Shaming Microloan Delinquents: Evidence from a Field Experiment in China

Forthcoming, Management Science

53 Pages Posted: 24 Nov 2020

See all articles by Di Bu

Di Bu

Macquarie University, Department of Applied Finance

Yin Liao

Australian National University - The Centre for Applied Macroeconomic Analysis (CAMA); Macquarie University - Department of Applied Finance and Actuarial Studies

Date Written: November 17, 2020

Abstract

We study the effects of village credit information sharing on individual microloan repayment, using a randomized experiment with loan applicants from 40 villages in rural China. In our main treatment, customers received a message on the loan application form that “overdue payment (40 days after each installment due date) will be considered for public disclosure among the village by showing debtors’ names on a blackboard outside the village office of the microlending institution.” On average, this social appeal reduces the share of delinquents and the individual delinquency rate by 18.6% and 5.6% from baseline rates of 79.5% and 15.2%, respectively. The effects appear more pronounced among male and older borrowers. Additional treatments help to benchmark the effect against lender credit information sharing and separate the effects on adverse selection and moral hazard. Mechanism analysis shows that the publicly disclosed “blacklist” of delinquents affects borrowers’ repayment behaviors, partially through borrowers’ fear of losing informal risk insurance from the village society, and predominately through public shaming penalties. Overall, these results support that, in traditional societies, social appeals can provide not only pecuniary, but also psychological incentives to improve loan repayment. Psychological incentives, to some extent, have stronger effects.

Keywords: Individual microloan; Repayment behavior; Social appeal; Shaming penalties; Informal insurance dependence

JEL Classification: G02

Suggested Citation

Bu, Di and Liao, Yin and Liao, Yin, Shaming Microloan Delinquents: Evidence from a Field Experiment in China (November 17, 2020). Forthcoming, Management Science, Available at SSRN: https://ssrn.com/abstract=3732139 or http://dx.doi.org/10.2139/ssrn.3732139

Di Bu

Macquarie University, Department of Applied Finance ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Yin Liao (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
United States

Australian National University - The Centre for Applied Macroeconomic Analysis (CAMA) ( email )

Canberra, Australian Capital Territory 2601
Australia

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