Lending to women in microfinance: Role of social trust

Microfinance institutions’ (MFIs) preference for women borrowers varies internationally and the MFI focus on women borrowers is generally attributed to two reasons: women borrowers are more trustworthy and have greater social impact. However, the role of social trust with regard to this gender preference has not been adequately investigated. We document that MFIs favor women more in low trust countries and in countries where social trust formation is primarily behavioral. We interpret these findings as consistent with gender targeting being used as a substitute for social trust. Our results should be of considerable interest to policy-makers, managers, and scholars.