**Loan repayment.** We observe repayment of loans in our experiment using administrative data provided by the lender. Based on this data, we construct our main outcome variable _loan repaid_ . Figure A.2 in the Supplementary Appendix shows a stylized timeline of loan repayment. It is worth noting that making loan payments in full and on time is indeed a choice variable in our setting. The vast majority of customers make payments using a digital payments link each month (81 percent). Only a small fraction of customers (11 percent) use the lender’s automatic payment option and a similarly small number of customers make payments in cash (3 percent).

Our primary measure of loan repayment is the variable _loan repaid_ , which is an indicator equal to one if a loan has been repaid in full. The lender measures repayment one day after a borrower is scheduled to make their final monthly payment. If the lender receives this payment the loan is closed and reported as repaid to the credit bureau. Because borrowers who accept one of the moratorium offers in our experiment not only pause payments, but also have the tenor of their loan extended by three months, we measure repayment for all loans three months after the initial due date of the last payment for each loan.<sup>16</sup> We construct the outcome _loan repaid_ for loans in the experiment and for all loans from other lenders that appear in credit bureau data of borrowers in our sample.

**Borrower beliefs.** The second group of outcomes we use in our analysis are measures of borrower beliefs. Examining the impact of moratorium offers on borrower beliefs allows us to test for the precise mechanisms through which forbearance can give rise to moral hazard, for example by generating expectations of lenient credit enforcement or future forbearance.

The main survey we use for this purpose is an incentivized elicitation exercise in which borrowers who received one of our experimental treatments are asked whether they expect banks or the regulator to offer another moratorium in the event of a future crisis. Specifically, we asked a sample of 645 borrowers who had participated the experiment whether they expected another debt moratorium to be extended by private lenders or the government in the event that India would experience another wave of the pandemic in the next 12 months as severe as the one that had triggered the initial round of debt forbearance measures.<sup>17</sup> Borrowers were incentivized with a lottery in which they could win a cash prize of Rs 5,000 (US$ 68) if their prediction was correct.

To measure expectations about lenient credit enforcement in the future, we additionally asked a sample of 259 borrowers who had participated in our experiment whether they expected credit enforcement to be more lenient, less lenient or about the same in the next 12 months. Since, in contrast to a debt moratorium, there is no clear trigger event for lenient credit enforcement, only the two questions about expectations of future forbearance were incentivized.

> 16 This is a conservative approach which might underestimate the true effect of moratorium offers on loan repayment, given that repayment of loans that opt into the moratorium is measured at the end date while repayment of all other loans additionally takes into account payments made in the three months after the original end date of the loan, thus potentially overstating repayment for borrowers in the control. We conduct a number of robustness checks with alternative definitions of loan repayment and find that these have no material impact on our results. The results are available upon request.

> 17 Borrowers were randomly assigned to a question eliciting incentivized expectations about either a moratorium issued by banks (320 respondents) or a moratorium issued by the regulator (325 respondents).

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