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A Personal Touch: Text Messaging for Loan Repayment

Author

Listed:
  • Karlan, Dean

    (Yale University)

  • Morten, Melanie

    (Yale University)

  • Zinman, Jonathan

    (Dartmouth College)

Abstract

We worked with two microlenders to test impacts of randomly assigned reminders for loan repayments in the "text messaging capital of the world". We do not find strong evidence that loss versus gain framing or messaging timing matter. Messages only robustly improve repayment when they include the loan officer's name. This effect holds for clients serviced by the loan officer previously but not for first-time borrowers. Taken together, the results highlight the potential and limits of communications technology for mitigating moral hazard, and suggest that personal obligation/reciprocity between borrowers and bank employees can be harnessed to help overcome market failures.

Suggested Citation

  • Karlan, Dean & Morten, Melanie & Zinman, Jonathan, 2012. "A Personal Touch: Text Messaging for Loan Repayment," Working Papers 102, Yale University, Department of Economics.
    • Handle: RePEc:ecl:yaleco:102
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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