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Good idea: Do the business a loan

Give a man a fish, so the saying goes, and you feed him for a day. Lend him a fishing rod and the profits of his microenterprise will go up by 9 per cent. Lend a woman a fishing rod, on the other hand, and her business will see no benefit at all. This was the surprising, not to mention depressing, discovery made recently by researchers writing for Warwick University's Economic Research Institute.

A quarter of all urban workers in developing countries are self-employed, point out Christopher Woodruff, Suresh de Mel and David McKenzie, and providing them with small business loans is generally seen as development's "silver bullet" - a simple and direct way to help, and one with potentially long-term benefits. Many microlenders actively target women, who tend to be even more "credit-constrained" than men in their communities; the assumption is that women benefit particularly for that reason alone.

But what the ERI researchers found, having distributed loans of $100 and $200 to people running small businesses in various parts of Sri Lanka, was that while male entrepreneurs experienced significant improvements in their profits - crucially, far higher than the interest rates they were paying on the loans - there was, on the whole, "no increase in income for female [business] owners". None whatsoever.

What could be behind this gender chasm? The type of business has something to do with it: female-dominated, domestic industries such as lacemaking tend to bring in lower returns, with or without a loan. But the difference is too big to be accounted for by that alone, and women in more mixed industries still had smaller returns than their male counterparts.

Personality can't be blamed: testing their subjects for qualities ranging from education and business experience through to the rather less quantifiable "tenacity" and "passion for work", the ERI team found no difference between the women's "entrepreneurial ability" and the men's. In fact, the Sri Lankan women were more likely to take risks than men were, suggesting they were more likely to make high-return investments.

In the end, the answer comes down to women's marriages and who wears the trousers in them. The low returns women achieve are due to "spousal capture", the research suggests - a husband taking a cut of his wife's business capital before she has a chance to use it. Women who have greater "bargaining power" with their husbands usually make better profits.

It is hardly an uplifting conclusion. The report is not intended to - and doesn't - offer solutions to the problem. But it does highlight some of the complex factors lurking behind the gender gap in developing countries. Opening the debate is at least a start.

This article first appeared in the 07 December 2009 issue of the New Statesman, Boy George