Mathematical Analysis of Dynamic Risk Default in Microfinance

TL;DR

This paper introduces a differential equations-based modeling approach to predict borrower solvency in microfinance, aiming to improve risk management and financial inclusion in poor populations.

Contribution

It develops a novel dynamic modeling method to address non-repayment issues caused by asymmetric information in microfinance.

Findings

Predicts solvent and insolvent borrower numbers over time

Provides a tool for microfinance risk management

Enhances strategic decision-making in microfinance institutions

Abstract

In this work we will develop a new approach to solve the non repayment problem in microfinance due to the problem of asymmetric information. This approach is based on modeling and simulation of ordinary differential systems where time remains a primordial component, they thus enable microfinance institutions to manage their risk portfolios by a prediction of numbers of solvent and insolvent borrowers ever a period, in order to define or redefine its development strategy, investment and management in an area, where the population is often poor and in need a mechanism of financial inclusion.