Bank on morality

Islamic credit-card users pay debt when reminded to do what’s right, study finds

Paper currency from Middle East and Asia. (Shutterstock)

“The Prophet (Peace and blessings be unto Him) says: “When Allah wishes good for someone, He bestows upon him the understanding of the Book” (Imam al-Bukhari). Please pay your credit card balance at your earliest convenience. Call …”

This isn’t research rooted in religion, but rather an economic behavioral study of how a consumer’s moral compass points him or her to repay debts.

A group of researchers, including a faculty member from Washington University in St. Louis, borrowed from Muslim teachings to show that an Indonesian bank issuing an Islamic credit card could significantly increase debt repayment by reminding consumers about their moral obligation to pay what they owe. Repayments also rise when the consequences of delinquency inhibiting the future ability to obtain credit are highlighted to customers, they discovered.


“We were not expecting the results to be so big, for sure,” said Daniel Gottlieb, assistant professor of economics at Olin Business School and one of four co-authors of a paper set to be published in an upcoming Journal of Political Economy.

“What’s interesting is, the payoff from appeals to morality are comparable to the effect you get from the threat of a substantial financial penalty — which, in Indonesia, can be a 24-month shutdown of a consumer’s credit. These were pretty surprising findings,” he said.

The evidence confirmed that an increase in payments was stimulated by a morality play and not by religious beliefs.

“We did the randomized experiment with everyone,” Gottlieb said. “Even people who were not from particularly religious regions seemed to respond to that.”

Islamic banking is a sizable and growing industry in Indonesia and elsewhere. There are 300-plus banks in more than 75 countries offering Sharia-compliant products, but overall they emphasize ethics more than religion, hence the non-Muslim clientele.

Partnering with a large Indonesian bank they cannot divulge, the researchers sent varying degrees of text messages to late-paying customers of this popular Islamic credit card, with more than 200,000 users. The bank sent text messages — frequently containing religious and moral content — to customers starting the day after a minimum payment was overdue.

From an overall pool of 14,429 customers who were one week past due at least once between the study period of Feb. 2015-April 2016, text messages were sent to:

Cellphone message (translated): “The Prophet (Peace and blessings be upon Him) says: ‘non-repayment of debts by someone who is able to repay is an injustice.’ (Imam al-Bukhari). Please repay your credit card balance at your earliest convenience. (Image: Daniel Gottlieb)
  • 4,120 participants in a control group receiving straightforward texts that translated as “Your (credit card) has reached the due date. Please make a payment at your earliest convenience. If you have already paid, ignore this text.”
  • 2,244 participants in a moral-incentive group that received the Sunni Islam religious quotations citing Allah displayed earlier (pictured at right).
  • Another 1,186 assigned to a similar sub-group received messages without (parenthetical) references to the prophet as in the message above.
  • Under the same moral-incentive umbrella, 1,180 received texts that were non-religious, removing any Prophet reference and replacing the Arabic-origin term for “injustice” (kezaliman) with the Indonesian word “ketidakadilan”: “Non-payments of debts by someone who is able to repay is an injustice. Please repay your credit card balance at your earliest convenience.”
  • The remaining participants received some different types of messages, such as one reminding them of the financial consequences of delinquency: “Late payments are reported monthly to Bank Indonesia Sistem Informasi Debitur (SID), which all banks consult. This will diminish your ability to get credit in the future. Please repay your card balance at your earliest convenience.”

All of the above were benchmarked by messages containing a cash-rebate incentive up to 50 percent of their current outstanding minimum payment due.

Their dataset included a range of demographic details, such as age, gender, religion, province, monthly income and credit limit. For example, the average customer in the study was male, 41, with an income of $375 in U.S. dollars, an outstanding debt on this credit card of $580 U.S. and a credit limit of $750 U.S.

They found a decrease in late payments between 3.8 and 5.2 percentage points across all groups, when prodded by the moral message on delinquency. Gender, age, religion or if they were a late-payer previously didn’t matter: There was an effect across those demographics. The effect proved stronger for customers with lower debt-to-income ratio, the researchers said.

“Some researchers have been looking at morality more generally,” Gottlieb said. “A lot of governments have been trying to tell people it’s immoral not to pay their taxes properly. There is a cable TV company somewhere trying to get people to pay for their cable using morality. Even businesses who portray themselves as socially responsible are pulling on those same strings. I think there might be a lot of new lessons coming from this.”

It may not happen as much in Western culture, but Gottlieb foresees the possibility that the banking business could try to meet its consumers’ moral compass in the middle: “To some extent, if the consumers hear about the morality aspect, the banks may act in a way that’s more aligned with the consumers’ reality,” he said.

Funding for this research came from UCLA Anderson Center for Global Management, the UCLA Anderson Price Center and the World Bank.
In addition to Gottlieb, the research team consisted of Leonard Bursztyn of the University of Chicago (UCLA Anderson School of Management during the study); Stefano Fiorin of the University of California San Diego Rady School of Management; and Martin Kanz of the World Bank.
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