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

  • Xavier Giné
  • Jessica Goldberg
  • Dean Yang

We report the results of a randomized field experiment that examines the credit market impacts of improvements in a lender's ability to determine borrowers' identities. Improved personal identification enhances the credibility of a lender's dynamic repayment incentives by allowing it to withhold future loans from past defaulters and expand credit for good borrowers. The experimental context, rural Malawi, is characterized by an imperfect identification system. Consistent with a simple model of borrower heterogeneity and information asymmetries, 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. The change in repayment rates is driven by reductions in adverse selection (smaller loan sizes) and lower moral hazard (for example, less diversion of loan-financed fertilizer from its intended use on the cash crop).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17449.

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Date of creation: Sep 2011
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Publication status: published as Xavier Gine & Jessica Goldberg & Dean Yang, 2012. "Credit Market Consequences of Improved Personal Identification: Field Experimental Evidence from Malawi," American Economic Review, American Economic Association, vol. 102(6), pages 2923-54, October.
Handle: RePEc:nbr:nberwo:17449
Note: LS
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