Credit Market Consequences of Improved Personal Identification: Field Experimental Evidence from Malawi

Xavier Gine, Jessica Goldberg, and Dean Yang , American Economic Review 102(6) , 2923-2954 , October 2012.
We implemented a randomized field experiment in Malawi examining borrower responses to being fingerprinted when applying for loans. This intervention improved the lender’s ability to implement dynamic repayment incentives, allowing it to withhold future loans from past defaulters while rewarding good borrowers with better loan terms. As predicted by a simple model, fingerprinting led to substantially higher repayment rates for borrowers with the highest ex ante default risk, but had no effect for the rest of the borrowers. We provide unique evidence that this improvement in repayment rates is accompanied by behaviors consistent with less adverse selection and lower moral hazard.
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