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

Last registered on June 14, 2016
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Pre-Trial

Trial Information

General Information

Title
Credit Market Consequences of Improved Personal Identification: Field Experimental Evidence from Malawi
RCT ID
AEARCTR-0001330
Initial registration date
June 14, 2016

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
June 14, 2016, 9:58 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Country
Malawi
Region
Africa

Primary Investigator

Name
Jessica Goldberg
Affiliation
University of Maryland
Contact Primary Investigator

Other Primary Investigator(s)

PI Name
Dean Yang
PI Affiliation
Ford School of Public Policy and Department of Economics, University of Michigan and Bureau for Research and Economic Analysis of Development
Contact Investigator
PI Name
Xavier Giné
PI Affiliation
Development Economics Research Group, World Bank, and Bureau for Research and Economic Analysis of Development
Contact Investigator

Additional Trial Information

Status
Completed
Start date
2007-08-01
End date
2008-11-30
Keywords
Agriculture, Finance & Microfinance
Additional Keywords
agricultural inputs, microcredit, loan groups, moral hazard, adverse selection, biometric identification, identity fraud, creditworthiness, paprika, Malawi
JEL code(s)
D14, D82, G21, O12, O16
Secondary IDs
Abstract
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.
External Link(s)
J-PAL Evaluation Summary

Registration Citation

Citation
Giné, Xavier, Jessica Goldberg and Dean Yang. 2016. "Credit Market Consequences of Improved Personal Identification: Field Experimental Evidence from Malawi." AEA RCT Registry. June 14. https://doi.org/10.1257/rct.1330-1.0
Former Citation
Giné, Xavier, Jessica Goldberg and Dean Yang. 2016. "Credit Market Consequences of Improved Personal Identification: Field Experimental Evidence from Malawi." AEA RCT Registry. June 14. https://www.socialscienceregistry.org/trials/1330/history/8818
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
The trial tests whether biometric identification improves moral hazard and adverse selection in rural credit markets in Malawi. Farmer loan groups in Malawi were offered credit to grow paprika. After the baseline survey was administered to individual farmers a training session was held for on the importance of credit history in ensuring future access to credit. Then, in treatment groups only, fingerprints were collected as part of the loan application and an explanation was given that this would be used to determine their identity on any future loan applications. Following this, loan applications were processed in the usual way without the status of fingerprinting being taken into account as a factor for loan approval.
Intervention Start Date
2007-09-30
Intervention End Date
2008-09-30

Primary Outcomes

Primary Outcomes (end points)
1) Loan approval and take-up
2) Amount borrowed
3) Loan repayment
4) Land allocation for different crops
5) Inputs used on paprika
6) Farm profits
Primary Outcomes (explanation)
1) Loan approval and take-up: tests whether fingerprinted applicants had a different rate of loan approval than non-fingerprinted applicants. Likewise, whether treatment borrowers have a different rate of loan take-up once their application is approved.
2) Amount borrowed: the size of the loan borrowed
3) Loan repayment: Loans were officially due to be paid by September 2008, but in actuality loans were collected till November 2008.
4) Land allocation for different crops: nonproduction of paprika is a form of moral hazard, since the lender can only feasibly seize paprika output but not other crops. By not producing paprika (or producing less), the borrower is better able to avoid repayment. Therefore, land allocation to paprika can be a measure of the degree of moral hazard.
5) Inputs used on paprika: Likewise, non-application of inputs on the paprika crop facilitates default on the loan and is therefore another form of moral hazard since only paprika output can feasibly be seized by the lender.
6) Farm profits: market crop sales, the value of unsold crops, and profits.

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
The loans were provided by the Malawi Rural Finance Corporation (MRFC) to farmers for purchasing "starter kits" from Cheetah Paprika Limited (CP). CP is a privately owned agri‐business company that offers extension services and inputs at subsidized rates in exchange for farmers' commitment to sell the paprika crop to CP at harvest time.

Farmers were asked to form groups of 15-20 members in order to apply for the loan, even though loans were given to individuals. The study sample consisted of 214 clubs with 3,206 farmers with half randomly allocated to treatment and the rest forming the control group. In treatment clubs only, fingerprints were collected as part of the loan application. A total of 1,147 applicants took out the loan.
An endline survey was administered after the harvested crops were sold to CP, but with 520 farmers. Due to budget constraints it was not possible to visit every participant rather, study participants were invited to come to a central location to be administered the follow-up interview. Not all farmers came for the follow-up survey but there was no evidence of selective attrition related to treatment status.
Experimental Design Details
Randomization Method
In office using computer
Randomization Unit
Loan club
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
214 loan clubs
Sample size: planned number of observations
3,206 farmers
Sample size (or number of clusters) by treatment arms
Half of the clubs in each of 31 strata were assigned to treatment and half to control.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials

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IRB

Institutional Review Boards (IRBs)

IRB Name
University of Michigan
IRB Approval Date
2007-08-14
IRB Approval Number
HUM00014810
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
September 30, 2008, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
November 30, 2008, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
214 loan clubs
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
Loan take-up: 3206 farmer
Loan repayment analysis: 1147 farmers
Farming outcomes: 520 farmers
Final Sample Size (or Number of Clusters) by Treatment Arms
Loan repayment analysis: 1147 farmers Control: 537 farmers, Treatment: 610 farmers Farming outcomes: 520 farmers Control: 212 farmers, Treatment: 308 farmers
Data Publication

Data Publication

Is public data available?
Yes
Public Data URL
https://www.aeaweb.org/articles?id=10.1257/aer.102.6.2923

Program Files

Program Files
Yes
Program Files URL
https://www.aeaweb.org/articles?id=10.1257/aer.102.6.2923
Reports, Papers & Other Materials

Relevant Paper(s)

Abstract
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.
Citation
Gine, Xavier, Jessica Goldberg, and Dean Yang. 2012. "Credit Market Consequences of Improved Personal Identification: Field Experimental Evidence from Malawi." American Economic Review: 102(6): 2923-2954.
URL
https://www.povertyactionlab.org/sites/default/files/publications/280_383%20fingerprinting%20malawi%20AER2012.pdf

Reports & Other Materials