Working Paper: NBER ID: w17449
Authors: Xavier Gin; Jessica Goldberg; Dean Yang
Abstract: 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).
Keywords: credit markets; personal identification; biometric technology; Malawi; field experiment
JEL Codes: O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fingerprinting (Y50) | repayment rates (G51) |
| fingerprinting (Y50) | loan repayment rates for high-risk borrowers (G51) |
| fingerprinting (Y50) | reduction in adverse selection (D82) |
| fingerprinting (Y50) | reduction in moral hazard (G52) |
| fingerprinting (Y50) | improved quality of loan pool (G21) |
| fingerprinting (Y50) | withholding of future loans from past defaulters (F34) |
| fingerprinting (Y50) | expansion of credit for reliable borrowers (G21) |
| fingerprinting (Y50) | increase in repayment among lowest predicted repayment quintile (G51) |
| fingerprinting (Y50) | credit market efficiency (G14) |