Our partner lender is interested in increasing the number of first-time applicants via a client referrals promotional campaign. In addition, this lender would like to attract good applicants and encourage good repayment behavior. By randomizing the rules of the promotion, we will be able to detect whether clients have asymmetric information on the borrowing “type” of fellow borrowers, and if clients are able to influence the repayment behavior of fellow clients. Based on this information, we will be able to design an optimal referrals program going forward.
Our partner lender operates in South Africa’s “cash loan” industry, offering high-interest, short-term credit with fixed repayment schedules to a “working poor” population. As part of the promotional campaign, first-time borrowers receive two Refer-A-Friend Vouchers with their loan. These vouchers follow one of four sets of rules that dictate how the client becomes eligible for a Referral Bonus. The randomized variation in the rules will allow us to answer our research questions.