A Personal Touch: Text Messaging for Loan Repayment

This paper presents the results of a simple randomized trial in which, text messages were sent to individual liability microfinance clients from two banks in the Philippines. The study examines whether and how text message reminders can induce timelier loan repayment. Each bank sent randomly assigned individual liability borrowers weekly text message reminders about their weekly repayment obligations. Additional levels of randomization varied the timing and content of the messages across borrowers. The study does not find an overall treatment effect, which means that the average message does not significantly improve repayment. Timing treatments and loss or gain framing do not have significant effects relative to the control group, or significant differences from each other. Including the loan officers name significantly improves repayment among borrowers, though this effect holds for clients serviced by the loan officer previously but not for first-time borrowers. These results suggest that:

• Messages can induce repayment;
• Personal relationships between borrowers and loan officers play a significant role;
• Messaging can improve repayment even without obtaining additional information on the borrower;
• Content is important;
• Properly crafted information and communication technology-based innovations can buttress relationship lending.