- Project report
Message framing to improve digital credit repayment rates
- July 30, 2014
- 2:50 pm
SECTOR
PROJECT TYPE
DOI
Location
BEHAVIORAL THEME
OVERVIEW
How can social obligations be induced on a digital platform?
Digital credit offers a compelling opportunity to lower the costs and barriers to accessing Credit. Recent research has suggested that this increased access has led to improved household resilience to shocks (Bharadwalj, 2019)1.
Yet, timely borrower repayment is a challenge for credit institutions. Stringent policies such as blacklisting, have been adopted to drive timely repayments and finalize collections, however, they have proven quite expensive and can have negative long–term impacts on borrowers.
Recently, cost effective approaches have been sought out such as the use of behavioral nudges. Particularly in the peer–to–peer market, the use of social levers have the potential to encourage borrowers to prioritize repayment based on social responsibility.
THEMATIC AREAS
We deployed a series of interventions that tested whether small changes to the framing of repayment reminders could encourage higher repayment rates. These tests were not conducted on a live loan product, but a simulated experience where borrowers were given KES 50, with the opportunity to be paid KES 200 two weeks later if they paid the KES 50 in two KES 25 intervals at a set payment schedule. This simulation allowed us to quickly recreate a low cost loan experience without exposing the lender to a large number of new borrowers.