title: Agent-based mapping of credit risk for sustainable microfinance.
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.
authors.affiliation: Faculty of Sciences, Kyushu University, Fukuoka, Japan.
authors.forename: Joung-Hun
authors.initials: JH
authors.lastname: Lee
authors.affiliation: Faculty of Sciences, Kyushu University, Fukuoka, Japan.
authors.forename: Marko
authors.initials: M
authors.lastname: Jusup
authors.affiliation: Faculty of Civil Engineering, University of Rijeka, Rijeka, Croatia; Faculty of Economics, University of Ljubljana, Ljubljana, Slovenia; Zagreb School of Economics and Management, Zagreb, Croatia.
authors.forename: Boris
authors.initials: B
authors.lastname: Podobnik
authors.affiliation: Faculty of Sciences, Kyushu University, Fukuoka, Japan.
authors.forename: Yoh
authors.initials: Y
authors.lastname: Iwasa
mesh_terms: D001459:Bangladesh; D003906:Developing Countries; D005376:Financial Management; D000067571:Financial Statements; D006801:Humans; D007182:Income; D008962:Models, Theoretical; D011203:Poverty; D012306:Risk; D012959:Socioeconomic Factors