Updated Dec 11, 2018


Fingerprinting to Reduce Risky Borrowing: A Randomized Evaluation in Malawi

Part of Innovations for Poverty Action

Fingerprinting to Reduce Risky Borrowing

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Yang Dean

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Stage 2: Research & Development

Lenders may use “dynamic incentives,” such as the promise of larger future loans or threats of future credit denial, to ensure loan repayment. But dynamic incentives work only when borrowers can be reliably identified. When countries lack formal identification systems, borrowers may avoid sanction for default by simply applying for new loans under different identities or from different institutions. This reduces the profitability of lending, leading lenders to limit the supply of credit. As a result, many creditworthy smallholder farmers cannot finance crucial inputs such as fertilizer and improved seeds.

Registered in Malawi.

Focus Areas:

Economic Growth and Trade and Social & Micro Finance

Economic Growth and Trade and Social & Micro FinanceSEE LESS

Implemented In:



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Innovation Description

To test whether fingerprinting leads to increases in loan repayments on a wider scale and to introduce a fingerprint-based credit bureau.
How does your innovation work?
The University of Michigan’s research team ran a successful randomized evaluation in Malawi in 2007-08 and showed that fingerprinting led to dramatic increases in repayment for the riskiest borrowers. Fingerprinting also led these riskiest borrowers to voluntarily take smaller loans and to be more likely to use their loans on productive farming activities (both these actions increased their likelihood of repayment). Cost-effectiveness calculations would compare benefits estimated from the treatment-control comparison with costs assessed via surveys of and administrative data from in-country partners.

Planned Goals and Milestones

The results of the study will be disseminated via knowledge-sharing events with relevant Malawian stakeholders, highlighting both private rates of return (for microfinance institutions) and social rates of return (private returns plus increased effort on the part of farmers leading to higher crop output and household income). The study would use a randomized evaluation methodology; localities within the study region would be randomly assigned to either a treatment condition (where borrowers would be fingerprinted upon loan application) or control group (where fingerprinting would not be implemented). Impact evaluation would utilize administrative data and household surveys.
With DIV Stage 2 funding, The University of Michigan seeks to introduce a fingerprint-based credit bureau in Malawi and answer additional important questions in an expanded study population. This new research would involve many more borrowers (thousands, instead of hundreds) and all Malawian micro-lenders (instead of just one) covering the entire country (instead of just a small area). It would also examine impacts over a longer 3-year study period (instead of just one year).


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