The credit risk of microfinance institutions: global evidence on the role of female loan officers

This study investigates the impact of gender diversity among loan officers on the credit risk of Microfinance Institutions (MFIs), through the lens of relational lending and the ‘Wonder Woman’ hypothesis. Using data from the World Bank's MIX Market database, we analyse panel data of 999 unique MFIs across 96 countries from 2010 to 2018. The data were analysed using various panel regression techniques and endogeneity-corrected approaches. The findings indicate a significant negative relationship between the proportion of female loan officers and MFI credit risk, supporting the ‘Wonder Woman’ hypothesis. Additionally, we examine the role of female borrowers in mediating this relationship and find that a higher presence of female loan officers is associated with a greater proportion of female borrowers, which in turn contributes to reduced credit risk. The study concludes with practical implications for academics, practitioners, and policymakers.