Risk Premia and Credit Pricing For Female Borrowers in Informal Financial
DOI:
https://doi.org/10.64137/31080030/IJFEMS-V2I2P102Keywords:
Informal Credit Markets, Gender Bias, Female Borrowers, Risk Premia, Credit MispricingAbstract
This research focuses on exploring gender differences regarding credit pricing and risk evaluation in informal finance markets, where women represent potential customers. The analysis will draw upon both an overview of the literature available on the topic as well as an extensive survey of primary sources. Lenders tend to apply social criteria such as reputation, norms, and household characteristics instead of financial indicators when evaluating their clients' riskiness. As a result, there is a notable gap between perceived and real riskiness: although women prove to be relatively more reliable as debtors, they have to pay higher interest rates and meet more stringent terms. This can be attributed to such factors as occupational stereotypes, volatility in incomes, and lack of bargaining power resulting in a substantial risk premium. Hidden transaction costs also increase women's cost of obtaining credits as they include obligatory savings, mandatory group membership, and additional conditions not directly related to the monetary aspect.
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