Agent-based mapping of credit risk for sustainable microfinance

Joung Hun Lee, Marko Jusup, Boris Podobnik, Yoh Iwasa

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7 Citations (Scopus)

Abstract

By drawing analogies with independent research areas, we propose an unorthodox framework for mapping microfinance credit risk - a major obstacle to the sustainability of lenders outreaching to the poor. Specifically, using the elements of network theory, we constructed an agent-based model that obeys the stylized rules of microfinance industry. We found that in a deteriorating economic environment confounded with adverse selection, a form of latent moral hazard may cause a regime shift from a high to a low loan payment probability. An after-the-fact recovery, when possible, required the economic environment to improve beyond that which led to the shift in the first place. These findings suggest a small set of measurable quantities for mapping microfinance credit risk and, consequently, for balancing the requirements to reasonably price loans and to operate on a fully self-financed basis. We illustrate how the proposed mapping works using a 10-year monthly data set from one of the best-known microfinance representatives, Grameen Bank in Bangladesh. Finally, we discuss an entirely new perspective for managing microfinance credit risk based on enticing spontaneous cooperation by building social capital.

Original languageEnglish
Article numbere0126447
JournalPloS one
Volume10
Issue number5
DOIs
Publication statusPublished - May 6 2015

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All Science Journal Classification (ASJC) codes

  • Biochemistry, Genetics and Molecular Biology(all)
  • Agricultural and Biological Sciences(all)
  • General

Cite this

Lee, J. H., Jusup, M., Podobnik, B., & Iwasa, Y. (2015). Agent-based mapping of credit risk for sustainable microfinance. PloS one, 10(5), [e0126447]. https://doi.org/10.1371/journal.pone.0126447