Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card
This paper studies the role of morality in the decision to repay debts. Using a field experiment with a large Islamic bank in Indonesia, the paper finds that moral appeals strongly increase credit card repayments. In this setting, all of the banks...
| Main Authors: | , , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2015/09/25080545/moral-incentives-experimental-evidence-repayments-islamic-credit-card http://hdl.handle.net/10986/22842 |
| Summary: | This paper studies the role of morality
in the decision to repay debts. Using a field experiment
with a large Islamic bank in Indonesia, the paper finds that
moral appeals strongly increase credit card repayments. In
this setting, all of the banks late-paying credit card
customers receive a basic reminder to repay their debt one
day after they miss the payment due date. In addition, two
days before the end of a ten-day grace period, clients in a
treatment group also receive a text message that cites an
Islamic religious text and states that “non-repayment of
debts by someone who is able to repay is an injustice.” This
message increases the share of customers meeting their
minimum payments by nearly 20 percent. By contrast, sending
either a simple reminder or an Islamic quote that is
unrelated to debt repayment has no effect on the share of
customers making the minimum payment. Clients also respond
more strongly to this moral appeal than to substantial
financial incentives: receiving the religious message
increases repayments by more than offering a cash rebate
equivalent to 50 percent of the minimum repayment. Finally,
the paper finds that removing religious aspects from the
quote does not change its effectiveness, suggesting that the
moral appeal of the message does not necessarily rely on its
religious connotation. |
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