GENDER AFFINITY AND LOAN DYNAMICS IN MICROFINANCE: EVIDENCE FROM KABUL

Abstract

This study investigates gender dynamics in microfinance lending through the lens of the similarity-attraction paradigm, examining interactions between loan officers and borrowers in Kabul, Afghanistan, which is a region known for significant gender disparities. Drawing on 58,000+ loans disbursed by a Kabul-based microfinance institution from 2017 to early 2020 (a critical period before COVID-19 and the Taliban takeover disrupted financial systems), we analyze how gender affinity between officers and borrowers interacts with relationship banking to influence lending outcomes. Although microfinance research has expanded considerably, the role of gender in officer-borrower interactions remains underexplored, particularly in settings with strong gender-based social norms. We address this gap by examining (1) how gender affinity affects loan sizes, (2) its influence on repayment performance, and (3) its interaction with vertical (historical) and horizontal (concurrent) relationship banking dimensions. Using OLS and logistic regression models, our findings reveal sophisticated gender dynamics in lending decisions. Female borrowers initially receive larger loans, but this advantage reverses when controlling for relationship banking interactions. Gender affinity does not significantly affect loan size, though male borrowers receive smaller loans from female officers. Relationship banking substantially influences outcomes, with female borrowers benefiting more from horizontal relationships when assigned to male officers whereas receiving less favorable terms in vertical relationships. For repayment performance, female gender affinity reduces default probability. Notably, male borrowers assigned to female officers demonstrate lower default rates. Vertical relationship banking reduces default risk overall, though this benefit diminishes for female borrowers. Conversely, each additional concurrent loan increases default probability when managed by female officers. These findings extend the literature on financial intermediation by revealing how social dynamics influence lending decisions and outcomes in contexts with strong gender norms. The results offer practical insights for microfinance institutions seeking to optimize officer-borrower matching to enhance financial inclusion while maintaining portfolio quality.

Date of Award	2025
Original language	American English
Awarding Institution	HBKU College of Islamic Studies