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<p>High loan default rates pose a significant challenge to the sustainability of microfinance institutions (MFIs). While digital interventions offer promising solutions, their effectiveness, particularly in designing text message reminders, remains underexplored in this context. This study investigates the impact of text message reminders, designed based on Construal Level Theory (CLT), on loan repayment behavior in microfinance. Through a randomized 2 × 2 factorial field experiment involving 767 active borrowers of Addis Ababa Credit and Saving Institution (ADCSI), Ethiopia’s third-largest MFI, we manipulated two key dimensions of psychological distance: temporal distance (reminders sent 1&#xa0;day vs. 10 days before the due date) and informational distance (messages with vs. without loan amount disclosure). Our findings reveal that text message reminders significantly increase loan repayment rates (25.5%), confirming the efficacy of low-cost digital nudges in enhancing borrower compliance. Contrary to traditional CLT predictions, messages sent 10 days before the due date (greater temporal distance) were more effective than those sent 1&#xa0;day prior (28.7%). Similarly, omitting the specific loan amount (higher informational distance) led to higher repayment rates than explicitly stating it (16.9%). We attribute these counter-intuitive results to the alleviating effect of greater psychological distance on financial pressure and cognitive load in high-stakes financial contexts, allowing borrowers more time for planning and fostering a sense of autonomy. Further analyses indicate these effects are particularly beneficial for borrowers with a history of default, larger loan amounts, and those in service-related businesses, though the direct effects are largely short-lived. This study enriches the field of behavioral economics by demonstrating the non-linear and context-dependent application of CLT in high-pressure financial decision-making among low-income populations. Practically, it offers scalable and cost-effective strategies for MFIs to design more impactful digital nudges, ultimately enhancing repayment rates and promoting financial stability in developing countries.</p>

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The paradox of proximity: rethinking Construal Level Theory for effective mobile nudges in microfinance loan repayment

  • 期刊论文

  • 发表日期：

    2026年4月24日

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  • Nigusse Gebre Geberemdhin,
  • Woojin Yang,
  • Chul Ho Lee

摘要

High loan default rates pose a significant challenge to the sustainability of microfinance institutions (MFIs). While digital interventions offer promising solutions, their effectiveness, particularly in designing text message reminders, remains underexplored in this context. This study investigates the impact of text message reminders, designed based on Construal Level Theory (CLT), on loan repayment behavior in microfinance. Through a randomized 2 × 2 factorial field experiment involving 767 active borrowers of Addis Ababa Credit and Saving Institution (ADCSI), Ethiopia’s third-largest MFI, we manipulated two key dimensions of psychological distance: temporal distance (reminders sent 1 day vs. 10 days before the due date) and informational distance (messages with vs. without loan amount disclosure). Our findings reveal that text message reminders significantly increase loan repayment rates (25.5%), confirming the efficacy of low-cost digital nudges in enhancing borrower compliance. Contrary to traditional CLT predictions, messages sent 10 days before the due date (greater temporal distance) were more effective than those sent 1 day prior (28.7%). Similarly, omitting the specific loan amount (higher informational distance) led to higher repayment rates than explicitly stating it (16.9%). We attribute these counter-intuitive results to the alleviating effect of greater psychological distance on financial pressure and cognitive load in high-stakes financial contexts, allowing borrowers more time for planning and fostering a sense of autonomy. Further analyses indicate these effects are particularly beneficial for borrowers with a history of default, larger loan amounts, and those in service-related businesses, though the direct effects are largely short-lived. This study enriches the field of behavioral economics by demonstrating the non-linear and context-dependent application of CLT in high-pressure financial decision-making among low-income populations. Practically, it offers scalable and cost-effective strategies for MFIs to design more impactful digital nudges, ultimately enhancing repayment rates and promoting financial stability in developing countries.