An important difference between entrepreneurship in developing and developed countries is that women run the majority of microenterprises in developing countries, unlike in developed ones (Klapper and Parker, 2011). And on many indicators, female-run microenterprises underperform their male-run counterparts. Bruhn (2009) analyzes data from several Latin American countries and finds that women-run firms have lower sales, assets, and profits. They also are more likely to be homebased. Nix et al. (2015) find lower earnings for self-employed women compared to men across several sub-Saharan African countries, while Hardy and Kagy (2018) find a profit gap favoring men among microenterprises in Ghana; in both cases, adjusting for observable characteristics leaves much of the gender gap unexplained.[1]
The prevalence of female-owned businesses and the gender gaps in performance help explain why many interventions aimed at helping microenterprises, notably microcredit and business training, focus mostly on female entrepreneurs. The hypothesis that at least implicitly underlies this focus on women is that women are more constrained in their access to traditional financing and to education. Another reason many organizations focus on helping female-owned businesses is that their objective is not just to boost household income, but to also increase women’s share of that household income. The rationale is that increasing women’s economic position will increase their personal autonomy and give them more say in households, with perhaps better outcomes for children as a downstream benefit.
However, whether these hypotheses are in fact correct is unclear. For business training, there is limited evidence on how impacts vary by gender. For microcredit, while most studies either are underpowered to examine heterogeneous effects by gender or focus on one gender, influential results reported in de Mel et al. (2008a) and companion papers find that directing capital to men rather than women would generate higher returns. This suggests that if increasing firm growth and profitability is the main goal, then a focus on just female entrepreneurs might be misguided. As for broader benefits of helping female businesses, the current evidence on female-focused programs improving women’s empowerment and children’s outcomes is also scarce.
At the same time, there is mounting evidence that women do face unique challenges in running successful businesses, ones that might be amenable to policy fixes. For example, the lower return to grants given to women is at least partly because the money is less likely to be invested in her business than when a man receives a grant (Bernhardt et al., 2017). That suggests a different course correction than redirecting programming toward men, namely finding ways to ensure that women maintain control over grants or loans given to them (perhaps by making more of them in-kind). The policy solutions that can address frictions and power imbalances within households will likely need to be more subtle and context-specific than current policies.
More generally, to understand the performance of female-owned businesses, one needs to understand how intertwined women’s business and family lives are. Bruhn (2009) finds that commitments at home seem to explain part of the gender gap in firm performance, and Fafchamps et al. (2014) find that a sizable portion of grants given to female business owners are spent on household expenses. Delecourt and Fitzpatrick (2019) send “mystery shoppers” to small, owner-run drug stores in Uganda and find that 38% of women and 0% of men bring their small children to work, and that doing so is associated with lower profits.
Arguably for all microenterprises, but most certainly for female-owned ones in developing countries, the separation theorem rarely holds: people cannot or do not decouple their business from the rest of their lives and solely maximize the business’s profits. Further research on women’s interconnected decisions about their business’s and family’s finances and their business and family obligations is an important priority for understanding and narrowing the gender gap in microenterprise performance.
[1] Hardy and Kagy (2019) provide demand shocks to male and female microentrepreneurs in the garment industry in Ghana and find that women’s businesses have more slack. This research points to another potential source of the gender profit gap, namely demand constraints.
