Debt Restructuring in the Shadow of Moral Hazard: A Field Experiment with Small Businesses

Last registered on February 16, 2024


Trial Information

General Information

Debt Restructuring in the Shadow of Moral Hazard: A Field Experiment with Small Businesses
Initial registration date
February 16, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
February 16, 2024, 4:32 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.


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Primary Investigator

Dartmouth College

Other Primary Investigator(s)

PI Affiliation
Northwestern University
PI Affiliation
Dartmouth College
PI Affiliation
Duke University

Additional Trial Information

On going
Start date
End date
Secondary IDs
Financial Distress, Debt Restructuring, Liquidity Constraints, Wealth, Labor Supply
Prior work
This trial does not extend or rely on any prior RCTs.
We will investigate impacts of various loan modification strategies, using a field experiment and proprietary data in collaboration with a South African company specializing in lending to minibus taxi owners. The lender has randomly assigned delinquent borrowers the option, on an opt-out basis, to either (i) reduce only the total loan amount outstanding (“principal write-off”) or (ii) reduce only their monthly payments (“payment reduction”) or (iii) its usual offer of capitalizing borrower’s past arrears into the loan principal balance by extending the maturity (“control group”). We will measure primary outcomes using the lender’s data on loan performance and GPS tracking of drivers. We will also measure borrower behavior with other lenders using credit bureau data.
External Link(s)

Registration Citation

Eaglin, Christopher et al. 2024. "Debt Restructuring in the Shadow of Moral Hazard: A Field Experiment with Small Businesses." AEA RCT Registry. February 16.
Sponsors & Partners

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Experimental Details


The experiment focuses on a set of small firms (“borrowers”) that have borrowed from the lender and are currently in arrears. The small firms in our setting are minibus taxi owners who borrow from the lender using a debt contract, with the loan secured by the minibus. These business owners generate revenue by driving the minibus and are responsible for making fixed monthly payments, determined at loan origination, to the lender. The company decided to run the experiment on 3,186 borrowers who were delinquent at the time of the experiment.

We worked with the lender to randomize with stratification on eight groups. These eight groups are created by dividing the sample at the median across three variables: (a) the size of the effective payment reduction (%) the firm would receive if in the payment reduction group; (b) the size of the effective principal reduction (%) the firm would receive if in the principal reduction group; (c) the debt to income ratio. Our randomization aims to obtain three equally split samples across the control and two treatment conditions.

The lender will manage the communication with the customers. The experiment is structured in a way that customers are automatically enrolled in the new program, but they are allowed to opt out of this option at no cost. Customers will first receive the communication about their enrollment into the offer via an SMS. The message will contain a link to the letter detailing the new contractual terms. If the borrower decides to not take-up the offer, then she needs to opt-out within five business days. The company will follow up with phone calls in case the SMS is undeliverable. After the opt-out period, the lender will connect with borrowers explaining to them the terms of their new contract using follow-up phone calls.
Intervention Start Date
Intervention End Date

Primary Outcomes

Primary Outcomes (end points)
Loan performance: First, we plan to examine outcomes that capture the repayment activity by borrowers. This includes (i) how much borrowers pay month by month; (ii) the number of missed installments; (iii) NPV of the cash flow in the one year after the experiment; (iv) measures of delinquencies and default, month over month and over the one year; (v) a summary index of above measures.

Labor Supply Outcomes: Second, we plan to examine the outcomes of firm’s labor supply measure during the intervention period. For instance, using the lender’s proprietary data on borrowers’ driving, we can observe the number of trips that the firm has conducted per period, the total length of the trip, the distance driven. We will also be looking at the number of times firms were involved in an accident, obtained through data on their insurance claims, and of over-speeding.

Repayment and borrowings from other debt sources: We will analyze spillovers on other forms of borrowings reported in the credit bureau data. This includes any adverse flag, amount of debt overdue, late payments, new account openings, the share of borrowings overdue, total borrowings, borrowings by different sources, and defaults on those debts.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
Each borrower is randomly assigned to one of three experiment arms. Every borrower, including the ones in the control arm, receives a loan transformation. Borrowers in the control arm are then used as a benchmark to assess the size of the payment and principal reduction. The three offers received are the following:

(1) Control group: firms in the control group are presented with a new loan, featuring the same principal amount as their original outstanding loan, and with a monthly payment resembling that of the initial loan. Accepting this offer can still be advantageous for borrowers, as it helps them avoid accumulating late fees (in the form of interest on unpaid interest) from their delinquent loan. This method serves the purpose of bringing all borrowers in the sample to a "good standing" and also facilitates a more straightforward evaluation of the benefits associated with each of the other intervention methods. The modification allows the borrowers to avoid a negative flag on their credit report.

(2) Principal write-off group: the restructured loan for firms in this treatment arm has the same monthly payment as their original loan. However, these borrowers receive on average a 17% reduction in the total size of the loan they owe to the lender at the time of the experiment. As a result, the new maturity of the restructured loan is lower than the control group.

(3) Payment reduction group: the restructured loan for firms in this treatment arm matches the total amount paid in the control group. However, these firms receive on average a 13% reduction in monthly payments. This reduction allows borrowers to effectively extend the maturity of their loan, accommodating the smaller monthly payments.
Experimental Design Details
Not available
Randomization Method
Randomization done in office by a computer
Randomization Unit
The unit of randomization is the loan account (borrower of the minibus taxi). The firms will be randomized into one of the three groups, i.e., principal write-off, payment reduction, and the control group.
Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters
Sample size: planned number of observations
3,186 borrowers
Sample size (or number of clusters) by treatment arms
1,061 borrowers (payment reduction treatment); 1,062 borrowers (principal write-off treatment); 1,063 borrowers (control)
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Institutional Review Boards (IRBs)

IRB Name
Duke University Campus Institutional Review Board
IRB Approval Date
IRB Approval Number