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DECRG Kuala Lumpur Seminar Series: Moral Incentives- Experimental Evidence from Repayments of an Islamic Credit Card
February 4, 2016DECRG Kuala Lumpur Seminar Series

Abstract: We study the role of morality in the decision to repay debts. Using a field experiment with a large Islamic bank in Indonesia, we find that moral appeals strongly increase credit card repayments. In our setting, all of the bank's 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 quotes an Islamic religious text stating 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%. 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% of the minimum repayment. Finally, we find 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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  • Martin Kanz

    Economist, Development Research Group
    Martin Kanz is an Economist in the Finance Team of the Development Research Group at the World Bank. Martin's research interests include banking and financial intermediation, consumer finance, and the political economy of state interventions in credit markets. As part of his research, Martin has been involved in several field experiments and impact evaluations on financial sector topics, predominantly in India and Sub-Saharan Africa. Prior to joining the World Bank, Martin worked for the Investment Strategy Group at Goldman Sachs in New York and taught graduate and undergraduate courses in finance and economics. He received his AB in Economics from Harvard College, his MSc in Development Economics from Oxford and his PhD from Harvard University.
  • The DECRG Kuala Lumpur Seminar Series is hosted by the World Bank's Development Research Group (DECRG) based in the World Bank Malaysia office. The series invites leading researchers in development economics and public policy to present their recent work in an academic-style seminar format.
event details
  • when: Thursday, February 4, 2016; 12:30 - 2:00 pm
  • where: World Bank Malaysia Office, Level 3, Sasana Kijang, No. 2, Jalan Dato’ Onn
  • RSVP: By February 1, 2016 to msambrose@worldbank.org. Please include your full name, passport/Malaysia IC and affiliation



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