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...

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Main Authors:	Bursztyn, Leonardo, Fiorin, Stefano, Gottlieb, Daniel, Kanz, Martin
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	SOCIALLY RESPONSIBLE INVESTMENT DEPOSIT REPAYMENT OF DEBT CREDIT CARDS CUSTOMER ISLAMIC BANK DEFAULTS LATE PAYMENTS INCOME INTEREST LAWS INDUSTRY SAVINGS BEHAVIOR SAVINGS ACCOUNTS INTEREST RATE EXCHANGE CREDIT CARD DEBT STRATEGIES LIQUIDITY SERVICES DEVELOPING COUNTRIES DEBTOR REPAYMENTS POLITICAL ECONOMY BANK INDONESIA PORTFOLIO MORTGAGE LOAN DISCOUNT PRICING BORROWERS PRICE CREDIT CARD LIQUIDITY CONSTRAINT PAYMENTS SAVING INTERNATIONAL BANK CONSUMER CHOICES COMMUNICATIONS DEPENDENT SAVINGS MORTGAGES PENALTIES FORGIVENESS CHECKING ACCOUNT MORAL HAZARD JUDGE RESTRUCTURING GLOBAL EQUITY DEBTS COLLECTIONS INTEREST RATES REPAYMENT BEHAVIOR PAYMENT DEBT MORAL SUASION FINANCIAL PRODUCTS PRIVATE SECTOR DEVELOPMENT CUSTOMER SERVICE LOANS CONSUMER CHOICE REPAYMENT OF DEBTS STUDENT DEBT REAL ESTATE FINANCE GRANTS STUDENT LOANS SAVINGS ACCOUNT BANKS EQUITY LOAN REPAYMENT SOVEREIGN DEBT HUMAN CAPITAL ETHICAL BEHAVIOR COLLECT DEBTS CREDIT CONTROL FUTURE REPUTATION VALUE ISLAMIC BANKS BANK PENALTY CREDIT FAIR TRADE ISLAMIC BANKING REPAYMENT REPAYMENT RATES PROPERTY RESPONSIBLE INVESTMENT SHARES ASSETS GRACE PERIOD DEFAULT INDEBTED LATE PAYMENT PUBLIC DEBT PEER PRESSURE PARTNER BANK INVESTMENT MANAGEMENT USURY LAWS ENFORCEMENT INSURANCE ACCESS TO CREDIT HUMAN RIGHTS TRADE INDEBTED POOR COUNTRIES GOODS INVESTOR FINANCIAL DEVELOPMENT ETHICAL GLOBAL EQUITY FUND STOCKS EQUITY FUND INVESTMENT OUTSTANDING DEBT RISK ETHICAL GLOBAL EQUITY NEW CREDIT SHARE INTERESTED PARTY BANKING REVENUE DEBT REPAYMENT COMMUNICATION DEBT FORGIVENESS CURRENT DEBT CUSTOMERS GAMBLING GOVERNMENTS ARREARS ISLAMIC LAW OUTSOURCING DEBT RELIEF ADVERSE SELECTION CREDIT MARKET REPAYMENT RATE ESTATE INVESTING
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

id	okr-10986-22842
recordtype	oai_dc
spelling	okr-10986-228422021-04-23T14:04:11Z Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card Bursztyn, Leonardo Fiorin, Stefano Gottlieb, Daniel Kanz, Martin SOCIALLY RESPONSIBLE INVESTMENT DEPOSIT REPAYMENT OF DEBT CREDIT CARDS CUSTOMER ISLAMIC BANK DEFAULTS LATE PAYMENTS INCOME INTEREST LAWS INDUSTRY SAVINGS BEHAVIOR SAVINGS ACCOUNTS INTEREST RATE EXCHANGE CREDIT CARD DEBT STRATEGIES LIQUIDITY SERVICES DEVELOPING COUNTRIES DEBTOR REPAYMENTS POLITICAL ECONOMY BANK INDONESIA PORTFOLIO MORTGAGE LOAN DISCOUNT PRICING BORROWERS PRICE CREDIT CARD LIQUIDITY CONSTRAINT PAYMENTS SAVING INTERNATIONAL BANK CONSUMER CHOICES COMMUNICATIONS DEPENDENT SAVINGS MORTGAGES PENALTIES FORGIVENESS CHECKING ACCOUNT MORAL HAZARD JUDGE RESTRUCTURING GLOBAL EQUITY DEBTS COLLECTIONS INTEREST RATES REPAYMENT BEHAVIOR PAYMENT DEBT MORAL SUASION FINANCIAL PRODUCTS PRIVATE SECTOR DEVELOPMENT CUSTOMER SERVICE LOANS CONSUMER CHOICE REPAYMENT OF DEBTS STUDENT DEBT REAL ESTATE FINANCE GRANTS STUDENT LOANS SAVINGS ACCOUNT BANKS EQUITY LOAN REPAYMENT SOVEREIGN DEBT HUMAN CAPITAL ETHICAL BEHAVIOR COLLECT DEBTS CREDIT CONTROL FUTURE REPUTATION VALUE ISLAMIC BANKS BANK PENALTY CREDIT FAIR TRADE ISLAMIC BANKING REPAYMENT REPAYMENT RATES PROPERTY RESPONSIBLE INVESTMENT SHARES ASSETS GRACE PERIOD DEFAULT INDEBTED LATE PAYMENT PUBLIC DEBT PEER PRESSURE PARTNER BANK INVESTMENT MANAGEMENT USURY LAWS ENFORCEMENT INSURANCE ACCESS TO CREDIT HUMAN RIGHTS TRADE INDEBTED POOR COUNTRIES GOODS INVESTOR FINANCIAL DEVELOPMENT ETHICAL GLOBAL EQUITY FUND STOCKS EQUITY FUND INVESTMENT OUTSTANDING DEBT RISK ETHICAL GLOBAL EQUITY NEW CREDIT SHARE INTERESTED PARTY BANKING REVENUE DEBT REPAYMENT COMMUNICATION DEBT FORGIVENESS CURRENT DEBT CUSTOMERS GAMBLING GOVERNMENTS ARREARS ISLAMIC LAW OUTSOURCING DEBT RELIEF ADVERSE SELECTION CREDIT MARKET REPAYMENT RATE ESTATE INVESTING 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. 2015-11-04T21:42:24Z 2015-11-04T21:42:24Z 2015-09 Working Paper http://documents.worldbank.org/curated/en/2015/09/25080545/moral-incentives-experimental-evidence-repayments-islamic-credit-card http://hdl.handle.net/10986/22842 English en_US Policy Research Working Paper;No. 7420 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Indonesia
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	SOCIALLY RESPONSIBLE INVESTMENT DEPOSIT REPAYMENT OF DEBT CREDIT CARDS CUSTOMER ISLAMIC BANK DEFAULTS LATE PAYMENTS INCOME INTEREST LAWS INDUSTRY SAVINGS BEHAVIOR SAVINGS ACCOUNTS INTEREST RATE EXCHANGE CREDIT CARD DEBT STRATEGIES LIQUIDITY SERVICES DEVELOPING COUNTRIES DEBTOR REPAYMENTS POLITICAL ECONOMY BANK INDONESIA PORTFOLIO MORTGAGE LOAN DISCOUNT PRICING BORROWERS PRICE CREDIT CARD LIQUIDITY CONSTRAINT PAYMENTS SAVING INTERNATIONAL BANK CONSUMER CHOICES COMMUNICATIONS DEPENDENT SAVINGS MORTGAGES PENALTIES FORGIVENESS CHECKING ACCOUNT MORAL HAZARD JUDGE RESTRUCTURING GLOBAL EQUITY DEBTS COLLECTIONS INTEREST RATES REPAYMENT BEHAVIOR PAYMENT DEBT MORAL SUASION FINANCIAL PRODUCTS PRIVATE SECTOR DEVELOPMENT CUSTOMER SERVICE LOANS CONSUMER CHOICE REPAYMENT OF DEBTS STUDENT DEBT REAL ESTATE FINANCE GRANTS STUDENT LOANS SAVINGS ACCOUNT BANKS EQUITY LOAN REPAYMENT SOVEREIGN DEBT HUMAN CAPITAL ETHICAL BEHAVIOR COLLECT DEBTS CREDIT CONTROL FUTURE REPUTATION VALUE ISLAMIC BANKS BANK PENALTY CREDIT FAIR TRADE ISLAMIC BANKING REPAYMENT REPAYMENT RATES PROPERTY RESPONSIBLE INVESTMENT SHARES ASSETS GRACE PERIOD DEFAULT INDEBTED LATE PAYMENT PUBLIC DEBT PEER PRESSURE PARTNER BANK INVESTMENT MANAGEMENT USURY LAWS ENFORCEMENT INSURANCE ACCESS TO CREDIT HUMAN RIGHTS TRADE INDEBTED POOR COUNTRIES GOODS INVESTOR FINANCIAL DEVELOPMENT ETHICAL GLOBAL EQUITY FUND STOCKS EQUITY FUND INVESTMENT OUTSTANDING DEBT RISK ETHICAL GLOBAL EQUITY NEW CREDIT SHARE INTERESTED PARTY BANKING REVENUE DEBT REPAYMENT COMMUNICATION DEBT FORGIVENESS CURRENT DEBT CUSTOMERS GAMBLING GOVERNMENTS ARREARS ISLAMIC LAW OUTSOURCING DEBT RELIEF ADVERSE SELECTION CREDIT MARKET REPAYMENT RATE ESTATE INVESTING
spellingShingle	SOCIALLY RESPONSIBLE INVESTMENT DEPOSIT REPAYMENT OF DEBT CREDIT CARDS CUSTOMER ISLAMIC BANK DEFAULTS LATE PAYMENTS INCOME INTEREST LAWS INDUSTRY SAVINGS BEHAVIOR SAVINGS ACCOUNTS INTEREST RATE EXCHANGE CREDIT CARD DEBT STRATEGIES LIQUIDITY SERVICES DEVELOPING COUNTRIES DEBTOR REPAYMENTS POLITICAL ECONOMY BANK INDONESIA PORTFOLIO MORTGAGE LOAN DISCOUNT PRICING BORROWERS PRICE CREDIT CARD LIQUIDITY CONSTRAINT PAYMENTS SAVING INTERNATIONAL BANK CONSUMER CHOICES COMMUNICATIONS DEPENDENT SAVINGS MORTGAGES PENALTIES FORGIVENESS CHECKING ACCOUNT MORAL HAZARD JUDGE RESTRUCTURING GLOBAL EQUITY DEBTS COLLECTIONS INTEREST RATES REPAYMENT BEHAVIOR PAYMENT DEBT MORAL SUASION FINANCIAL PRODUCTS PRIVATE SECTOR DEVELOPMENT CUSTOMER SERVICE LOANS CONSUMER CHOICE REPAYMENT OF DEBTS STUDENT DEBT REAL ESTATE FINANCE GRANTS STUDENT LOANS SAVINGS ACCOUNT BANKS EQUITY LOAN REPAYMENT SOVEREIGN DEBT HUMAN CAPITAL ETHICAL BEHAVIOR COLLECT DEBTS CREDIT CONTROL FUTURE REPUTATION VALUE ISLAMIC BANKS BANK PENALTY CREDIT FAIR TRADE ISLAMIC BANKING REPAYMENT REPAYMENT RATES PROPERTY RESPONSIBLE INVESTMENT SHARES ASSETS GRACE PERIOD DEFAULT INDEBTED LATE PAYMENT PUBLIC DEBT PEER PRESSURE PARTNER BANK INVESTMENT MANAGEMENT USURY LAWS ENFORCEMENT INSURANCE ACCESS TO CREDIT HUMAN RIGHTS TRADE INDEBTED POOR COUNTRIES GOODS INVESTOR FINANCIAL DEVELOPMENT ETHICAL GLOBAL EQUITY FUND STOCKS EQUITY FUND INVESTMENT OUTSTANDING DEBT RISK ETHICAL GLOBAL EQUITY NEW CREDIT SHARE INTERESTED PARTY BANKING REVENUE DEBT REPAYMENT COMMUNICATION DEBT FORGIVENESS CURRENT DEBT CUSTOMERS GAMBLING GOVERNMENTS ARREARS ISLAMIC LAW OUTSOURCING DEBT RELIEF ADVERSE SELECTION CREDIT MARKET REPAYMENT RATE ESTATE INVESTING Bursztyn, Leonardo Fiorin, Stefano Gottlieb, Daniel Kanz, Martin Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card
geographic_facet	Indonesia
relation	Policy Research Working Paper;No. 7420
description	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.
format	Working Paper
author	Bursztyn, Leonardo Fiorin, Stefano Gottlieb, Daniel Kanz, Martin
author_facet	Bursztyn, Leonardo Fiorin, Stefano Gottlieb, Daniel Kanz, Martin
author_sort	Bursztyn, Leonardo
title	Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card
title_short	Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card
title_full	Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card
title_fullStr	Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card
title_full_unstemmed	Moral Incentives : Experimental Evidence from Repayments of an Islamic Credit Card
title_sort	moral incentives : experimental evidence from repayments of an islamic credit card
publisher	World Bank, Washington, DC
publishDate	2015
url	http://documents.worldbank.org/curated/en/2015/09/25080545/moral-incentives-experimental-evidence-repayments-islamic-credit-card http://hdl.handle.net/10986/22842
_version_	1764452204344770560

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

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