NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, December 20, 2016

Eight years ago, development economist Dean Yang spent a week in Malawi visiting microfinance institutions, the banks and credit unions that provide financial services to some of the world’s most vulnerable citizens.

Yang, who works to combat extreme global poverty, was trying to understand the constraints these institutions faced as they sought to extend more loans and services to poor people in rural areas while recovering a reasonable level of profit, and growing their businesses, along the way.

“There’s very little microlending in rural Malawi; it’s just very hard to make it work,” says Yang. “Ninety percent of the people live on smallholder farms in places that basically have no electricity or running water or financial services or government interaction at all.”

During one of these visits, Yang asked a manager at the Malawi Rural Finance Corporation, which lends almost exclusively to paprika farmers just north of Lilongwe, if he could think of anything that might improve the bank’s business situation.

The manager’s reply was unexpected: fingerprinting borrowers.

Fingerprinting, of course, is increasingly used as identity protection in developed economies. It’s long been used for forensic analysis in the criminal justice system. And centuries ago, it was used to seal contracts—parties to the contract would press their fingertips into clay.