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A Personal Touch: Text Messaging for Loan Repayment

Author

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  • Dean Karlan
  • Melanie Morten
  • Jonathan Zinman

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

  • Dean Karlan & Melanie Morten & Jonathan Zinman, 2012. "A Personal Touch: Text Messaging for Loan Repayment," NBER Working Papers 17952, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17952
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    1. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics.
    2. William Adams & Liran Einav & Jonathan Levin, 2009. "Liquidity Constraints and Imperfect Information in Subprime Lending," American Economic Review, American Economic Association, vol. 99(1), pages 49-84, March.
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    6. Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
    7. Sumit Agarwal & Brent W. Ambrose & Souphala Chomsisengphet & Chunlin Liu, 2011. "The Role of Soft Information in a Dynamic Contract Setting: Evidence from the Home Equity Credit Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 633-655, June.
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    Cited by:

    1. Apoorv Gupta & Jacopo Ponticelli & Andrea Tesei, 2019. "Technology Adoption and Access to Credit via Mobile Phones," Working Papers 892, Queen Mary University of London, School of Economics and Finance.
    2. Tasoff, Joshua & Letzler, Robert, 2014. "Everyone believes in redemption: Nudges and overoptimism in costly task completion," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 107-122.
    3. Sule Alan & Mehmet Cemalcılar & Dean Karlan & Jonathan Zinman, 2015. "Unshrouding Effects on Demand for a Costly Add-on: Evidence from Bank Overdrafts in Turkey," NBER Working Papers 20956, National Bureau of Economic Research, Inc.
    4. Gharad Bryan & Dean Karlan & Jonathan Zinman, 2015. "Referrals: Peer Screening and Enforcement in a Consumer Credit Field Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 174-204, August.
    5. Andrew Dustan & Stanislao Maldonado & Juan Manuel Hernandez-Agramonte, 2018. "Motivating bureaucrats with non-monetary incentives when state capacity is weak: Evidence from large-scale field experiments in Peru," Working Papers 136, Peruvian Economic Association.
    6. Andrew Dustan & Juan Manuel Hernandez-Agramonte & Stanislao Maldonado, 2018. "Motivating bureaucrats with non-monetary incentives when state capacity is weak: Evidence from large-scale," Natural Field Experiments 00664, The Field Experiments Website.
    7. Bogdan Genchev & Julie Holland Mortimer, 2016. "Empirical Evidence on Conditional Pricing Practices," Boston College Working Papers in Economics 908, Boston College Department of Economics.
    8. Dean Karlan & Margaret McConnell & Sendhil Mullainathan & Jonathan Zinman, 2016. "Getting to the Top of Mind: How Reminders Increase Saving," Management Science, INFORMS, vol. 62(12), pages 3393-3411, December.
    9. Altmann, Steffen & Traxler, Christian, 2014. "Nudges at the dentist," European Economic Review, Elsevier, vol. 72(C), pages 19-38.
    10. Cátia Batista & Marcel Fafchamps & Pedro C. Vicente, 2018. "Keep It Simple: A Field Experiment on Information Sharing in Social Networks," NBER Working Papers 24908, National Bureau of Economic Research, Inc.
    11. repec:taf:jdevst:v:55:y:2019:i:4:p:548-564 is not listed on IDEAS
    12. Hong Luo & Julie Holland Mortimer, 2016. "Copyright Enforcement: Evidence from Two Field Experiments," NBER Working Papers 22082, National Bureau of Economic Research, Inc.
    13. Rekha Reddy & Miriam Bruhn & Congyan Tan, 2013. "Financial Capability in Mexico : Results from a National Survey on Financial Behaviors, Attitudes, and Knowledge
      [Capacidades financieras en México : resultados de la encuesta nacional sobre compor      ," World Bank Other Operational Studies 16756, The World Bank.
    14. Emma Boswell Dean & Frank Schilbach & Heather Schofield, 2017. "Poverty and Cognitive Function," NBER Chapters, in: The Economics of Poverty Traps, pages 57-118, National Bureau of Economic Research, Inc.
    15. Sanders, Michael, 2017. "Social influences on charitable giving in the workplace," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 66(C), pages 129-136.
    16. Catherine Larochelle & Jeffrey Alwang & Elli Travis & Victor Hugo Barrera & Juan Manuel Dominguez Andrade, 2019. "Did You Really Get the Message? Using Text Reminders to Stimulate Adoption of Agricultural Technologies," Journal of Development Studies, Taylor & Francis Journals, vol. 55(4), pages 548-564, April.
    17. Nora Grote & Tim Klausmann & Mario Scharfbillig, 2019. "Preference for Identification in the Field - Nudging Refugees' Integration Effort," Working Papers 1905, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz.
    18. Apoorv Gupta & Jacopo Ponticelli & Andrea Tesei, 2019. "Technology Adoption and Access to Credit via Mobile Phones," Working Papers 892, Queen Mary University of London, School of Economics and Finance.

    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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