Social Incentives in Debt Repayment

Last registered on July 09, 2019

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Pre-Trial

Trial Information

General Information

Title

Social Incentives in Debt Repayment

RCT ID

AEARCTR-0004178

Initial registration date

June 25, 2019

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

July 09, 2019, 3:41 PM EDT

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

Locations

Country

Viet Nam

Region

Primary Investigator

Name

Ha Diep-Nguyen

Affiliation

Purdue University

Contact Primary Investigator

Other Primary Investigator(s)

PI Name

Huong Dang

PI Affiliation

Foreign Trade University

PI Name

Jun Yang

PI Affiliation

Indiana University

Additional Trial Information

Status

On going

Start date

2019-02-15

End date

2020-06-30

Keywords

Finance & Microfinance

Additional Keywords

JEL code(s)

Secondary IDs

Abstract

We study social incentives in credit repayment decision of households. We partner with a retail bank in Vietnam and work with a random sample of its credit card customers. Borrowers upon application for credit provide the bank with contact information of their social connections to serve as their references. We randomly assign some customers to have the bank inform the customers' social references in case they do not repay debt on time with the purpose of encouraging their repayment. First, we test whether social concerns have an effect on incentivizing borrowers to repay their debts? Second, we examine how the effects of social concerns fare to other types of incentives such as monetary reward or credit reputation concerns? Third, we investigate which mechanisms are driving the effects: social stigma or informational role of default? Finally, we test whether social incentives can serve as a (soft) collateral, which we call social collateral. Additionally in this regard, we study to what extend social collateral can substitute physical collateral and the the implications for the borrowers with less physical assets to pledge as collateral such as the unbanked or underbanked, student loans, or the small business owners in cash economies.

External Link(s)

Registration Citation

Citation

Dang, Huong, Ha Diep-Nguyen and Jun Yang. 2019. "Social Incentives in Debt Repayment." AEA RCT Registry. July 09. https://doi.org/10.1257/rct.4178-1.0

Former Citation

Dang, Huong, Ha Diep-Nguyen and Jun Yang. 2019. "Social Incentives in Debt Repayment." AEA RCT Registry. July 09. https://www.socialscienceregistry.org/trials/4178/history/49587

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Experimental Details

Interventions

Intervention(s)

We partner with a retail bank in Vietnam and work with a random sample of its credit card customers. Borrowers upon application for credit provide the bank with contact information of their social connections to serve as their references. We randomize the offers we make to these customers with the purpose of encouraging their repayment, one of which is to have the bank inform the customers' social references in case they do not repay debt on time.

Intervention Start Date

2019-02-15

Intervention End Date

2020-04-30

Primary Outcomes

Primary Outcomes (end points)

Repayment

Primary Outcomes (explanation)

Repayment is an indicator that takes 1 if the customers make at least the minimum payment they are required to make by the deadline (10 days after the due date) and takes 0 if otherwise.

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

We partner with a retail bank in Vietnam and work with a random sample of its credit card customers. Borrowers upon application for credit provide the bank with contact information of their social connections to serve as their references. We ask the customers if they agree to let the bank inform their social references in exchange for a chance to win a lottery. Among those who agree to the arrangement, we randomize these borrowers in 2 main groups:
(1) Customers in group 1 will have the social notification arrangement offered to them and serve as the main treatment group. They will receive a text message reminding the customers that if they do not repay by the deadline (10 days after the due date), their non-repayment will be disclosed to their social contacts;
(2) Customers in group 2 will have the social notification arrangement retracted from them and be divided into 3 subgroups:
(2.1) Customers in group 2.1 serve as the main control group and receive a normal text message reminder asking for repayment that the bank regularly sends out before the deadline;
(2.2) Customers in group 2.2 serve as financial incentive benchmark group and receive a text message offering the customers a reduction in late fee and interest if they repay by the deadline.
(2.3) Customers in group 2.3 serve as credit registry benchmark group and receive a text message informing customers that if they do not repay by the deadline, their non-repayment will be reported to credit registry and stating this affect their ability to get credit since all banks consult the registry
We test whether the concerns about social image influences repayment behavior, in particular we test:
- Whether social notification increases repayment of credit card debt (group 2.1 vs. group 1)
- How the effects of social concerns fare with effects of other incentives such as financial incentive (group 2.2) and future access to credit (group 2.3)
- How the effects of social concerns change with the types of social connection.

Experimental Design Details

Randomization Method

Random assignment of social notification treatment is done by a Python program at the time the customers answer their questionaire.

Randomization Unit

The randomization is at the level of the individual customer

Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters

10000 borrowers

Sample size: planned number of observations

10000 borrowers

Sample size (or number of clusters) by treatment arms

Of the 10000 borrowers in the trial, we expect an acceptance rate of 70%. We randomize among these 7000 accepting borrowers as follow: 2000 social notification treatment (group 1), 2000 control with normal reminder (group 2.1), 1500 credit registry treatment (group 2.2), 1500 financial incentive treatment (group 2.3). (Final and actual sample size will vary, depending on number of accepting borrowers as well as their repayment behavior)

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

IRB