Moral Incentives: Experimental Evidence from Repayments of an Islamic Credit Card

38 Pages Posted: 20 Apr 2016 Last revised: 27 Apr 2018

See all articles by Leonardo Bursztyn

Leonardo Bursztyn

University of California, Los Angeles (UCLA) - Anderson School of Management

Stefano Fiorin

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area

Daniel Gottlieb

Washington University in St. Louis

Martin Kanz

World Bank; World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: September 23, 2015

Abstract

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 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 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.

Keywords: Judicial System Reform, Legal Products, Legal Reform, Regulatory Regimes, Social Policy, Legislation, Marketing, Private Sector Economics, Private Sector Development Law, Energy and Mining, Energy Demand, Energy and Environment, Capital Flows, Capital Markets and Capital Flows, Housing Finance, Non Bank Financial Institutions

Suggested Citation

Bursztyn, Leonardo and Fiorin, Stefano and Gottlieb, Daniel and Kanz, Martin, Moral Incentives: Experimental Evidence from Repayments of an Islamic Credit Card (September 23, 2015). World Bank Policy Research Working Paper No. 7420. Available at SSRN: https://ssrn.com/abstract=2664878

Leonardo Bursztyn (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Stefano Fiorin

University of California, Los Angeles (UCLA) - Global Economics and Management (GEM) Area ( email )

110 Westwood Plaza
Box 951481
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/degrees/phd/phd-students/gem/fiorin

Daniel Gottlieb

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
St. Louis, MO MO 63130
United States

Martin Kanz

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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