lenders that grant repayment deferrals.

# **3 The Debt Forbearance Experiment**

## **3.1 Setting and Sample Population**

We partnered with a large consumer finance lender in India to conduct a natural field experiment (Harrison and List, 2004), in which the lender extended randomized debt forbearance offers to its customers. Our partner is one of India’s leading consumer finance lenders, has more than 35 million individual customers across the country and offers a range of consumer financial products. Within the lender’s customer population, we focus on borrowers that had taken out a consumer loan to purchase a mobile phone. At the time of our experiment over 13 million loans of this type were outstanding, and we focus on loans that had missed at least two monthly payments. The loans in our sample have a mean (median) tenor of 7.8 months (8 months), a median amount of Rs 10,955 (US $150),<sup>12</sup> , and a constant interest rate of 12 percent APR, which is similar to the characteristics of the typical consumer loan in India.<sup>13</sup> The loans are collateralized by the mobile phone, and the lender has the ability to remotely restrict the phone’s ability to use data or make outgoing calls in the event that a borrower misses their monthly payments. Importantly, borrowers in this population are likely to be contactable by phone, which allows us to implement a nationwide experiment that is integrated into the lender’s regular interaction with its customers over the phone. The forbearance offers in our experiment are extended through the lender’s standard communication channels, have real stakes, and are fully compliant with the terms of India’s national debt moratorium policy in place at the time of our experiment.

## **3.2 Experimental Protocol**

The main experiment was implemented between November 2020 and March 2021, after India’s first phase of the national debt moratorium had ended and while lenders were encouraged, but not required, by the regulator to offer additional debt forbearance to their customers. This allows us to extend real stakes debt forbearance offers that are truthfully framed as being granted either as an initiative of the lender or as a result of government policy.

The experiment was conducted in several rounds, corresponding to the lender’s monthly repayment cycle. Each month, the lender shared a list of borrowers that had failed to make their required monthly loan payment. The size of each monthly borrower cohort was thus determined by the size of the lender’s 30-day delinquency portfolio at this point in time. This sample was further restricted to borrowers that had been making regular payments prior to this date and whose loans had not previously been restructured or modified. Through this process, the lender shared a sample of more than 51,660 customers that qualified for debt forbearance according to its internal criteria. We excluded from this sample any borrowers who, if they accepted a forbearance offer, would not complete

> 12 We use the Jan 1, 2021 exchange rate of Rp 73 per US$ for all currency conversions in this paper.

> 13 The median (average) consumer loan recorded in credit bureau data for this population has an amount of Rs 12,800 (Rs 15,000), a median (average) interest rate of 16.5% (19.5%), and a median (average) tenor of 7 months (8.9 months).

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