Who does Microfinance Fail to Reach? Experimental Evidence on Gender and Microenterprise Returns

In a recent randomized experiment we found mean returns to capital of 5.7 percent per month amongst Sri Lankan microenterprises, much higher than market interest rates. In this paper we show that this high average effect masks dramatically different returns by gender. While the average male microenterprise owner has returns in excess of 9 percent per month, we show here that average returns are zero or negative for female owners. This result challenges the focus of many microfinance operators on female owners. We explore different possible explanations for this lack of mean returns among female owners. The low returns do not appear to be a result of females taking the grants out of the business and spending them on household investments. Nor are they due to differences in ability of male and female owners. Part of the effect is due to females working in different industries than males, but we find female returns to be lower than male returns even for females working in the same industries as men. We then examine the heterogeneity of returns to determine whether any group of businesses owned by women benefit from easing capital constraints. JEL codes: O12, O16, C93.