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How do borrowers respond to improvements in a lender's ability to punish defaulters? This paper reports the results of a randomized field experiment in rural Malawi that examines the impact of fingerprinting borrowers in a context where a unique identification system is absent. Fingerprinting allows the lender to more effectively use dynamic repayment incentives: withholding future loans from past defaulters while rewarding good borrowers with better loan terms. 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).

Access to credit --- Access to Finance --- Bankruptcy and Resolution of Financial Distress --- Borrower --- Collateral --- Credit market --- Credit markets --- Debt Markets --- Defaulters --- Economic Theory & Research --- Finance and Financial Sector Development --- Information asymmetries --- International bank --- Lender --- Lenders --- Loan --- Loan sizes --- Loan terms --- Macroeconomics and Economic Growth --- Microfinance --- Moral hazard --- Profitability --- Public policy --- Repayment --- Repayment rates --- Rural credit