Women's Access to Capital

Credit programs around the world considered targeting rural women as a cost-effective intervention that may foster economic growth and alleviate poverty. But, to date, there has been little rigorous evaluation of the economic efficacy of such approaches. Most research on rural financial markets has concentrated on improving credit access for poor households. However, my fieldwork experience strongly suggests that credit programs that target poor women represent improvements over “gender-neutral” programs that simply target poor households. I provide an analytical model to investigate how rationing mechanisms in credit markets, spouses' preferences and bargaining power, and social effects permeate rural households' decisions. I hypothesize that there are benefits from specifically targeting women's access to capital because: (1) Unless specifically targeted, rural women tend to have inferior access to or control over financial resources than do men. Furthermore, given that intrahousehold dynamics affect family members' incentives to intermediate funds within the family, one cannot simply assume that women's limitations in the financial market are overcome, indirectly, with transfers from their spouses (equity-based arguments in favor of programs that enhance women's access to credit). (2) The inefficiencies in capital allocation among rural households (as a result of lenders' incomplete information about borrowers) are amplified by the manner in which capital is allocated within the household. Thus, there may be further social welfare and productivity gains from enhancing women's productive capacity within the household (welfare- and efficiency-based arguments for programs that improve women's access to credit). (3) Due to individuals' desire to conform, a woman's demand for capital has a multiplicative effect in that it may trigger other women's demand. A program that makes modest improvements in a woman's access to credit and allows her to participate in market-oriented activities may, thus, induce considerably larger community-wide gains. I supplement these theoretical findings with an empirical analysis using data from rural Paraguay, where I examine how women's demand for capital and the adequacy of their access to credit are affected by the behavior of their reference groups and by their husbands' preferences and bargaining power.