Assessing the potential impact of Microfinance with agent-based modeling

Salim Rashid, Youngeun Yoon, Md Shakil Bin Kashem

Research output: Contribution to journalArticlepeer-review

Abstract

Recent empirical results have cast doubt on the value of Microfinance as a tool for reducing poverty. But, the difficulty lies in evaluating the impact of Microfinance in a world where the Microfinance institutions, their borrowers, and government policies are constantly changing. There is a need for a comprehensive and transparent framework to develop the theoretical grounds for believing in (or against) the efficacy of Microfinance, which can at the same time be used as a testing ground for policymakers. This paper presents a first attempt to develop an agent-based modeling (ABM) framework for pre-policy-implementation testing of the effects of Microfinance. Under the ABM paradigm, a set of behaviors for individual agents in the economy is used to construct a simulation whereby random interaction allows agents to change their state over time. Simulation of the model in different scenarios supported all our intuitions about Microfinance; in particular, there was positive impact of Microfinance on the wealth level of the poor. It was found that increase of available funds, easy access for producers and lower interest rates increase the effectiveness of Microfinance.

Original languageEnglish (US)
Pages (from-to)1907-1913
Number of pages7
JournalEconomic Modelling
Volume28
Issue number4
DOIs
StatePublished - Jul 1 2011

Keywords

  • Agent based modeling
  • Microenterprise development
  • Microfinance

ASJC Scopus subject areas

  • Economics and Econometrics

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