Study shows SMS Reminders Boost Ontime Loan Payments

Professor Dean KarlanInnovations for Poverty Action (IPA) led by Professor Dean Karlan of Yale University, in partnership with United States Agency for International Development-supported Rural Bankers Association of the Philippines-Microenterprise Access to Banking Services (RBAP-MABS) Program,  conducted a study to test the effectiveness of using text messages (SMS) for loan payment reminder. Updates on this study were shared with RBAP-MABS on January 20, 2012.

In partnership with two RBAP-MABS participating banks, Green Bank Inc. and the Rural Bank of Mabitac, IPA studied the impact of SMS reminders with 1,259 first time borrowers. The study was designed to investigate the importance of the SMS’s timing, framing and personalization of reminders sent to borrowers.  For a period of sixteen (16) months between January 2009 and April 2010, 840 randomly selected loan clients received SMS reminders in their local dialect reminding them to pay their loans.

IPA found that the most important factor leading to significant improvements in loan payments came from personalized SMS messages. These messages were customized to state that the borrower’s account officer was sending the reminder message to pay on time.  These messages were more effective than just using the client’s name.

This finding demonstrates the effective role that SMS reminders can play in connecting with microfinance borrowers.  IPA is also conducting studies on Credit Scoring, Debt Traps and the Impact of Savings for microfinance clients in the Philippines.  For more information about ongoing research in the Philippines please visit: http://www.poverty-action.org/project-evaluations/search?country=563