Macroeconomics Implications of Female Entrepreneurs Facing Financial Frictions to Access to Credit: A DSGE Model Approach in Cameroon

Abstract

This research assesses the effects of financial frictions faced by female entrepreneurs on macroeconomics performances in Cameroon. We address this important issue, using a Dynamic Stochastic General Equilibrium model with financial micro-foundations. The model features two sectors such as, a production sector dominated by female entrepreneurs and a production sector dominated by male entrepreneurs. Financial frictions appear because entrepreneurs face collateral constraint when borrowing from the banking sector. The steady state and the calibration analysis demonstrate that the female sector is labor-intensive whereas male sector is capital intensive. But, when female sector are granted loans as much as the male sector, it performs better in term of value-added in GDP. The benchmark analysis reveals the complementary role of both sectors in sustaining economy activity when the conjuncture slumps. The Scenarios analysis emphasizes the expansionary effect of the loosening financial constraint, with female entrepreneurs acting as main driver of the economy activity. Thus, institutional frameworks that relax collateral constraints, grant exemptions for enormous requirements, enforce properties right law, and promote transparency and credit-information sharing can make big inroads in alleviating borrowing constraints, increasing financial inclusion and enhancing macroeconomic outcomes. JEL Classification: C11, C61, D21, E32, E44, O11  A National Agency which plays a role of collateral and guarantees female entrepreneurs debt contract besides the banking sector, can help to alleviate frictions in the credit market and enhance female entrepreneurship.  Law enforceability is needed to guarantee equal right between men and female regarding family properties, such as, land, real estate or shares, in other to allow female entrepreneurs which owned them to directly use them as collaterals without the permission of family elders, husband or properties administrator.  The Central Africa Banking Commission (COBAC), should enforces its law regarding the lending rates and adopt new strategy that relax collateral constraints, in other to avoid the banking sector implicitly discriminating between both type of entrepreneurs.  Cameroonian authority can adopt a National Policy of Financing Female Entrepreneurship, by issuing public bonds or securities with end of collecting financings from citizens and directly finance female entrepreneurs projects. This policy will allow national authority to better regulate the sector, enhance fiscal revenue, play the role of collateral between the lenders (citizens) and borrowers (female entrepreneurs), and fostering female entrepreneurship for job creation and inclusive economic growth. National authority should promote financial inclusion by reducing the cost of banking intermediation via the introduction of credit reporting system, granting exemptions for enormous requirements during the financial contract, and establishing more transparency and credit-information sharing.

Closing Gender Gaps in India: Does Increasing Womens' Access to Finance Help?

“…This is mainly because of lower financial literacy amongst females and lack of trust in the banking system. Therefore, following the strategy in Babilla et al (2016), female entrepreneurs are calibrated to be impatient with a discount factor of 0.97 in comparison to male entrepreneurs' discount factor at 0.98.…”

“…Moreover, they abstract from modeling the decision of agents to participate in the labor force (assume no unemployment), assume perfect substitution between male and female labor, as well as abstract from introducing a household production sector. 3 Correctly taking into account these rigidities would dampen the overall gains from any gender-based reforms (see ).…”

“…The theoretical framework is an extension of the model presented in , to which we add financial micro-foundations (i.e. a banking sector) based on the modeling technique in Babilla et al (2016). builds a DSGE model with gender inequality and informality in the labor market and examines the impact of gender-targeted policies on females' labor market outcomes.…”

“…However, they do not model the gender gaps in financial access and entrepreneurial activity. On the other hand, Babilla et al (2016) assess the effects of financial frictions faced by female entrepreneurs on macroeconomics performances in Cameroon.…”

“…However, they model it as an exogenous fraction of both males and females that are not allowed to become workers and become 'self-employed out of necessity' instead of modeling it as endogenous frictions in the labor, goods and credit markets that are the endogenous drivers of this outcome. 3 Cuberes and Teignier (2018) builds on Cuberes and Teignier (2016) by adding a household sector and quantify the effects of these gender gas on income in Europe. 4 A deterministic model assumes perfect foresight and no uncertainty.…”