Firm characteristics and asymmetric information based credit rationing in an emerging economy: a gender perspective

Micro, Small and Medium firms’ credit access remains a dilemma though the financial sector has been liberalized. This paper investigates the factors influencing credit rationing and how variations in the characteristics of firms owned by different genders contribute to credit rationing. The study utilizes probit estimation with marginal effects, Fairlie counterfactual and decomposition analysis to analyze both credit rationing and the extent to which the credit rationing gap is influenced by differences in gender endowments and discrimination using 1,430 firms’ owners’ loan applications randomly selected from eight (8) commercial banks. Our results show that borrowers having more years of experience, external market access, proximity to lender, being older and being male are not likely to experience credit rationing. Borrowers in the agricultural sector, with long term loans, who lack formal education, run labor-intensive firms, have joint ownership, and operate small businesses face the probability of being credit rationed. A decomposition and counterfactual analysis reveal a credit rationing gap largely influenced by discrimination favoring male owned firms rather than differences in gender endowments. Our findings have implications for policy.