The Effect Of Behavioral Economics Treatments On A Microlending Company In Sub-Saharan Africa

Abstract

In this paper, I applied insights from the behavioral economics field on the customer journey processes of a microlending company in Sub-Saharan Africa. I performed three randomized controlled trials (RCTs) on clients of a Nigeria-based microlending company operating entirely through a mobile application. I designed the treatments in regard to the company’s main pain points: the rate at which people did not repay their loans (default rate of 42% for first-time borrowers), and the rate at which people sign up and give their bank details to the company in order to receive a loan. Using personalized text reminders (mentioning the name of a company’s employee) before the repayment of a loan was due, I was able to lower the default rate by more than 10%, which is statistically significant. And while interesting points were observed in the two other experiments “Sign Up” and “Bank Details”, none of the treatments in those two experiments had a significant effect. Although this paper stresses the limit that behavioral economics can have on some processes of a customer journey, this work suggests that behavioral science needs to be taken into consideration when designing products in the financial landscape.