NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Leonardo Bursztyn, Stefano Fiorin, Daniel Gottlieb, Martin Kanz

NBER Working Paper No. 21611
Issued in October 2015
NBER Program(s):   CF   DEV   LE   POL

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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Document Object Identifier (DOI): 10.3386/w21611

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