1Microfinance has expanded over the last few decades, providing financial services including credit and savings predominantly to poor people who do not have access to formal banking services. Despite the tremendous growth of the microfinance sector, microfinance providers have not reached the poorest of the poor (World Bank, 2015; Mersland, Bwire & Mukasa, 2009). Moreover, the biases of microfinance institutions (MFIs) against serving minorities and disadvantaged groups, including people with disabilities, are illustrative (Labie et al., 2015). Many people whose impairments do not affect their productivity are still disabled, and discriminated against, due to prejudices concerning their impairments. Discrimination, isolation and social exclusion are features of the everyday lives of many people with disabilities and their family members, and negligence is often present in their families, neighborhoods, communities, formal education experiences, and contact with government services (Bognar, 2011; Nokrek et al., 2013; Nuwagaba et al., 2012). In continuity with the widespread discrimination observed in other contexts, Cramm & Finkenflugel’s (2008) research shows that people with disabilities have less chance of accessing microfinance compared to people without disabilities.

2Access to finance is important for the self-employed and supports their social, economic, political and psychological empowerment. Accessing microcredit enhances self-confidence, social integration, income and decision-making power in the families (Paauwe, 2010; Thomas, 2000). However, as stated previously, people with disabilities face substantial discrimination in the microfinance market and, consequently, receive limited access to microcredit. In addition, where people with disabilities receive microcredit, they tend to receive lower dollar amounts than their non-disabled peers (Lewis, 2004).

3However, very little academic research can be found on microfinance lending discrimination against people with disabilities. Moreover, the nature and trend of such discrimination likely varies across different lending mechanism. Therefore, this research note aims at minimizing the gap in the literature and bridging and improving knowledge on, and awareness of, discrimination against people with disabilities in the lending market. It focuses on the small and large credit market, in developing and developed countries.

4In what follows, I provide a summary of the existing literature in five sections. The first section discusses the theoretical framework of discrimination in general. The second section outlines existing empirical evidence of discrimination in the lending market. The third section demonstrates the prevalence of discrimination against people with disabilities in the microfinance market. The fourth section explores the possible discrimination people with disabilities might face in the microfinance lending market across various stages of the crediting process. To conclude, the fifth section highlights some of the limitations of this research note and shares some recommendations which might help to reshape policies and practices to more effectively address discrimination against people with disabilities in microfinance lending.

1. Understanding discrimination in the lending market

5This section analyzes existing definitions of discrimination to better understand how particular theories of discrimination might apply to the lending market. Exploring different dimensions of discrimination could provide insight into the ongoing problem of finance discrimination and how discrimination toward people with disabilities informs the decisions of lenders.

Discrimination on the basis of disability means any distinction, exclusion or restriction on the basis of disability which has the purpose or effect of impairing or nullifying the recognition, enjoyment or exercise, on an equal basis with others, of all human rights and fundamental freedoms in the political, economic, social, cultural, civil or any other field. (UNCRPD, 2006: 4)

8Discrimination is a fascinating and, at the same time, frustrating topic in social science. Fascinating in the sense that it represents a powerful concept that addresses many historical and contemporary patterns of inequality, but frustrating in its elusive nature and measurement challenges across various domains of life. In 1957, Becker introduced the theory of discrimination that came to dominate economic literature. Becker (1957) described the notion of “taste-based discrimination” in his book The Economics of Discrimination, where he argued that people discriminate because of prejudice. Three decades later, Turner and Skidmore (1999: 4) operationalized taste-based discrimination in the mortgage lending market in this way: “if lenders – or their employees – are prejudiced against minorities, they consider them to be inherently inferior and prefer not to interact with them or have them as customers.” Since people with disabilities are treated as a minority group, it is thus crucial to investigate if, on the basis of their minority status, they have less opportunity to benefit from lending institutions.

9In parallel, social science researchers have proposed diverse definitions of discrimination in recent decades. Phelps (1972) and Arrow (1973) proposed the notion of “statistical discrimination,” which refers to the fact that a decision-maker uses an individual’s observable characteristics as a substitute for unobservable ones. These observable characteristics include those involved in categorizing demographic groups, such as race, ethnicity, or gender (Fang & Moro, 2011). Some lenders may deny credit to people in certain groups in the belief that they have poor unobserved credit qualifications (Blanchard et al., 2008). In the case of the credit market for people with disabilities, we must wonder if MFIs might have limited information about the competency of people with disabilities as a creditworthy segment due to a lack of experience dealing with people with disabilities. This question requires further research.

10Turner & Skidmore (1999) argued that “cultural affinity” is another possible explanation for discrimination. They mentioned that credit officers

[…] may exert less effort to determine creditworthiness or to help minority borrowers meet underwriting criteria. The literature suggests several possible explanations for why this type of behavior might be occurring, but most turn out to be forms of either prejudice or economic discrimination. (Turner & Skidmore, 1999: 5)

11Thus, an important question is whether MFIs credit officers have less interest in communicating with people with disabilities, due to a lack of understanding about the way people with disabilities communicate. From this perspective, discrimination could be a result of the fact that MFI credit officers might have little knowledge of the financial need of potential clients with disabilities or are reluctant to determine the creditworthiness of people with disabilities.

12Based on the above definitions of discrimination, it can be argued that discrimination refers to exclusion based on prejudice against any person, and especially persons from identifiable minority groups. Discrimination in microfinance lending market can occur due to prejudice or the observable characteristics of minority group applicants, despite the fact that disability status has no direct relationship with creditworthiness. Discrimination can also take place in microfinance lending due to a lack of understanding of the specific needs of certain groups, such as people with disabilities.

13While measuring disability discrimination is complex due to the multiple dimensions and forms discrimination can take (Turner et al., 2005), it is a necessary step in developing effective policies and attempting to reduce injustice. Discrimination measurement in the credit market will increase the chance of protecting an important human right: fair access to credit.

14Two features of microfinance lending make it especially hard to reach definitive statistical estimates of discrimination. First, there is the complex set of stages within the microfinance lending process. Discrimination could occur at any one stage, or within many stages, of a long and elaborated process. Microfinance lending also entails many decision points and institutional policies, and is thus known to be a complex process. Consequently, it becomes difficult to accurately measure and interpret discrimination within MFIs if the stages of this process are not precisely identified.

15This section highlights that discrimination has different forms, various dimensions and, most importantly, many potential contexts of expression. Discrimination could occur at any stage of the lending process and could also subsequently affect success at other stages. Although it is challenging to identify discrimination in different stages, measurement of discrimination is necessary since this might help to ensure financial inclusion of people with disabilities.

2. Empirical evidence of discrimination in the lending market

16This section outlines empirical evidence of discrimination in the lending market in general. Solid empirical findings on discrimination against various groups in the credit market are illustrated in numerous articles, mostly pertaining to research in mortgage lending (see Table 1 for more details). For instance, Munnell et al. (1996) used data from the Federal Reserve Bank of Boston to show that, despite possessing the same eligibility conditions, non-white applicants were consistently denied mortgage credit at a higher rate than white applicants. By using a national survey of small business finances “to analyze differences in application rates, denial rates, and other outcomes by race and gender,” Cavalluzzo & Cavalluzzo (1998: 931) found that “a large discrepancy does exist in credit access between white-owned and minority owned firms.” In parallel, in Trinidad and Tobago, Storey (2004:1) showed that credit application denial rates were “higher for Africans compared with other ethnic groups.”

Table 1: Empirical evidence of discrimination in the lending market.

Author (s)	Research subject	Data	Major results
Munnell et al. (1996)	Discrimination in the household mortgage market	The Federal Reserve Bank of Boston	Nonwhite applicants are more likely to be turned down compared to white applicants
Blanchard et al. (2008)	Discrimination in U.S. small business credit market	1998 Surveys of Small Business Finances	Black-owned businesses are more likely to have their credits denied and pay higher interest rates
Muravyev et al. (2009)	Gender discrimination in international small business market (34 countries)	2005 Business Environment and Enterprise Performance Survey	Female-owned firms face higher credit denial rates and pay higher interest rates. The gender-based difference is lower in more financially developed countries
Storey (2004)	Discrimination in Trinidad Tobago Credit Market	The First National Baseline Survey of small business 1995/1996	African descents are more likely to get their credit denied
Labie et al. (2015)	Discrimination by Microcredit Officers	Survey data from Uganda	Credit officers are more biased against borrowers with disabilities than against other employees
Agier & Szafarz (2013)	Microfinance and Gender	Brazilian microfinance institution	The empirical result indicates gender discrimination
Schreiner et al. (1996)	Discrimination in hire purchase lending in South Africa	A comprehensive survey of a nationwide random sample of 8874 households	They found racial discrimination
Baydas et al. (1994)	Discrimination against women in formal credit market	Survey of micro and small-scale enterprises in Ecuador	They found that female entrepreneurs were discriminated in terms of more credit-size rationing. Moreover, they were less satisfied borrowers

Source: Based on Pan (2014) with additional inputs from the Author (Sarker, 2020).

17These empirical studies reveal that discrimination against various ethnic groups exists in the lending market. In the next section, I discuss MFIs’ attitudes towards discrimination and their dealings at the microfinance operational level. I also represent a categorization of discrimination against people with disabilities by MFIs in Table 2, which I compiled from the existing literature.

Table 2: Categorization of discrimination against people with disabilities in microfinance lending.

SI	Category of discrimination	Findings in literatures
1	Perceptual discrimination	Higher prejudice against people with disabilities (Lee, 2012) Lack of confidence to deal with people with disabilities (Sarker, 2013) People with disabilities and their family members with disabilities could not access to the leading lending sources due to discrimination and stigma (Haque, 2007)
2	Institutional discrimination	MFIs always believe that people with disabilities are too risky to lend and have less capacity to save properly (Cramm and Finkenflugel, 2008, Beisland and Mersland, 2012) Lack of skills and knowledge of MFIs (Sarker, 2013) When discriminated, people with disabilities cannot report to the organization (Smart Campaign, 2012) Discourages clients (Leverson & Williard, 2000) MFIs mistreat people with disabilities verbally and physically, for instance, insulting clients (Smart Campaign, 2012)
3	Interest rate	Higher interest rate (Smart Campaign, 2012)
4	Credit amount	Lower credit amount (Lewis, 2004)
5	Access to credit, savings, insurance, training, and others	People with disabilities have less access to credit (Labie et al., 2015) Disadvantaged to get access to training, credit (Roeske, 2002) Forced savings for getting credit (Smart Campaign, 2012) Access barriers at different levels (Smart Campaign, 2012) Discrimination in opening savings and insurance account (Smart Campaign, 2012) People with disabilities do not get an insurance claim (Smart Campaign, 2012)
6	Credit assessment	Lenders wrong assessment (Kon & Storey, 2003)
7	Credit information	Credit information barriers (Weller, 2009)
8	Staff perspective	MFIs staff especially credit officers are more biased against borrowers with disabilities than other employees (Labie et al., 2015, Cramm & Finkenflugel, 2008)

18Source: Author (Sarker, 2020) based on literatures.

2.1. Discrimination against people with disabilities in microfinance lending

19Accessing credit in microfinance institution can be difficult, especially for some disadvantaged groups, such as people with disabilities. Access to credit and credit cost varies according to demographic characteristics, such as family size, living conditions, marriage status, gender, economic circumstances and the borrower’s financial characteristics, notably history of credit (Weller, 2009). Credit approval can also be denied as a result of numerous credit policies, such as a lack of past banking experience with the lender (Chakravarty, 2002).

20Though it is claimed that MFIs apply fair lending policies, poor people with disabilities have been shown to have less access to credit due to prejudice, unjust action and discriminatory practices (Labie et al., 2015). In the context of a literature review, Cramm & Finkenflugel (2008: 21) argued that MFIs staff “underestimate and miscalculate the abilities of people with disabilities.” Using survey data from Uganda, Labie et al. (2015) revealed that the majority of credit officers acknowledged having discriminated against people with disabilities due to prejudice. Although these examples do not demonstrate that all people with disabilities are discriminated against in exactly the same way with regards to credit access, they strongly suggest that more empirical research is needed in this area. Notably, research must clarify who among those with disabilities is actually discriminated against by these institutions; how such discrimination is distributed across different types of impairments, social classes or other sociodemographic variables; why these groups are discriminated against; and what the impact of such discrimination is on the lives of people with disabilities.

21Evidence suggests that the desire for profit maximization, along with other factors such as the cost of gathering information, could lead MFIs to discriminate against people with disabilities. One of the reasons MFIs might be biased against many people with disabilities is the assumption that people with disabilities are not able to understand the risk of credit. However, MFIs should not assess risk based on such prejudices. Rather, they should try to take the necessary time to understand a potential client’s capacity to manage credit.

22MFIs need information linked to the borrower’s default risk for allocating and pricing credit. Information about a small business’s credit in the micro-lending market would be imperfect and asymmetric, since borrowers might know about the possibility of a small business’s success and failure better than the credit provider (Berger & Udell, 1995). In this case, finance providers might require collateral for the credit so that borrowers take on their share of risk. Those who do not, or cannot, offer collateral will face financial limitations in opening a new venture (Evans & Jovanovic, 1989). In such circumstances, many people with disabilities would face financial constraints because they often lack collateral. Empirical research shows that in the general lending market, a long-term and a more concentrated financing relationship increases the supply of credit (Petersen & Rajan, 1994), reduces the rate of interest and decreases the need for collateral (Berger & Udell, 1995). However, at present, MFIs are not very involved in providing credit to people with disabilities, and this poor relationship reduces the chance of financing amongst people with disabilities. Hence, MFIs can initially provide credit to people with disabilities only at a limited scale, as an experiment. Moreover, for people with disabilities to participate in credit programs and succeed in business ventures, MFIs should consider that people with disabilities might require disability friendly services throughout the crediting process. To help ensure equitable access to credit, MFIs should also gather information about available microfinance projects for people with disabilities and provide this information to potential borrowers. If MFIs and people with disabilities could succeed in building a profitable relationship with one other, discrimination against people with disabilities might be reduced significantly, both within the world of commerce and beyond.

23In Table 2, categories of discrimination and findings in the literature relevant to each category are presented.

24In sum, the absence of anti-discrimination policies in MFI’s at the operational level might be an important source of discrimination against people with disabilities. However, more research is needed to see whether/how the absence of such policies might contribute to discrimination against people with disabilities in the microfinance market.

3. Possible stages of microfinance lending and area of discrimination: A call for empirical research

25Examining where discrimination might occur within the various stages of microfinance lending is of particular pragmatic importance. Inspired by Turner & Skidmore’s work (1999) in mortgage lending, I turn now to consider how discrimination might take shape in various stages throughout the crediting process. An overview of the key stages of this process is presented, along with a discussion of the possible forms of discrimination experienced by applicants with disabilities at different points in this process.

26First, the lending process starts earlier than most people think: it begins when people with disabilities first consider receiving credit and seek information before getting in touch with credit officers or offices. Next, potential applicants look for lending institutions where they might apply for credit. People with disabilities might have limited information about microfinance lending and/or limited access to lending institutions. This could be tied to a lack of interest amongst credit officers in interacting with people with disabilities as a result of their negative perceptions of credit default. Further investigation of this possibility is needed. MFIs might also use several communication tools to contact customers without disabilities, such as advertisements or personal sales techniques that might prove less effective amongst people with disabilities. Such inappropriate or inaccessible outreach techniques could be the result of prejudice or a lack of knowledge about disability-friendly communication strategies. More empirical research is needed to explore the complexities of existing communication processes between lenders and people with disabilities in the first, contemplative and information-seeking, stage.

27Second, we must consider potential obstacles and facilitators to accessing MFI offices and corporate premises. MFIs might lack universally accessible infrastructure and people with disabilities could experience difficulties securing transport to corporate offices. Moreover, upon arriving at these locations, corporate policies, practices, and interaction styles might not be friendly to the needs of people with disabilities. For example, do long wait times, high counters, or other communicative or physical barriers discriminate against people with differing capacities? Further research is needed to explore whether people with disabilities receive appropriate accommodations and equitable treatment in such contexts.

28In the third stage, MFIs evaluate necessary documents related to credit applications that will determine the creditworthiness of individuals with disabilities. The lender then makes a final decision about the application. This decision could involve rejection, approval, or approving a lower credit amount than requested. Moreover, where credit is approved, it might come with specific terms and conditions, such as early repayment schedules or higher interest rates. Research comparing the nature and outcomes of applications generated by people with and without disabilities at this stage would provide valuable, nuanced insight into the nature of potential discriminatory practices in the MFI system.

29Fourth, there is a need to explore the experiences and treatment of people with disabilities after receiving credit. What are the challenges that people with disabilities might face due to failure of repayment? Are people with disabilities charged with unnecessary penalties or higher payments due to credit default? Might MFI staff highlight the default cases of certain individuals with disabilities in a manner that suggests this outcome is the norm when lending to members of this group? As is common in the lending world, people with disabilities might also need to apply for a renewal of credit. In such cases, do people with disabilities have less access to renewal opportunities, including receiving less than asked or being given no opportunity to renew the credit even after repaying well, as a result of negative perceptions toward those with disabilities? More research is required.

30Fifth, in many cases, when MFIs provide credit, they also offer training or counselling services to clients. At present, it is uncertain whether credit officers are reluctant to provide capacity development or credit related training to people with disabilities. If this is the case, we must ask whether it is a matter of credit officers having less knowledge on how to provide training to people with disabilities and accommodate their participation needs. If this is the case, training could be provided to existing MFI’s staff to help promote the financial inclusion of people with disabilities (Sarker, 2020).

31Sixth, despite MFIs efforts, it might be the case that the ability of people with disabilities to make complaints against MFIs or their staff is limited. Without proper complaint management mechanisms, people with disabilities might be prevented from bringing their concerns and struggles to the attention of leaders and decision-makers within the MFI system. Such a situation could perpetuate discrimination against people with disabilities and preclude possibilities for developing a more equitable credit application process.

32In sum, MFIs might face various challenges in providing credit to people with disabilities, including a lack of knowledge about the needs of people with disabilities and trouble identifying people with disabilities. Clearly, the challenges and opportunities facing MFIs as they seek to provide credit to people with disabilities must be explored much more extensively through empirical research. Many critical issues and opportunities remain uncharted, including those related to communication between MFIs and people with disabilities, accessing and navigating physical premises, credit delivery mechanisms for people with disabilities, the potential benefits of sensitivity training and the ease of bringing equity-based complaints to management. Further research in these and other key areas is necessary to help understand how discrimination against people with disabilities operates across different stages of micro-financing and in the context of specific impairments.

4. Concluding remarks, limitations, and future research opportunities

33Existing publications suggest that a significant number of people with disabilities face both statistical discrimination and taste-based discrimination in microfinance lending. Evidence of statistical discrimination denotes that discrimination in small business lending is not only supported by economic incentives, but also by lender prejudice. To overcome this situation and improve the participation of people with disabilities in microfinance programs, financial service providers should enforce fair lending regulations and support inclusive vetting processes (Blanchard et al., 2008). This requires accurate and nuanced measurements of discrimination for policy development and implementation. Without effective measurement, MFIs cannot appreciate their potential role in perpetrating or reducing discrimination against people with disabilities.

34Currently, it is difficult to say why people with disabilities are under-represented amongst microfinancing awardees. The role played by a lack of understanding or data about people with disabilities might impede MFIs from locating and serving people with disabilities. An absence of antidiscrimination policies might also contribute to discrimination in the microfinance system. Moreover, it is unclear where, when, and amongst whom discrimination within the MFI lending process might be occurring as this process involves many stages and players. Identifying the nuances of each lending stage, and potential sources of discrimination therein, is essential to helping MFIs develop strategies to better serve applicants with disabilities.

35At present, significant knowledge gaps surrounding barriers and facilitators to inclusion are the primary barrier to improving access for people with disabilities. Thus, MFIs should be encouraged to initiate or support empirical studies to address these knowledge gaps and identify strengths, weaknesses, and opportunities within the current systems as regards making microfinancing available to people with disabilities.

36Based on the literature covered herein, I propose a series of recommendations to improve access to the microfinance market for people with disabilities. First, past research shows that racial disparities in credit approval rates decrease as the number of minority employees increases within the lender’s overall workforce or its management staff (Kim & Squires, 1995). Taking this phenomenon into account, MFIs could deploy people with disabilities, and members of other visible minority groups, in their workforce to reduce possible discrimination. Second, MFIs could introduce a provision for collecting installments from people with disabilities directly rather than through the MFI’s office, which might be difficult for some to access due to mobility challenges or architectural barriers. Minor changes in terms of collateral or flexible repayment options could also prove beneficial to some individuals with disabilities (Sarker, 2015). Third, the MFI’s credit approval process should be reviewed with an eye toward the possibility of discrimination at various stages. Fourth, an effective flow of information should be fostered between people with disabilities and potential creditors to avoid potential confusion or misunderstanding. For example, increased clarity from finance providers about the credit assessment criteria and explanations regarding a credit rejection might help to address possible misconceptions of discrimination amongst people with disabilities. Finance providers should also clearly communicate the possibility of future credit rejection after default in terms and manners that are accessible to all potential clients, including those living with communication impairments (Fraser, 2009). Finally, regular and effective monitoring of microfinance operations, values and work habits to ensure they align with the social objectives of MFIs might further reduce the chance of discrimination. Labie et al. (2015) argues that well-designed incentives schemes can reduce discrimination. However, they also denote that such incentives are costly, and MFIs have limited budgets, and for these reasons, MFIs might not work at fully eradicating discrimination in terms of outreach. In these cases, incentives might not work to reduce discrimination.

37More broadly, there is a need to enhance existing research specifically on discrimination toward people with disabilities in the microfinance lending market. Discrimination in the credit market has been studied for many years, but the focus has mostly been on mortgage lending market. Additionally, while some research has been done on the barriers and role of microfinance in the lives of people with disabilities, very little research has looked specifically at the issue of discrimination in the microfinance market against people with disabilities.

38Future research should explore the perceptions of MFI managers and how they understand potential obstacles or facilitators to the access of people with disabilities to microfinance lending, how credit officers can work with people with disabilities to ensure more access to microcredit, and how these institutions can reduce discrimination at the operational level. For measuring and reducing discrimination against people with disabilities, a rigorous statistical analysis of credit application assessment and credit approval rates by disability status is also needed. In my own future work, I intend to use qualitative and quantitative techniques to study microfinancing in the Global South, focusing on the intersections of multiple discriminations faced by people with disabilities and their access to microfinance.