May Microcredit Lead to Inclusion?

Abstract

We consider a Markov-Chain model for a Microfinance Institution (MFI) borrower who can be in one of four states: Applicant (A), Beneficiary (B − or B + ) of a small or a large loan, or included (I) in the regular banking system. Given the transition matrix we compute the equilibrium and deduce the influence of probability parameters on what is profitable to the borrower within breaking-even constraints of the MFI. We give a general theorem on the total expected actualized income of a Markov Chain with Income (MCI), that we then apply to our model to determine the constrains emerging from Absence of Strategic Default (ASD) requirements. These do not only bound the probabilities from above but sometimes also from below.