Seminario CEDE - Nicolás de Roux

We use a large, randomized controlled trial involving 7,063 late clients of a Colombian private bank to understand whether providing borrowers with text messages containing different types of behavioral nudges to repay their loan improves repayment rates, and which of these nudges is the most effective. The trial leverages several streams of text messages that address different barriers and biases to loan repayment faced by borrowers. We find that receiving a nudge to repay decreases borrowers' average likelihood to be late by 4%. The effects are more pronounced when borrowers receive a nudge that leverages social and moral norms of repayment. Our results are concentrated among late borrowers with a good credit history. We also find some evidence that those living in areas with high trust towards banks respond more to nudges. Our findings suggest that behavioral nudges are effective tools to improve repayment behavior when borrowers have preferences for repayment and when there is scope to improve their repayment behavior.