Becker Friedman Institute

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A personal touch: text message reminders and loan repayment

We report the results of an experiment sending weekly text message reminders to microfinance clients in two rural banks in the Philippines on late payment and loan default. We test three treatments: a personalization treatment, a framing treatment, and a timing treatment. We do not find an overall treatment effect. Rather, we find that the content of the message is important. The personalization treatment - a message that is signed from account officer reduces the probability a client makes a late weekly payment by 20% compared to the control group, and there is a 24% higher chance that the full balance of the loan is paid at the loan maturity date. We do not find any effects from a framing treatment or from a timing treatment, and so the results are not purely due to a reminder effect. We draw two main conclusions: firstly, there is evidence of ex post inefficiencies in the credit market. Our second conclusion speaks to the role of technology. We provide an example where, through personalization, technology is an effective and simple aid to finance in low income countries.

Authors: 
Melanie Morten, Stanford University
Dean Karlan, Yale University
Jonathan Zinman, Dartmouth College
Publication Date: 
October, 2011
Publication Status: