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Moral Incentives: Experimental Evidence from Repayments of an Islamic Credit Card
October 21, 2015Poverty and Applied Microeconomics Seminar Series

Speaker: Martin Kanz is an Economist in the Finance Team of the Development Research Group at the World Bank. More »

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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Last Updated: Oct 19, 2015

The Poverty and Applied Micro Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers in applied microeconomics from the fields of poverty, human development and public service delivery, agriculture and rural development, political economy, behavioral economics, private sector development, and a range of other fields to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Event Details
  • Date: October 21, 2015
  • Location: MC6-100
  • Time: 12:30 - 2:00 PM
  • CONTACT: Anna Bonfield
  • abonfield@worldbank.org



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