the safe

6. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
6
ones in order to compensate for the added probability of default. The lack of information and
background on who the customer are does not allow banks to know who is who (Armendáriz and
Morduch 8). The easy way out would be to raise the average interest rates but it often drives
customers out of the credit market. Although women are being discriminated against in this
market, they still want customers.
Another problem is that loans and credits can be seen as subsidies and that poor households
would often have been better off without subsidies because subsidized banks pushed out
informal credit suppliers on which the poor rely on (Armendáriz and Morduch 10). Since the
market rate of interest is a rationing mechanism, those who are willing to pay for credit are the
ones with projects that are most worthy. So if poor people want to take out loans it is unattractive
to the bankers (Armendáriz and Morduch 10).
The solution towards some of these problems cannot be standardized because the problems are
intertwined with each other. Banks themselves face relatively high transaction costs when
working in poor communities so, if banks had cheap ways to gather and evaluate information on
clients and enforce contracts, they would be able to open up to more of the poor communities
(Armendáriz and Morduch 8). Also, if borrowers had marketable assets to offer as collateral,
banks would immediately lend without risk, knowing that their assets would cover any problems
on the loans (Armendáriz and Morduch 8). Borrowers who are too poor do not have much in way
of marketable assets. This is why third world countries are experience generations of poverty
because poverty has reproduced poverty (Armendáriz and Morduch 9).
Conclusion:
In my opinion, this bottom-up development has led to many reasons why microfinance
institutions prefer to work with women. Women as policy makers have decision-making power
at a macro level; their decisions tend to be biased in favor of provision of public goods helpful
for families and communities (Armendáriz and Morduch 224). Women are more likely to be the
household members most responsible for children’s health and education and thus, credit access
should not be restricted, but should be given to women. As seen throughout the decade,

7. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
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microfinance is a way to break the vicious circle of poverty by reducing transaction costs and
overcoming information problems for banks (Armendáriz and Morduch 8). A little bit of
everything helps and that if these organizations continue to aid poor communities and trust that
gender equity can bring us towards economic development, then there is a brighter future ahead
of us.
Overall, women should not be discriminated against in credit market because women tend to be
less mobile than men and are more likely to work in or near the home. This ensures bank
managers to be able to monitor them at lower cost (Armendáriz and Morduch 216). Also, women
are overrepresented among the poor and they have less institutional protection (Clayton-Dye
5/20).
In conclusion, microcredits and women gaining access to the credit market has a clear record of
social impact and has shown to be a major tool for poverty reduction and gender empowerment
(Armendáriz and Morduch 5). Access to credit markets can make a real difference but it is
neither a panacea nor a magic bullet because we cannot expect it to work everywhere or for
everyone. Work and follow through efforts needs to be implemented in order for it to be
successful (Armendáriz and Morduch 6). As explained in this paper, women are discriminated
against in credit markets because men run larger businesses that credit banks favor, men are de
facto head of household, small loans do not bring a lot of profits, and women tend to be more
risk-averse than men. These reasons have also led to the affect access to credit has on other
indicators of gender inequality both inside and outside the household. Women gaining access to
credit markets will allow an increase in domestic bargaining power. So with that, “banks
[should] seek a little more diversity on their own – just as desperately as they’re seeking
bailouts” (Kristof, Mistresses of the Universe).

8. Kanokbhorn (KK) Saha
POL S 335A – Amanda Clayton-Dye
Final Paper
6/10/2014
8
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