Development Southern Africa

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Effects of gender on the performance of micro and

small enterprises in Malawi

Ephraim W Chirwa

To cite this article: Ephraim W Chirwa (2008) Effects of gender on the performance of
micro and small enterprises in Malawi, Development Southern Africa, 25:3, 347-362, DOI:
10.1080/03768350802212139

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Development Southern Africa Vol. 25, No. 3, September 2008

Research Note
Effects of gender on the performance
of micro and small enterprises in Malawi
Ephraim W Chirwa
Women are increasingly venturing into ownership of micro and small enterprises, either on their own
or in partnership with male entrepreneurs. Using national survey data from Malawi, this study com-
pares the performance of enterprises owned by females with those owned by males. The results show
that the relationship between gender and business performance is complex. While there are no sig-
nificant differences in profit margins, female-owned enterprises tend to grow more rapidly in terms of
employment than male-owned ones. Gender-based regression results also show that while there are
common factors that affect the performance of both kinds of enterprise, there are also differential
effects in which education is a critical factor for the success of female-owned enterprises.

1. INTRODUCTION
The role of women in economic development cannot be understated. Jiggins (1989) notes
that about 30 per cent of rural households in the world are headed by women, and that
women contribute about 80 per cent of agricultural labour, produce almost 60 per cent
of the food that is consumed by rural households and generate more than one-third of
all household incomes, mainly through small-scale agro-industry, trading, craft work
and casual labour. In Malawi, about 59 per cent of female proprietors said 50 per cent
or more of their household income came from their enterprises (Daniels & Ngwira,
1993). Concern about women’s participation in economic development is relatively
new. Lele (1986) notes that the frequently debated questions are whether women have
adequate opportunities to participate in the productive processes or whether they are
just beasts of burden, the primary victims of exploitation. However, Heilbrunn (2004)
asserts that, over time, the numbers of female-owned businesses all over the world
have been rising, and that in the past decade women have begun to be recognised as suc-
cessful entrepreneurs.
The micro and small enterprises (MSEs) sector plays an important role in Malawi. The
official definition of an MSE is based on employment and annual turnover (Government
of Malawi, 1999). Micro enterprises employ up to four persons and have a turnover of up
to MWK0.12 million, while small enterprises employ between six and 20 persons and
have a turnover of between MWK0.12 million and MWK4 million. (The exchange
rate in August 2007 was MWK139.5 ¼ US$1.) In 1992 it was estimated that there
were 587 283 MSEs generating about 1.07 million self-employment and paid employ-
ment opportunities. In 2000, there were 557 848 MSEs, now generating 1.01 million
of these opportunities (Ebony Consulting International & National Statistical Office

Associate Professor of Economics, Department of Economics, Chancellor College, University of

Malawi, Zomba. This study was funded by the Organisation of Social Science Research in East
and Southern Africa (OSSREA), Addis Ababa, Ethiopia, under the 15th OSSREA Gender
Issues Research Competition Grant, for which the author acknowledges the financial support.
The author also acknowledges the comments from two anonymous referees. However, the
author takes sole responsibility for any remaining errors.

ISSN 0376-835X print/ISSN 1470-3637 online/08/030347-16 # 2008 Development Bank of Southern Africa
DOI: 10.1080/03768350802212139
348 E W Chirwa

[ECI & NSO], 2000). The decrease in the number of MSEs is attributed to the high
closure rates among small enterprises, with HIV/AIDS exacerbating this.
However, the role of women in MSEs has significantly improved in Malawi. At
independence, the economy was dominated by Europeans specialising in manufacturing
and Asians specialising in commerce. In the post-independence era there have been
many policy changes, and these have contributed to the development of local and female
entrepreneurship. In a study of small and agro-business enterprises in 1987, it was found
that only 7 per cent of the sampled enterprises were owned and operated by women
(Malawi/United States Agency For International Development, 1987). However, the
increasing importance of women in business enterprises was revealed in later studies. In
the 1992 survey of micro, small and medium-scale enterprises, about 46 per cent of proprie-
tors in Malawi were women (Daniels & Ngwira, 1993). A recent Growth and Equity through
Microenterprise Investments and Institutions (GEMINI) study further reveals that 34 per
cent of MSEs were owned by women, 35 per cent by men and 30 per cent by married
couples (ECI & NSO, 2000). Because of its potential for reducing poverty, the MSE
sector is receiving increased focus in development policies. In the Malawi Poverty
Reduction Strategy Paper, it is singled out as one of the sectors that could achieve pro-
poor growth in which women will play a significant role (Government of Malawi, 2002).
The paper is organised as follows. The next section outlines the problem statement and
research questions. Section 3 reviews literature on the relation between gender and business
performance, Section 4 outlines data sources and specifies a model for the relationship
between enterprise performance and gender while controlling for other variables, and
Section 5 reports and discusses the empirical results. Section 6 provides concluding
remarks, and the final section presents policy implications and recommendations.

2. PROBLEM STATEMENT AND RESEARCH QUESTIONS

The present study assesses the relative performance of MSEs operated by women and
men in non-agricultural enterprises in Malawi. It attempts to answer two questions.
First, what are the factors that explain the performance of MSEs and what role does
the gender of the owner play? Secondly, do female-owned enterprises face different con-
straints from those faced by male-owned enterprises and are there differences between
the factors that affect female-owned and male-owned enterprises? The study therefore
tests the following propositions:
. P1:Female-owned MSEs perform worse than male-owned ones.
. P2:Female-owned and male-owned MSEs face different constraints affecting business
performance.

3. LITERATURE REVIEW
The marginalisation of women in economic activities is well documented. Moser (1989)
argues that women perform three roles in society: reproductive, productive and commu-
nity management – but for a long time only the reproductive role has been emphasised,
because women have been seen primarily as home-makers. They have been marginalised
by unequal economic opportunities and inequalities of access to productive resources
such as capital and control over their own labour, and by differences in human capital
leading to differences in managerial and technical skills (Loscocco et al., 1991). Abor
and Biekpe (2006:105) provide evidence from Ghana that suggests female-owned
 Gender and the performance of micro and small enterprises 349

small and medium-sized enterprises are less likely than their male counterparts to
employ debt financing due to differential access to loan facilities, and McCormick
et al. (1997:1102) find that women entrepreneurs are over-represented in mini-
manufacturing enterprises, under-represented in contract workshops and totally absent
in mass production in the garment industry, but that there is a more balanced gender
mix in custom tailoring. Others argue that women are likely to operate in low-risk and
low-technology industries such as petty trading, and that the gender division of labour
and gender stereotypes tend to push women into low-status and low-income business
activities (for example, Von Massow, 1999). As a result women tend to be employed
in small, home-based low-capitalised enterprises that supply goods and commodities
for low-income consumer communities, particularly in urban areas.
Loscocco et al. (1991) argue that the differences between men’s and women’s socialisa-
tion, training and other experience may lead to different outcomes in business perform-
ance – female-owned enterprises generally perform worse than male-owned ones. In a
study of small businesses in the US, Merrett and Gruidl (2000) find that rural female entre-
preneurs face more obstacles to business success than their male or female urban counter-
parts; and in a summary of the literature on gender and performance, Zinger et al. (2005)
note that female-owned MSEs’ levels of performance are more modest than those of male-
owned ones. Other studies also tend to support the view that female-owned enterprises
perform worse than male-owned ones in terms of sales revenue, assets, profit margins
and likelihood of survival (Loscocco et al., 1991; Rosa et al., 1996; McPherson, 1996;
Daniels & Mead, 1998; Mead & Liedholm, 1998; Daniels, 1999; Kimuyu, 2002). The rela-
tively poor performance of female-operated enterprises is attributed to many factors: inac-
cessibility to credit from the formal financial system, lack of capital, poor technical and
managerial know-how, poor access to markets and raw material procurement problems,
unfavourable legal systems, competition from state enterprises, diversion of business
capital to men, poor government policies and inadequate institutional framework
(Berger, 1989; Jiggins, 1989; Daniels & Ngwira, 1993).

4. METHODOLOGY AND DATA

4.1 Model specification and definition of variables
The empirical models that have been used in the literature suggest four main categories
of factors that affect the performance of business enterprises, with gender being one of
the factors. These categories are human capital, personal characteristics, family charac-
teristics and business characteristics (Loscocco et al., 1991; McPherson, 1996; Daniels &
Mead, 1998). Following these studies, we specify econometric models to analyse the
effect of gender on business performance and analyse whether the factors that influence
the performance of female-owned and male-owned enterprises are different. An earlier
study in Malawi (ECI & NSO, 2000) analyses the data using mainly statistical
methods, frequencies, cross-tabulation and bivariate comparisons, without testing for
the statistical significance of the resulting differences. One problem with such a statisti-
cal approach is that it does not take into account the complexity of the relationships
between the variables. We use two performance indicators, profit margin and growth
in employment, and estimate three models for each: a general model that includes the
gender variable, a model for female-owned enterprises only and a model for male-
owned enterprises only. The general model tests the hypothesis that female-owned enter-
prises perform worse than male-owned enterprises. Regressions based on the subsample
350 E W Chirwa

of female-owned and male-owned enterprises tests whether there are gender differences
in the factors that affect the way enterprises perform. The regression model, based on the
ordinary least squares (OLS) method, is specified as follows:

Pi ¼ b0 þ b1 SEX þ aECH þ fBCH þ gCVA þ mi (1)

where Pi is the performance indicator (profitability and employment growth) for enter-
prise I; SEX is the gender of the owner of the enterprise; ECH is a vector of entrepreneur
characteristics, including age, education, entrepreneurial skills training and business
experience; BCH is a vector of business characteristics, including diversification,
location of the business, main markets for the products and sector; and CVA is a
vector of control variables such as access to credit, membership of business associations,
stratum of the enterprise (urban, small town or rural) and hours the business is open
during the year; mi the error term.
Two dependent variables are used in the analysis: profit margin and employment growth.
The first dependent variable, the profit margin, is the annualised ratio of net profits to
total sales. Since data on expenses and sales were collected with reference to ‘last
week’, the method used to calculate annualised expenses and sales assumed that the
ratio of expenses last week to sales last week was constant. For each month, information
on high, average and low sales months with corresponding average monthly sales values
were obtained to compute annual sales, and the constant expenses:sales ratio was used to
generate annual expenses. The second dependent variable, employment growth, is calcu-
lated using the McPherson (1996) method, in which growth in employment is defined as
the ratio of the difference in the logarithms of the current employment and the initial
employment to the age of business. We define ‘employees’ in this study as working
owners, paid workers, unpaid workers and trainees, and full-time and part-time workers.
The first category of independent variables is the gender of the proprietors. The gender of
the owner of the enterprise is the central variable in our models. Three dummy variables
are created, representing female-owned, male-owned and mixed-owned enterprises.
Theories of gender based on marginalisation, unequal access to physical and human
capital and socialisation postulate that female-owned enterprises are likely to perform
worse than male-owned ones. Studies by Kimuyu (2002) in Kenya, by McPherson
(1996) in five southern African countries, and by Daniels and Mead (1998) in Kenya
find that female-owned enterprises generate less revenue, grow at a slower rate and earn
lower profits than male-owned ones, respectively. Assuming the mixed-gender-owned
enterprises as the base category, we expect female-owned enterprises to perform much
worse than male-owned ones, using the three measures of the performance.
The second category of explanatory variables captures entrepreneur characteristics.
Loscocco et al. (1991) argue that family situations, such as marital status, may have
both a positive and a negative impact on the business’s success, and that personal charac-
teristics embody entrepreneurial traits for risk-taking behaviour. Five entrepreneur
characteristics are included in the model: age, marital status, education, business skills
training and business experience. The age of the entrepreneur is measured in years.
Marital status is represented by a dummy equal to one if the entrepreneur is married,
and zero otherwise. The entrepreneurs’ education, business skills training and business
experience capture the human capital elements embodied in entrepreneurship. Education
is represented by six dummies: no education (the base category), some primary edu-
cation, completed primary education, completed junior secondary education, completed
 Gender and the performance of micro and small enterprises 351

senior secondary and completed higher education. Business skills training is represented
by three dummies: no business training (base category), informal business training
(learning from relatives and friends) and formal business skills training. The entrepre-
neurs’ business experience is captured by number of years of business, and business
experience squared is included to capture the non-linear relationship between perform-
ance and experience. The human capital theory postulates that the more educated and
experienced the individual, the higher the degree of success in economic activities, so
we expect to find a positive relationship between human capital variables and business
performance.
The literature also suggests the importance of business characteristics in determining the
performance of MSEs (McPherson, 1996; Zinger et al., 2005). We include the number of
businesses operated by the entrepreneur, as a measure of diversification, the location of
the MSE, the major market for the MSEs’ products and the industry sector in which the
MSE operates. The number of businesses operated may have both positive and negative
effects on performance. On one hand, diversification may be used to spread the risk and
this may lead to improved performance; but on the other hand, the allocation of labour by
the entrepreneur may lead to crisis management that may negatively affect the perform-
ance. Five location dummies are included in the model: home or near home as the base
category, traditional market place, mobile market, roadside or footpath, and commercial
or industrial area. McPherson (1996) finds evidence that MSEs located in commercial
areas grow more rapidly than home-based ones, a result attributed to access to high-
income customers. Mukhtar (1998) finds evidence that female-owned enterprises are
concentrated in services, wholesaling and retailing and manufacturing sectors. MSEs
sell their products either to direct consumers or to other small, medium and large enter-
prises and institutional organisations. Institutional buyers may provide a reliable market
and more contractual binding orders that may be used as a platform for growth. We con-
struct two dummies representing the institutional market (as base category) and the con-
sumer market.
Finally, several control variables are included in all three models. These include access
to credit, membership of a business association, the stratum in which the MSE operates
and the number of hours the business operates in a year. Access to credit is captured by a
dummy variable on whether credit was obtained to finance the business. Marlow and
Patton (2005:717) argue that access to finance is critical for start-up and consequently
affects the performance of any enterprise. Membership of a business association rep-
resents social capital and the importance of networks in business activities, and we
expect enterprises in a network to perform better than those that work independently.
Okten and Osili (2004) find that family and community networks play an important
role in facilitating access to credit in Indonesia. The stratum in which the enterprise oper-
ates is represented by three dummy variables: rural MSEs (base category), urban MSEs
and small-town MSEs. We expect urban MSEs to perform better than small-town ones,
and these in turn to perform better than rural ones, since there are large markets and more
business in the urban areas. We also include the number of hours the business is open
during the year, in order to control for variations in working hours.

4.2 Data
This study uses secondary data from a national survey of MSEs in Malawi conducted in
2000 (ECI & NSO, 2000), using the census sampling frame. Data were collected using
352 E W Chirwa

the GEMINI methodology. The major objective of the ECI & NSO (2000) study was to
provide an overview of the MSE sector in Malawi, so as to capture business start-up and
profitability, employment growth, reasons for business closure, the impact of HIV/AIDS
and the contribution of the sector to the national income. (The analysis in the EIC &
NSO (2000) study is more descriptive, providing a profile of MSEs, their performance, pro-
blems and constraints and how the sector had changed between 1992 and 2000.) The data
were drawn from a stratified random sample of 22 000 households that was used to identify
business enterprises. The country was stratified into seven strata, and in each stratum the
enumeration areas were randomly selected for the administration of questionnaires. Each
household and business unit in the selected enumeration area was visited and MSEs were
identified for questionnaire interviews on existing and closed business enterprises. The
survey covered enterprises with fewer than 50 employees, including working proprietors,
but excluded businesses with multiple branches even where one of the branches qualified
according to the employment criterion. Although the data also cover agricultural enter-
prises, this study uses only data for non-agricultural business enterprises. A sample of
3074 non-farm MSEs usable for this study was generated from the survey data.

5. EMPIRICAL RESULTS AND ANALYSIS

Table 1 presents the descriptive statistics of the variables used in the regression models.
The average profit margin is 56.8 per cent, and female-owned enterprises generate more
profits (57.7 per cent) than male-owned ones (56.6 per cent) while mixed-gender-owned
enterprises generate the lowest profits (55.6 per cent), although these differences are mar-
ginal. Similarly, female-owned enterprises tend to grow faster in terms of employment
(11.6 per cent per year) than male-owned ones (6.5 per cent per year) and mixed-
gender-owned ones (6.9 per cent per year).
There are gender differences in entrepreneur characteristics, business characteristics and
other control variables. For instance, most female entrepreneurs lack business skills
training (informal and formal) and have less business experience than male entrepre-
neurs, while differences in education are marginal. The descriptive statistics also show
that a higher proportion of female entrepreneurs (17.1 per cent) own more than one enter-
prise than male entrepreneurs (8.4 per cent). In terms of location of business, a higher
proportion of female-owned MSEs are home-based than male-owned ones, which tend
to be located in high-demand environments. Female entrepreneurs also tend to operate
more in food processing, beer brewing, retail of food and beverages, and bars and restau-
rants than their male counterparts. For instance, 13.6 per cent of female entrepreneurs are
in the food processing industry compared with only 3.9 per cent of male ones; while 13
per cent of male entrepreneurs operate in the garments and footwear retail trade com-
pared with only 2.4 per cent of female ones.
Gender biases are also revealed in access to credit, with 14.9 per cent of female entre-
preneurs having accessed credit to support their business operations, compared with
only 7.7 per cent of male entrepreneurs. The reason for this positive bias in access to
credit is that most micro-finance institutions that operate in urban, peri-urban and
rural areas tend to lend to women. (This is in contrast to the findings of Abor and
Biekpe (2006), who find that financial services are biased against women in Ghana.)
There are, however, no significant differences in the proportion of male and
female entrepreneurs belonging to business associations. Overall, only 3 per cent of
entrepreneurs belong to these.
 Gender and the performance of micro and small enterprises 353

Table 1: Descriptive statistics of variables in the modela

Gender of owners

Variable All MSEs Female Male Mixed

Dependent variables
Profit margin (%) 56.813 57.738 56.572 55.593
[25.96] [23.88] [27.49] [25.67]
Employment growth 0.084 0.116 0.065 0.069
[0.44] [0.63] [0.30] [0.20]
Independent variables
Gender
Female-owned (1, 0) 0.359 – – –
Male-owned (1, 0) 0.475 – – –
Mixed-owned (1, 0) 0.166 – – –
Entrepreneur characteristics
Age in years 33.046 34.027 31.803 34.483
[11.62] [11.25] [11.77] [11.58]
Married (1, 0) 0.764 0.652 0.777 0.972
Some primary education (1, 0) 0.460 0.438 0.489 0.422
Completed primary education (1, 0) 0.236 0.218 0.253 0.230
Completed junior secondary education (1, 0) 0.112 0.109 0.108 0.130
Completed senior secondary education (1, 0) 0.069 0.058 0.071 0.084
Higher education (1, 0) 0.022 0.024 0.018 0.031
Informal business skills training (1, 0) 0.135 0.079 0.185 0.114
Formal business skills training (1, 0) 0.142 0.084 0.164 0.200
Business experience (years) 6.342 5.236 7.228 6.207
[7.66] [6.69] [8.38] [7.15]
Business experience squared 98.833 72.061 122.385 89.520
[269.7] [212.3] [316.2] [227.3]
Business characteristics
Ownership of multiple MSEs (1, 0) 0.138 0.171 0.084 0.222
Traditional market place (1, 0) 0.140 0.081 0.162 0.202
Mobile market (1, 0) 0.073 0.050 0.098 0.049
Roadside/path market (1, 0) 0.268 0.188 0.352 0.200
Commercial/industrial (1, 0) 0.119 0.063 0.155 0.138
Consumer market (1, 0) 0.984 0.992 0.982 0.974
Manufacturing: food processing (1, 0) 0.079 0.136 0.039 0.073
Manufacturing: beer brewing/spirit distilling (1, 0) 0.066 0.140 0.002 0.086
Manufacturing: textiles and leather products (1, 0) 0.071 0.043 0.102 0.041
Manufacturing: wood and pottery products (1, 0) 0.046 0.021 0.072 0.024
Manufacturing: other manufactures (1, 0) 0.024 0.010 0.038 0.016
Retail: fish and forest-based products (1, 0) 0.071 0.069 0.066 0.088
Retail: food, beverages and tobacco (1, 0) 0.092 0.134 0.075 0.049
Retail: garments and footwear (1, 0) 0.079 0.024 0.130 0.055
Retail: general merchandise/grocery (1, 0) 0.231 0.149 0.264 0.314
Bars, restaurants and hotels (1, 0) 0.039 0.034 0.023 0.094
Services (1, 0) 0.076 0.034 0.116 0.049

(Table continued)
354 E W Chirwa

Table 1: Continued

Gender of owners

Variable All MSEs Female Male Mixed

Control variables
Credit access (1, 0) 0.105 0.149 0.077 0.094
Business association (1, 0) 0.029 0.028 0.027 0.037
Urban (1, 0) 0.568 0.572 0.616 0.424
Small town (1, 0) 0.225 0.193 0.211 0.332
Hours business is open 246 74 237.55 249.20 259.70
[111.1] [118.2] [91.74] [140.9]
Number of enterprises 3074 1104 1460 509

Note: aData in parentheses represent dummy variables equal to one for the reference category, otherwise equal
to zero, and the means are proportions for the reference category. Figures in brackets are standard deviations for
continuous variables.

5.1 Impact of gender of entrepreneur on performance

Table 2 presents OLS estimates of factors that influence profit margins and growth in
employment for all MSEs in the sample. The gender variables in the regression results
test the hypothesis that female-owned MSEs perform worse than male-owned MSEs.
With respect to profitability, the gender of ownership is not statistically significant,
although male-owned enterprises tend to perform better than female-owned ones.
Both female-owned and male-owned MSEs perform better than MSEs jointly owned
by females and males. The insignificance of gender in the profitability equation contrasts
with the findings of other studies in Africa, in which female-owned MSEs perform sig-
nificantly worse than male-owned enterprises (Kimuyu, 2002).
The only entrepreneur characteristic statistically significant at the 1 per cent level that affects
profitability is education. Although the coefficients of the education dummies are positive,
as expected, profitability is statistically significantly higher for entrepreneurs with higher
education (7.9 per cent above those without education), followed by those who completed
junior secondary education (4.1 per cent above those with no education). Among the
business characteristics, operation of multiple enterprises, location of the business and
the industry in which the MSEs operate have a significant influence on profitability. The
coefficient of the ownership of multiple enterprises is negative and statistically significant
at the 10 per cent level. The negative relationship reflects the inefficiency in time allocation
among the various enterprises that may lead to managerial inefficiencies.
MSEs that operate in a traditional market place and by the roadside or footpath tend to
generate more profits than home-based ones, with the coefficients being statistically sig-
nificant at the 1 per cent and 5 per cent levels, respectively. These locations are important
because they are places of high demand and the transaction costs (such as transport) are
minimal compared with mobile markets or commercial areas. Profitability also tends to
be statistically significantly (at the 1 per cent level) higher for MSEs operating in indus-
trial sectors such as retail of food and beverages and retail of garments and footwear,
while profitability is lower in the manufacture of textiles and leather products, wood
and pottery products and other manufactured products, bars and restaurants and services.
 Gender and the performance of micro and small enterprises 355

Table 2: OLS estimates on determinants of profit margins and employment

growth: all MSEs
Profit margin Employment growth

Variable Coefficient t-ratio Coefficient t-ratio

Gender
Female-owned 1.1678 0.86 0.0471 2.04


Male-owned 2.2285 1.64 0.0157 1.15
Entrepreneur characteristics
Age in years 0.0515 1.06 0.0007 0.51
Married 0.3996 0.38 0.0143 0.76
Some primary education 1.3610 0.88 – 0.0021 –0.08
Completed primary education 1.5610 0.93 0.0075 0.28
Completed junior secondary education 4.0617 2.14

0.0033 0.10
Completed senior secondary education 1.7602 0.75 0.0670 1.34
Higher education 7.9491 2.19

0.0296 0.62
Informal business skills training 2.4987 1.64 – 0.0020 –0.12
Formal business skills training 1.9205 1.31 – 0.0297 –1.62
Business experience –0.1797 –1.22 – 0.0149 –4.69

Business experience squared –0.0005 –0.12 0.0003 4.63

Business characteristics
Ownership of multiple MSEs –2.3826 –1.79† 0.0149 0.52
Traditional market place 3.1906 2.02

– 0.0053 –0.22
Mobile market 0.5808 0.30 – 0.0694 –3.31

Roadside/path market 4.4351 3.61
– 0.0068 –0.23
Commercial/industrial –0.1994 –0.12 – 0.0115 –0.42
Consumer market –2.4828 –0.66 0.0144 0.50
Manufacturing: food processing –0.3013 –0.18 0.0494 1.99†
Manufacturing: beer brewing/spirit distilling –0.4350 –0.22 – 0.0138 –0.65
Manufacturing: textiles and leather products –18.188 –8.08
0.0183 0.79
Manufacturing: wood and pottery products –23.777 –8.77
0.0658 1.66†
Manufacturing: other manufactures –16.767 –4.62
0.0081 0.32
Retail: fish and forest-based products –1.1681 –0.57 0.1045 1.38
Retail: food, beverages and tobacco 4.8415 3.10
0.0419 0.94
Retail: garments and footwear 6.6680 3.58
0.0432 1.47
Retail: general merchandise/grocery 1.8951 1.29 0.0262 1.31
Bars, restaurants and hotels –17.099 –5.07
0.0548 1.13
Services –24.271 –10.17
0.0574 1.79†
Control variables
Credit access 1.1753 0.82 0.1118 2.31


Business association 4.2701 1.46 0.0193 0.52
Urban 7.5394 5.51
0.0056 0.15
Small town 5.1327 3.37
0.0429 1.49
Hours business is open –0.0019 –0.36 0.0001 0.70
Constant 52.070 10.76
0.0051 0.06
R2 0.187 0.033
F-statistic 18.07 3.20
Probability . F 0.00 0.00
N 3074 3074

Notes: The t-statistics are based on heteroskedastic-consistent standard errors.
Statistically significant at the
1% level.

Statistically significant at the 5% level. †Statistically significant at the 10% level.
356 E W Chirwa

There is evidence that MSEs located in high-income strata (urban and small towns)
generate more profits than those in rural areas, and the coefficients are statistically sig-
nificant at the 1 per cent level. The profit margin is higher by 7.5 per cent in urban
areas and by 5.1 per cent in small towns than the profitability generated by MSEs in
rural enterprises.
With respect to growth in employment, we find evidence that, after controlling for
other factors that influence growth, female-owned MSEs tend to grow at a faster rate
than male-owned ones. This is in contrast to the hypothesis that female-owned
MSEs perform worse than male-owned ones. The coefficient of female-owned enter-
prises is statistically significant at the 5 per cent level and shows that female-owned
MSEs grow 4.7 per cent faster than MSEs with mixed gender. The coefficient of
male-owned MSEs is positive and its value below that of female-owned MSEs, but
it is statistically insignificant. These results contrast with the negative employment
growth associated with female ownership in some southern African countries
(McPherson, 1996). Hence, in the case of Malawi, the contention that female entrepre-
neurs in Africa tend to be low-risk investors does not receive support in this study. The
only entrepreneur characteristic that is statistically significant at the 1 per cent level is
business experience. We find a curvilinear (U-shaped) relationship between employ-
ment growth and business experience. Thus, MSEs belonging to new entrepreneurs
tend to contract or have retarded growth, and growth reaches a minimum as a
U-shaped relationship. Thus businesses with more than 25 years experience tend to
grow faster, and thereafter a positive relationship is observed as entrepreneurs gain
more experience.
In terms of business characteristics, only mobile market location, manufacturing in food
processing, manufacture of wood and pottery products and service industries are statisti-
cally significant variables at least at the 10 per cent level. MSEs that are mobile experi-
ence a reduction in growth in employment compared with home-based industries,
possibly reflecting the transaction costs of mobility and the potentially high waste of
supplies. MSEs in the manufacturing of food products and wood and pottery products
and those that operate in the service sector tend to grow at a faster rate (at least 4.9
per cent faster) than the base category (retail of farm products). The important role
that access to credit can play in business expansion is revealed by the positive and stat-
istically significant relationship between credit and employment growth. The results
show that MSEs with access to credit grew 11.2 per cent faster than those that did not
have access. Since a higher proportion of female-owned MSEs had access to credit, it
is not surprising that we find a significant relationship between female ownership of
MSEs and growth in employment.

5.2 Impact of gender-specific constraints on performance

The literature suggests that female-owned and male-owned enterprises face different
constraints in the operation of their businesses, which in turn result in the differential
impact on business performance. We use gender-based regressions to test the hypothesis
that the various factors affect female-owned and male-owned MSEs differently. Table 3
presents gender-based results on profit performance, using the OLS method. Factors that
are statistically significant in both female-owned and male-owned MSEs are type of
industry – including manufacture of textiles and leather products, manufacture of
wood and wood products, bars and restaurants, and services – and whether the MSEs
 Gender and the performance of micro and small enterprises 357

Table 3: OLS estimates on determinants of profit margins: female-owned and

male-owned MSEs

Female-owned Male-owned

Variable Coefficient t-ratio Coefficient t-ratio

Entrepreneur characteristics
Age in years 0.186 2.6
–0.005 – 0.1
Married 0.488 0.3 1.073 0.7
Some primary education 1.924 0.9 –0.036 0.0
Completed primary education 3.966 1.6 –1.054 – 0.3
Completed junior secondary education 5.298 1.8† 2.188 0.6
Completed senior secondary education 2.888 0.7 0.892 0.2
Higher education 10.96 1.9† 6.813 1.2
Informal business skills training 1.952 0.7 1.557 0.7
Formal business skills training 0.964 0.3 2.088 1.0
Business experience –0.022 –0.1 0.051 0.2
Business experience squared –0.011 –1.7† –0.002 – 0.4
Business characteristics
Ownership of multiple MSEs –3.815 –2.0

–2.261 – 0.9
Traditional market place 1.758 0.6 5.682 2.2


Mobile market –0.296 –0.1 1.418 0.5
Roadside/path market 1.130 0.6 6.346 3.1

Commercial/industrial –1.106 –0.3 0.739 0.3
Consumer market –3.979 –0.6 –0.091 0.0
Manufacturing: food processing –0.581 –0.3 –1.962 – 0.6
Manufacturing: beer brewing/spirit distilling –0.243 –0.1 –0.093 0.0
Manufacturing: textiles and leather products –14.04 –3.4
–23.37 – 7.2

Manufacturing: wood and pottery products –33.51 –7.1
–23.20 – 6.5

Manufacturing: other manufactures –9.000 –1.0 –20.16 – 4.4

Retail: fish and forest-based products 0.029 0.0 –3.437 – 1.0
Retail: food, beverages and tobacco 7.275 3.4
–0.056 0.0
Retail: garments and footwear 18.20 6.3
1.302 0.5
Retail: general merchandise/grocery 4.733 2.0

–3.442 – 1.5
Bars, restaurants and hotels –9.532 –1.8† –21.80 – 3.3

Services –21.06 –3.8
–28.54 – 8.9

Control variables
Credit access 3.918 2.1

–0.195 – 0.1
Business association 5.285 1.1 –1.400 – 0.3
Urban 6.784 3.4
11.27 4.7




Small town 4.729 2.1 5.462 2.1


Hours business is open –0.004 –0.5 0.005 0.6
Constant 49.27 6.7
52.22 7.2

R2 0.171 0.239
F-statistic 8.98 12.85
Probability . F 0.00 0.00
N 1104 1460

Notes: The t-statistics are based on heteroskedastic-consistent standard errors.
Statistically significant at the
1% level.

Statistically significant at the 5% level. †Statistically significant at the 10% level.
358 E W Chirwa

are in the urban areas or small towns. All of the industry sector dummy variables that are
significant are negatively associated with profit margins, while urbanisation has a posi-
tive influence on profit margins. The marginal effects of industry variables are higher for
male-owned than female-owned enterprises, suggesting that male-owned ones perform
worse than female-owned ones, with the exception of manufacture of textiles and
leather products. Differences in the location of the enterprises show that male-owned
MSEs are more profitable than female-owned ones that operate in urban and small
town centres. Completing junior secondary education and higher education is positively
associated with profitability and only statistically significant in the female-owned MSE
model, while education does not seem to play a major role in determining the profitabil-
ity of male-owned MSEs.
Ownership of multiple enterprises is statistically significant at the 5 per cent level in the
female-owned MSE model and has a negative influence on profitability. Business
location factors are only statistically significant among male-owned MSEs, in which
location at a traditional market place or roadside or footpath tends to boost enterprise
profitability. Female-owned enterprises operating in the retail of food and beverages,
retail of garments and footwear, and retail of general merchandise generate more
profits than the base category of retail of farm produce. Profit margins among female-
owned MSEs are highest in retail of garments and footwear (18.2 per cent higher than
the base category), followed by retail of food and beverages (7.3 per cent), while
male-owned enterprises in other manufacturing tend to generate less profit than the
base category.
Table 4 presents OLS results with respect to employment growth. The performance of
the regression models is rather poor, with low explanatory power and few significant
variables. The results, however, show that different factors affect the performance of
female-owned and male-owned enterprises. The common factors that significantly
affect both kinds of enterprise include business experience and operating a mobile
MSE. The relationship between employment growth and business experience in both
cases is U-shaped, with experience initially leading to slow growth rates of up to 13
years for female-owned and 20 years for male-owned enterprises, and thereafter
leading to higher growth rates. However, the marginal effects are lower in male-
owned enterprises than in female-owned ones. If the business location is a mobile
market, both female-owned and male-owned enterprises tend to have a retarded
growth rate in employment. Operating in another manufacturing sector is negatively
associated with growth in female-owned MSEs but operating in the service sector is posi-
tively associated with growth in employment. Operating in the manufacture of food pro-
ducts is associated with high growth rates in employment among male-owned MSEs.
Access to credit is an important factor in explaining growth in female-owned MSEs,
but it is not important in the growth of male-owned MSEs. This suggests that access
to credit by female entrepreneurs has the greatest potential for generating employment
among MSEs.

6. CONCLUSIONS
The development of MSEs is seen as one instrument for addressing the problems of
poverty in developing countries. Women are also increasingly participating in the own-
ership of MSEs in developing countries. In Malawi, 34 per cent of MSEs are owned by
women, compared with 35 per cent owned by men and 31 per cent owned by mixed
 Gender and the performance of micro and small enterprises 359

Table 4: OLS estimates on determinants of employment growth: female-owned and

male-owned MSEs

Female-owned Male-owned

Variable Coefficient t-ratio Coefficient t-ratio

Entrepreneur characteristics
Age in years 0.004 1.3 –0.002 – 1.5
Married 0.038 1.1 –0.005 – 0.2
Some primary education 0.044 1.1 –0.043 – 0.8
Completed primary education 0.037 0.9 –0.029 – 0.5
Completed junior secondary education 0.057 1.3 –0.036 – 0.6
Completed senior secondary education 0.230 1.7† –0.028 – 0.5
Higher education 0.119 1.3 –0.094 – 1.5
Informal business skills training –0.029 –0.7 0.005 0.2
Formal business skills training –0.101 –2.2

0.002 0.1
Business experience –0.026 –3.0
–0.008 – 3.3

Business experience squared 0.001 2.8
0.0002 2.8

Business characteristics
Ownership of multiple MSEs 0.008 0.1 0.016 0.3
Traditional market place –0.019 –0.4 0.006 0.2
Mobile market –0.081 –2.0

–0.077 – 2.9

Roadside/path market –0.001 0.0 –0.023 – 1.0
Commercial/industrial –0.027 –0.6 –0.015 – 0.6
Consumer market 0.046 0.7 –0.006 – 0.2
Manufacturing: food processing 0.028 0.7 0.085 2.1


Manufacturing: beer brewing/spirit distilling –0.005 –0.2 0.351 1.2
Manufacturing: textiles and leather products –0.009 –0.2 0.013 0.4
Manufacturing: wood and pottery products 0.104 1.1 0.054 1.2
Manufacturing: other manufactures –0.111 –2.0

–0.004 – 0.1
Retail: fish and forest-based products 0.217 1.2 0.009 0.2
Retail: food. beverages and tobacco 0.031 0.4 0.053 1.0
Retail: garments and footwear 0.127 0.8 0.016 0.6
Retail: general merchandise/grocery 0.048 1.0 0.001 0.0
Bars. restaurants and hotels 0.066 0.8 0.097 1.0
Services 0.029 0.5 0.055 1.3
Control variables
Credit access 0.163 1.7† 0.080 1.6
Business association –0.037 –0.8 0.035 0.7
Urban –0.002 0.0 –0.009 – 0.5
Small town 0.018 0.3 0.036 1.1
Hours business is open 0.0001 0.4 0.0001 1.1
Constant –0.118 –0.8 0.166 1.9†
R2 0.047 0.047
F-statistic 1.53 1.92
Probability . F 0.03 0.00
N 1104 1460

Notes: The t-statistics are based on heteroskedastic-consistent standard errors.
Statistically significant at the
1% level.

Statistically significant at the 5% level. †Statistically significant at the 10% level.
360 E W Chirwa

gender, implying that women are involved in 65 per cent of MSEs (ECI & NSO, 2000).
Using profitability and employment growth as indicators of enterprise performance, the
evidence for the first proposition – that female-owned MSEs perform worse than male-
owned ones – is mixed and sensitive to the measure of performance of MSEs in Malawi.
In terms of profitability performance, we find no evidence of significant differences in the
performance of female-owned and male-owned MSEs; hence, we reject the proposition
that they perform differently. However, the proposition that female-owned and male-
owned MSEs perform differently is accepted in terms of employment growth. We find
statistically significant gender-based differences in employment growth, in which
female-owned enterprises grow at a faster rate than male-owned ones. This is partly
due to the relative access to credit facilities from microfinance institutions that mostly
target women entrepreneurs and partly due to the high marginal impact of education.
With respect to the second proposition – whether there are gender-based differences in
factors influencing performance – the study provides support for the view that female-
owned and male-owned MSEs face different constraints on business performance. One
interesting result is that the impact of education on performance is more pronounced
in female-owned businesses than in male-owned ones, although male entrepreneurs
are slightly better endowed in human capital than female ones. Completion of junior sec-
ondary education and higher education are positively related to profitability among
female-owned enterprises, while none of the education variables are statistically signifi-
cant among male-owned enterprises. Similarly, at least one education category (com-
pletion of senior secondary education) is statistically significant among female
entrepreneurs in employment growth, compared with none among male entrepreneurs.
We also find that access to credit is more productive in female-owned enterprises.
Female-owned enterprises that have access to credit tend to perform better in terms of
profitability and employment growth than male-owned ones. This suggests that gender
biases against women’s access to capital and finance may impede the growth of
MSEs, which supports the proposition of the gender and development theorists. Credit
in male-owned enterprises is not used productively, and, although this is not statistically
significant, it does reduce the profitability of male-owned MSEs.
The others factors that lead to differential performance of female-owned and male-owned
MSEs are the economic sectors within which the enterprises operate. Sectors that are
gender neutral and in which profit margins are lower include textile and leather manufac-
turing, wood and pottery products manufacturing, bars, restaurants and hotels, and
services. However, female-owned enterprises achieve higher rates of profits than male-
owned ones in sectors such as retailing of food, beverages and tobacco, retailing of
garments and footwear and retailing of general merchandise. We also find no significant
differences in the extent to which business problems affect the gender-based performance
of MSEs. All of the business problems retard the revealed growth in sales, although these
problems are more pronounced in the case of female-owned enterprises. The most
important problem that affects the probability of revealed decrease in sales for both
female-owned and male-owned enterprises relates to marketing, followed by competition
in female-owned enterprises and finance in male-owned enterprises.

7. RECOMMENDATIONS
The results in the present study point to several policy issues. First, with respect to differ-
ential performance between female-owned and male-owned MSEs, the results suggest
 Gender and the performance of micro and small enterprises 361

the need to promote female entrepreneurship as a way of generating paid employment.

Second, the differential factors that affect the performance of female and male MSEs
suggest that interventions in the MSE sector may require gender-specific interventions,
since different factors affect the performance of female-owned and male-owned enter-
prises in varying ways. For instance, the relative importance of education in female-
owned enterprises suggests the need to increase human capital investments in women.
Investments in female education have the effect of not only improving the profitability
of their enterprises, but also generating paid employment opportunities. Similarly,
increasing female entrepreneurs’ access to credit facilities is more productive than
increasing this access for male entrepreneurs. There is a need therefore to promote
microfinance institutions that target financing of non-farm economic activities, with a
deliberate bias towards providing credit to women entrepreneurs.

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