# **4.2 Reputation vs. Moral Incentives**

As we have documented above, the moral incentive text message generated larger effects than the provision of strong short-term financial incentives in the form of a cash rebate. These findings suggest that emphasizing a long-term consequence of not repaying (even if it is purely moral) might be more effective than even a large cash transfer. In this section, we examine another long-term consequence of non-repayment: one’s reputation in the credit market. To evaluate the hypothesis that customers care about reputational incentives with a long time-horizon, the bank sent text messages to a random subset of late-paying customers informing them about the existence of a credit registry Indonesia, and the consequences of being reported for non-repayment.

Evidence from a baseline survey with a sample of 223 clients drawn from the universe of the credit users suggest that overall knowledge about Indonesia’s credit registry, the _Sistem Informasi Debitur_ (SID) is limited. About 75% report that they do not know about the SID, and most clients demonstrate to have substantial misconceptions about the consequences of a bad credit record. For example, 34% of respondents think it will make them unable to open a deposit account, 48% think they will have to appear in front of a judge (both of which are not true), and 22% of respondents think it will have no consequences on their ability to obtain credit in the future (which is false, since all banks in Indonesia consult the registry to screen customers).<sup>37</sup> Results from the credit reputation treatment are reported in Appendix Table A.4. When looking at raw repayment rates, informing customers about the credit registry raises the probability of minimum repayment by 29% (as opposed to 18% for moral incentive messages sent during the same months). These findings indicate that both moral and reputational incentives with a long time horizon substantially raised repayment rates in our setting.

# **4.3 Impact on Other Outcomes**

## **4.3.1 Savings Account Balances**

To better understand how customers make payments in response to moral incentives, we next examine the effect of repayment on savings account balances. We have access to customers’ balance on their _tabungan_ (Indonesian for “savings”) accounts. These are the most common type of deposit account among clients of our partner bank, and have all characteristics of a standard liquid savings account. Contrasting customers’ balance on the sixteenth day of the month (the day when messages were sent) and the eighteenth (the deadline for repayments) of each month provides suggestive

> 37Note, however, that this piece of evidence should be taken with caution since it comes from a sample drawn from the universe of customers and because the question referred to “Sistem Informasi Debitur” and not to credit registry in general (so clients might know about the existence of a credit registry but not its actual name). Still, the survey indicates that the text message mentioning the credit registry might not only draw customers’ attention to the registry, but also provide information about the functioning of the registry to some clients. Finally, this treatment might also send a signal to customers that the bank is serious about reporting them to the registry.

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