Microcredit Model Research Articles

The profitability analysis of fintech microlending: advanced Whale curve tools applying

Fintech is actively expanding its activities in various directions in the modern financial system. One of these directions is the development of consumer lending, which forms an important competitive factor for banks and other traditional lenders. Lending models implemented by fintech companies have a number of fundamental differences from classic ones. The article is devoted to the study of the fintech microcredit model and the profitability analysis of this model based on the advanced Whale curve toolkit adapted to lending.In the article, the microcredit model is structured into three blocks, which include income generation, credit risk management systems, and borrower lead generation. Income generation is considered within the PDL (payday lending) approach. The methodological components of the application of the Whale curve toolkit for lending are justified. The first component outlines a holistic visualization of the relationship between risk and profitability of the credit portfolio of microcredit. The second component is the use of two approaches to the application of the Whale curve toolkit. The first approach is based on the choice of the basis of analysis of income from borrowers, and the second – on the choice of the basis of analysis of income from loans issued. The third component of the methodology was the segmentation of the loan portfolio into 4 segments: A, B, C, and D. It was done for both approaches. Segment A is characterized by the generation of high profitability for the creditor, segment B is close to a neutral level of profitability, and segments C and D are defined by a negative financial result of different levels.The analysis, based on the developed methodology, made it possible to identify a number of regularities between risk and profitability both in terms of segments A, B, C, and D and in terms of repeated loans. The analysis was conducted on the basis of data from several Ukrainian fintech companies for the 2nd and 3rd quarters of 2021.Within the methodological components, the analysis of income sensitivity based on the scenario approach was used in the work. A number of scenarios regarding changes in credit characteristics and risk management parameters were formed. On this basis, the sensitivity of income to these changes was modeled, and a comparative analysis of the results was carried out.The methodology proposed in the article makes it possible to implement an optimization analysis of fintech microcredit, to determine the relationship between credit risk and profitability, and to choose the optimal strategy for increasing the profitability of lending.
 JEL classіfіcatіon: G23, L25

Rural micro-credit model design and credit risk assessment via improved LSTM algorithm.

Rural microcredit plays an important role in promoting rural economic development and increasing farmers' income. However, traditional credit risk assessment models may have insufficient adaptability in rural areas. This study is based on the improved Long Short Term Memory (LSTM) algorithm using self organizing method, aiming to design an optimized evaluation model for rural microcredit risk. The improved LSTM algorithm can better capture the long-term dependence between the borrower's historical behavior and risk factors with its advantages in sequential data modeling. The experimental results show that the rural microcredit risk assessment model based on the self organizing LSTM algorithm has higher accuracy and stability compared to traditional models, and can effectively control credit default risk, providing more comprehensive risk management support for financial institutions. In addition, the model also has real-time monitoring and warning functions, which helps financial institutions adjust their decisions in a timely manner and reduce credit losses. The practical application of this study is expected to promote the stable development of rural economy and the advancement of financial technology. However, future work needs to further validate the practical application effectiveness and interpretability of the model, taking into account the special circumstances of different rural areas, in order to achieve sustainable application of the model in the rural microcredit market.

A For-Profit Model of Microcredit

Microcredit is a proven means of poverty alleviation. However, its implementation in India is flawed. High interest rates, incompetent use of credit, and insufficient loan-sizes are just some of the problems well-documented in literature. This paper seeks to assess if these problems can be alleviated by a for-profit model of microcredit, and hence if this model can sustainably improve financial inclusion in India. The role of profit-motives in Indian microcredit has only been analyzed from a theoretical perspective thus far, so this paper adds to existing research by bringing in an empirical perspective through data from Microfinance Institutions from the MIX Markets database. A baseline binary Logistic Classifier is trained, alongside proposed models of a Decision Tree Classifier and a Gradient-boosted Tree Classifier. Feature analysis is conducted on the models, and the results are used to devise profit-maximizing strategies. These strategies are then analyzed to assess if profit-driven companies can improve financial inclusion in a socially desirable manner. The study finds that for-profit incentives can increase the spread, efficiency, and accessibility of microcredit while potentially fostering competent use of credit and reducing the cost of borrowing. However, the study also notes the requirement for regulation in the growth and means of enforcing repayment in such for-profit models. Further, the study observes that a for-profit model may increase credit risk and will fail to allocate credit to the lowest strata of the poor. As such, for-profit firms must be complemented by not-for-profit MFIs to improve financial inclusion across the board.

Mikrofinans Modeli ve Kız Öğrencilerin Bilgi Düzeylerinin Tespiti

Mikro finans, gelir düzeyi düşük bireylere, ailelere ve küçük ölçekli işletmelere finansal hizmet sağlanması anlayışıyla çalışan bir finansman hizmetidir. Yöntem 2000’lerin ortalarından sonra tüm dünyada popüler hale gelmiştir. Mikro finans, mikro kredi uygulaması ile özellikle kadın girişiminin desteklenmesi konusunda ön plana çıkmıştır. Bu nedenle kadın girişimciliğinin desteklenmesi ile mikro kredi modeli birlikte anılır hale gelmiştir. Bu çalışmada kadınların güçlendirilmesinde ön plana çıkan mikro finans uygulamasının üniversitede okuyan kız öğrenciler tarafından ne düzeyde bilindiğinin test edilmesi amaçlanmıştır. Yanı sıra katılımcıların genel ekonomi finans bilgileri, tasarruf ve girişimcilik eğilimleri test edilmiştir. 292 adet üniversite öğrencisinin konu edildiği araştırma sonuçlarına göre; kız öğrencilerin finans ve ekonomi bilgilerinin ve buna paralel olarak mikro finans konusunda bilgi düzeylerinin düşük olduğu sonucuna ulaşılmıştır. Ancak olumlu bir veri olarak risk alma iştahlarının ve yatırım yapma eğilimlerinin yüksek olduğu sonucu elde edilmiştir. Bu sonuçlar, kız öğrencilerin iyi finansal eğitim almaları ve girişimcilik fırsatları hakkında bilgilendirilmeleri halinde büyük bir potansiyele sahip olduklarını göstermiştir. Çalışma kız öğrencilerin sinerjilerinin ve potansiyellerinin ortaya konulması noktasında olumlu geri bildirimler sağlamıştır.

Moving From Developmental Local Finance to Neoliberalised Microcredit in Post-war East Asia: Abandoning a Winning Formula

This paper describes how many countries in East Asia established from 1945 onwards a very successful local financial system, starting with Japan. These local financial systems played a key role in bringing about the so-called 'East Asian miracle'. From the 1980s onwards, however, many East Asian countries were pressured into abandoning this ‘winning formula’ for financing sustainable local economic development and expanding the collective freedoms and security of the poor, and replace it with the completely untried neoliberal market-driven microcredit model. This has proved to be an expensive mistake as the local neoliberal financial systems introduced, notably commercialised microcredit, have categorically undermined and weakened the local economies of all of the East Asian countries in question. The paper thus highlights yet again the key fact, known by economists ranging from Marx writing in the late 1880s through to the conservative institutional economist and Nobel Laureate, Douglass North, working in the 1980s, that ‘bad’ institutions are very often allowed to survive, and may even be encouraged to flourish, because it is in the interests of the powerful for this to happen.

Asset Financing: A Micro-CredittSubsidization Hybrid Model

This paper uses bicycles as a case study to illustrate how the needs of the bottom of the pyramid can be met through innovative financing of income generating assets. The organization, Bicycles Against Poverty (BAP) works with smallholder farmers that have sporadic incomes. Through a hybridized model of micro-credit and subsidization, BAP is able to make bicycles accessible to those that would otherwise not be able to afford them.

Performance of Islamic microcredit in perspective of Maqasid Al-Shariah

Purpose – This study aims to examine the role of Islamic microcredit programs based on the achievement of Maqasid Al-Shariah. Past studies have evaluated the role of microcredit programs using the conventional assessment approach. However, the conventional system of socioeconomic role assessment cannot evaluate the performance of Islamic microcredit in terms of achieving the objectives of Shariah for the Islamic microcredit model. Design/methodology/approach – This paper uses primary data that were collected through a questionnaire survey distributed among 393 microcredit borrowers from Amanah Ikhtiar Malaysia (AIM). The survey was conducted from July 2013 to December 2013 in the State of Sabah and in Peninsular Malaysia. This research also analyzes the socioeconomic roles and the achievement of microcredit and microenterprise from the perspective of the five principles of Al-daruriyyat from Maqasid Al-Shariah. Findings – Results indicate that the microcredit program of AIM has a positive and enhancing effect on the livelihood of clients. This effect is reflected in the assessment of their well-being, especially in the context of Maqasid Al-Shariah. Originality/value – This study examines the role of Islamic microcredit based on the achievement of Maqasid Al-Shariah.

South Africa's post-apartheid microcredit experiment: moving from state-enforced to market-enforced exploitation

The international donor community arrived in post-apartheid South Africa in the early 1990s to restructure the economy along neoliberal lines. One of the most important of the interventions it promoted was microcredit, which was widely seen as one of the principal self-help solutions to the exceptionally high levels of unemployment and poverty that prevailed in the Black South African community. In spite of an early ‘boom-to-bust’ episode in the early 2000s and worrying evidence it was actually further impoverishing far more Black South African's than it was actually helping escape from poverty and unemployment, the microcredit model did not lose its international support: if anything, this support was expanded as the international development community desperately sought to ensure the survival of the microcredit model and therefore also the centrality of self-help and individual entrepreneurship as the only way out of poverty for the poor. This article shows how and why the microcredit model was supported so strongly by the international development community and South African financial community in spite of its manifestly calamitous impact on Black South African community. Overall, I conclude, microcredit can be viewed as South Africa's own sub-prime-style disaster which, like the original US version, has mainly served to benefit a tiny financial elite working within and around the microcredit sector, whilst simultaneously destroying many of the most important pillars of the economy and society.

Indirect Microcredit Programs: The Use and Potential of Guarantees in Microcredit

The aim of the paper is to introduce and clarify the financial and non-financial characteristics of microcredit programs based on a credit guarantee. We call these programs, which are widespread in Europe, Indirect Microcredit Programs (IMPs) because they use an indirect microcredit model. We discuss their differences with respect to the traditional direct microcredit model (i.e. the model pioneered by Grameen Bank) and credit guarantee schemes for SMEs. We identify and discuss the three key financial variables of IMPs: the guarantee fund amount, the coverage ratio, and the multiplier between the guarantee fund and the amount of loans that the banks participating in the program agree to disburse. We introduce a theoretical model to estimate the value of IMPs in terms of loan disbursements. With this model, we draw indications for the design and management of IMPs. First, we show that the guarantee fund amount, the coverage ratio, and the default rate determine the maximum amount of loans that an IMP can disburse. Second, we demonstrate that higher multipliers accelerate the loan disbursements, but do not increase the maximum amount that an IMP can disburse. Finally we clarify that, through the multiplier, an IMP can increase the real value of the loan disbursements and can accelerate the loan disbursements. We discuss the definition of an optimal multiplier for a given IMP, the limitations of this microcredit model, and opportunities for further research. Finally, we note that our results may also apply to credit guarantee schemes for SMEs and to developing countries.

Microcredit and building social capital in rural Bangladesh – drawing the uneasy link

In the 1990s, social capital and the group-based microcredit programme emerged as major planks of developmental interventions, and both approaches have underscored the necessity to mobilize social factors in the alleviation of poverty and social solidarity. The group-based microcredit model is considered an effective policy instrument for increasing women's access to financial capital and for strengthening their social capital at the local level. This study contributes to the continuing debate over how or if group-based microcredit facilitates to the formation of social capital at the local level in Bangladesh. Case studies and ethnographic (in-depth) interviews of 151 women microcredit borrowers of the Grameen Bank and the Bangladesh Rural Advancement Committee of Bangladesh were used in this study. The study suggests that the relationship between participation in the group-based microcredit programme and the facilitation of social capital at the local level is at best ambiguous. The assumed association between microcredit membership and building social capital (social networks, norms of reciprocity and collective identity and action) is much less prominent than commonly suggested by many previous scholars and development practitioners.

The Rise and Fall of Muhammad Yunus and the Microcredit Model

This paper looks at the microcredit model made famous by Dr. Muhammad Yunus and explains the key reasons why it has failed as a poverty reduction and local development instrument. It also briefly analyses some of the reactions to this failure by the microcredit industry and why many microcredit supporters nevertheless still stand behind the model in spite of its failure.

Islamic banking and the Grameen mode of microcredit in Bangladesh: an institutional comparison

With diverse histories and attitudes toward risk-taking, different financial systems have a common aim: ensuring financial stability and efficiency within a geographical region. But differences exist between various financial systems as a result of their evolution and adaptation to their surrounding environment. This paper aims to analyze the incentive and sanction mechanisms of the Islamic mode of banking and the Grameen Bank model of microcredit in Bangladesh, and how they help ensure their financial stability and efficiency. We challenge the conventional explanations of their success. We point out that the informal sanction mechanisms embedded in the two modes of financial intermediation – avoiding non-compliance with Islamic Shari'ah (revealed divine law) in the case of Islamic banking, and kinship-based groupings or gushtis in the case of microcredit – play important roles in lowering the transaction costs of screening and enforcing contracts. We also point out how bank rent opportunity – the promised return from non-participatory financing and a high spread supported through low-cost funds provided by donor agencies and compulsory savings – is captured in each of the two modes, playing a further important role in maintaining their franchise values, given the specificities of the Bangladeshi financial context.

Vinya wa Aka: an expanded microcredit model for community development

Microcredit is often seen as a simple solution to poverty reduction. However, its sustainability for longer-term community development is debated. This qualitative study describes a unique community-based model of microcredit in Kenya, which includes investment, emergency loans, and social support components. In-depth interviews with group members highlighted how this model fostered longer-term economic development, financial security, and stability. However, additional social and psychological benefits were valued higher than economic gains, although both were closely intertwined as economic security reduced psychological stress. This expanded model of microcredit has the potential to contribute to sustained community development amongst poorer households.Vinya wa Aka : Un modèle de microcrédit élargi pour le développement communautaireLe microcrédit est souvent perçu comme une solution simple pour la réduction de la pauvreté. Cependant, sa durabilité pour le développement communautaire à long terme fait l'objet de débats. Cette étude qualitative décrit un modèle communautaire kényan de microcrédit sans pareil, qui englobe des éléments d'investissement, de prêts d'urgence et de soutien social. Des entretiens approfondis menés avec des membres du groupe ont souligné la manière dont ce modèle favorisait le développement économique, la sécurité financière et la stabilité à long terme. Cependant, les avantages sociaux et psychologiques supplémentaires étaient plus appréciés que les gains économiques, bien que les uns et les autres fussent étroitement liés puisque la sécurité économique réduit le stress psychologique. Ce modèle élargi de microcrédit a le potentiel de contribuer au développement communautaire soutenu parmi les ménages les plus pauvres.Vinya wa Aka: un modelo expandido de microcrédito para el desarrollo comunitarioA menudo el microcrédito es considerado como una solución sencilla para reducir la pobreza. Sin embargo, existen debates en torno a su sostenibilidad para propiciar el desarrollo comunitario de largo plazo. El presente estudio cualitativo examina un singular modelo de microcrédito comunitario llevado a cabo en Kenia, el cual incluye componentes de inversión, de préstamos de emergencia y de apoyo social. Las detalladas entrevistas realizadas con integrantes de los grupos destacaron cómo este modelo fomentó el desarrollo económico a más largo plazo, la seguridad económica y la estabilidad. Si bien se encuentran íntimamente ligados, los beneficios sociales y psicológicos adicionales fueron más valorados que los avances económicos, ya que la seguridad económica disminuyó el estrés psicológico. Este modelo de microcrédito expandido tiene el potencial de contribuir al desarrollo comunitario sostenible de los hogares más pobres.Vinya wa Aka: Um modelo de microcrédito expandido para desenvolvimento da comunidadeO microcrédito é frequentemente visto como uma solução simples para a redução da pobreza. Porém, sua sustentabilidade para o desenvolvimento da comunidade no longo prazo é debatida. Este estudo qualitativo descreve um modelo único de microcrédito baseado na comunidade do Quênia, que inclui investimento, empréstimos emergenciais e componentes de apoio social. Entrevistas minuciosas com membros de grupo destacaram como este modelo promoveu o desenvolvimento econômico de mais longo prazo, a segurança financeira e estabilidade. Porém, benefícios sociais e psicológicos adicionais foram mais valorizados do que os ganhos econômicos, embora ambos estejam intimamente interligados uma vez que a segurança econômica reduziu o estresse psicológico. Este modelo expandido de microcrédito possui potencial para contribuir com o desenvolvimento sustentável da comunidade entre as famílias mais pobres.

The Grameen Bank “Empowering the Poor” Model of Microcredit: An Institutional Comparison with the Traditional Mode of the Japanese Banking System

This paper proposes an institutional approach to understanding the success of a South Asian “empowering the poor” model of microcredit — the “Grameen Bank”. We compare the institutional settings in the model with those in the traditional mode of Japanese relation-based banking which greatly contributed to Japan's high growth, to shed an analytical light on the advantages and sustainability of Bangladesh's microcredit industry. We find that the availability of bank rent opportunities, low level of transactions costs, mainly in terms of low monitoring costs and delegation costs, together with the well-rooted protection and sanction mechanisms, which are properly aligned with both formal and informal institutions, guarantee the success of the GB mode of microcredit in the current context, as it guaranteed the success of the Japanese relation-based mode of banking during its high growth period.

The Group-lending Model and Social Closure: Microcredit, Exclusion, and Health in Bangladesh

According to social exclusion theory, health risks are positively associated with involuntary social, economic, political and cultural exclusion from society. In this paper, a social exclusion framework has been used, and available literature on microcredit in Bangladesh has been reviewed to explore the available evidence on associations among microcredit, exclusion, and health outcomes. The paper addresses the question of whether participation in group-lending reduces health inequities through promoting social inclusion. The group-lending model of microcredit is a development intervention in which small-scale credit for income-generation activities is provided to groups of individuals who do not have material collateral. The paper outlines four pathways through which microcredit can affect health status: financing care in the event of health emergencies; financing health inputs such as improved nutrition; as a platform for health education; and by increasing social capital through group meetings and mutual support. For many participants, the group-lending model of microcredit can mitigate exclusionary processes and lead to improvements in health for some; for others, it can worsen exclusionary processes which contribute to health disadvantage.

A Multivariate Model of Micro Credit and Rural Women Entrepreneurship Development in Bangladesh

In Bangladesh, micro credit programs have positive socioeconomic impact on the rural women borrowers. However, it is perceived that the micro credit programs help the rural women borrowers to survive only and do not help them to develop entrepreneurial capabilities. Hence, this paper aims at identifying the factors related to the development of entrepreneurship among the rural women borrowers through micro credit programs. A multivariate analysis technique like Factor Analysis was conducted to identify the entrepreneurship development related factors. Structural equation modeling was used to develop a model of micro credit program and the development of rural women entrepreneurship in Bangladesh. Results show that the financial management skills and the group identity of the women borrowers have significant relationship with the development of rural women entrepreneurship in Bangladesh. The experience from the parent’s family of the borrowers and the option limit may also lead to the rural women borrowers to be entrepreneurial.

A Reflection on Economics of Microcredit Borrowing in Rural Bangladesh

There is no room for denying the critical importance of microcredit for economic emancipation of rural poor in Bangladesh or any such other country. In analyzing the effectiveness of microcredit program the microcredit providers (NGOs) use accounting profit of the borrowers’ enterprises ignoring implicit costs on the plea that the opportunity cost of labor is near zero in those countries. This plea is certainly not tenable. In this research we use the principle of economic profit taking into account the implicit cost of family labor. From the results of this pilot study we get the reflection that a bulk of the microcredit is borrowed for non productive purposes. As high as 24% of borrowers used the credit exclusively for consumption and debt repayment purposes, and therefore demand for payment of interest from them is nonsensical. Only 48 % of the borrowers used the credits entirely for investment purposes. However, they are faced with very low-return investment opportunities in rural areas. About 68% of them on average had an impressive 83% net return on investment available for payment of interest and dividend. But in case of as high as 32% of them average return on investment was not enough even to cover the most minimum or tolerance level of wages for family labors. In their cases any payment of interest for capital has to be at the expense of the sacrifice of this subsistence level wages of the family labors. They are trapped in a vicious circle of loans. In the absence of a built in mechanism for debt relief they have no scope to be freed from this bondage of debt. An Islamic microcredit model based on Mudarabah principle (whereby the lender and borrower share the business surplus/profit on an agreed ratio, but in case of loss the lender alone bears the loss) may be a better alternative for them. There are indications that it requires an investment of around Tk 12,000 for creating job opportunity for one rural labor for the whole year.

Halving poverty by 2015--we can actually make it happen

Bangladesh's Grameen Bank, founded in 1983 to enable people in poverty to borrow small amounts of money cheaply, has had a demonstrable effect on that country's development and its microcredit model is now replicated in almost 100 countries. Its founder argues that self-employment is the quickest and easiest way to create employment in Third World economies. But he suggests that the goal of ending world poverty will be difficult to achieve while economic success is measured by personal financial gain rather than social gains. The narrow focus of the markets on financial returns excludes entrepreneurs and investors whose objective is primarily social rather than their own enrichment. The Commonwealth could make a significant impact on the world by encouraging social investment through an expansion of financial services for the poor and helping to meet the Millennium Development goal of halving poverty by 2015.

Governing development: neoliberalism, microcredit, and rational economic woman

This paper addresses the emergence of microcredit programmes as a preferred strategy for poverty alleviation world-wide. Taking the paradigmatic case of Nepal, it engages a genealogical approach to trace how Nepalese planners' enduring concerns about rural development intersect in surprising (and gendered) ways with donors' present focus on deepening financial markets. In the resulting microcredit model, the onus for rural lending is devolved from commercial banks to subsidized 'rural development banks' and women borrowers become the target of an aggressive 'selfhelp' approach to development. As a governmental strategy, microcredit thus constitutes social citizenship and women's needs in a manner consistent with neoliberalism. Drawing on ethnographic research, the paper also considers the progressive and regressive possibilities in the articulation of such constructed subjectivities with local cultural ideologies and social processes. Such an investigation can in turn provide a foundation for articulating a more normative agenda for development studies – grounded in the perspectives of those in subordinate social locations.

Governing development: neoliberalism, microcredit, and rational economic woman

This paper addresses the emergence of microcredit programmes as a preferred strategy for poverty alleviation world-wide. Taking the paradigmatic case of Nepal, it engages a genealogical approach to trace how Nepalese planners' enduring concerns about rural development intersect in surprising (and gendered) ways with donors' present focus on deepening financial markets. In the resulting microcredit model, the onus for rural lending is devolved from commercial banks to subsidized 'rural development banks' and women borrowers become the target of an aggressive 'selfhelp' approach to development. As a governmental strategy, microcredit thus constitutes social citizenship and women's needs in a manner consistent with neoliberalism. Drawing on ethnographic research, the paper also considers the progressive and regressive possibilities in the articulation of such constructed subjectivities with local cultural ideologies and social processes. Such an investigation can in turn provide a foundation for articulating a more normative agenda for development studies – grounded in the perspectives of those in subordinate social locations.