Lorenzo Boetti, Mattia Bruno, Giovanni Gili

Computer Science and Simulation for Economics

Project work on

"Microcredit: a Micro Way for a Macro Challenge."

 

The applet requires Java 1.4.1 or higher. It will not run on Windows 95 or Mac OS 8 or 9. Mac users must have OS X 10.2.6 or higher and use a browser that supports Java 1.4. (Safari works, IE does not. Mac OS X comes with Safari. Open Safari and set it as your default web browser under Safari/Preferences/General.) On other operating systems, you may obtain the latest Java plugin from Sun's Java site.


created with NetLogo

view/download model file: microcredit.nlogo

WHAT IS IT?
-----------
This model simulates a small and simple economy in a poor country with a microfinance institution. The turtles start the simulation with a random level of wealth and they can then obtain a loan; if they do, they can buy raw materials, hire other turtles with a lower wealth level and produce some goods (symbolized by diamonds), which can be sold to other turtles.


HOW IT WORKS
------------
The turtles, which are all pink at the beginning, start walking with random movements; if they walk over the patch which represents the bank, if microcredit is still available, they can obtain some (and they turn green). Once they have got it, they keep on moving and, if they walk over one of the two patches standing for traders, they can buy some raw materials.
If they do so and they meet with some turtles with a lower wealth level and no microcredit obtained, they hire them (the contractor becoming yellow and the workers red), paying a wage which contributes to improve the condition of poorer turtles.
Once they have obtained a loan, bought raw materials and hired some other turtles, the "entrepreneur turtles" start producing goods which can be sold to other turtles that have started with a higher wealth level and they're neither entrepreneurs nor workers (those buying diamonds turning blue).
By selling the products, the diamonds producers obtain a payment which repays their investments and grants them a gain, so that they can refound the loan (becoming white in this case).


HOW TO USE IT
-------------
Start the simulation by clicking "setup". Then, after clicking "go", the turtles start moving and producing in the way explained above; they keep on doing so until the "go" button remains pressed.

Buttons: setup
resets everything to the random-beginning values and releases in the simulated economy a number of turtles which can be chosen by the "number of turtles" slider.

Buttons: go
if clicked, the model starts running.

Sliders: turtles-number
on the left of the screen, this slider allows you to choose the number of turtles you'd like to start the simulation with.

Sliders: debts-available
this slider allows you to change the amount of debts available in the bank.

Sliders: loan-limit
this slider allows you to change the wealth's treshold necessary to have access to the loan market.

Monitors:
on the left of the screen, below the start and go buttons, there are three monitors which indicate the total amount of debts granted by the bank, the total number of diamonds produced and the number of repayments.

Plot: Production
this plot monitors the number of diamonds producers.

Plot: Populations
this plot indicates the trend of the number of employed turtles compared to the number of poor turtles.

THINGS TO NOTICE
----------------
When the setup and go button are clicked, the turtles immediatly start to do economic transactions: some of them obtain a loan and then buy raw materials and hire workers, some others buy diamonds and so on.
After running the model for a few cycles, you see how a micro-credit institution can improve the general wealth level of a poor society. In particular, the number of poor turtles immediatly decreases, meanwhile the number of workers, producers and diamond buyers increases.


THINGS TO TRY
-------------
Try different values of "microcredit-available". How does the model change if the amount of loans available for the turtles increases?

Move the slider of "turtles-number". How does this variation affect the results of the model?

Try different values of "loan-limit". Which are the effects on the model if you decrease the threshold necessary to obtain a loan?


EXTENDING THE MODEL
-------------------
This model simplifies the necessary procedures the turtles have to pursue to obtain the loan. Since microcredit, in the real world, is usually based on the constitution of a group of borrowers, one extension to the model could be to create this kind of groups where loans can be received in a continuous sequence.
In our simulation every borrower is warrantor of himself, while in the reality it is the whole group of borrowers that guarantees for every loan.

In our model, we hypothesize that the bank grants its loans at an interest rate equal to zero. The presence of an interest rate, applied by the bank on its loans, could therefore represent another possible extension.

Our model shows a close economy where only one bank exists and turtles can trade only among themselves; that means that after some cycles no more diamonds can be produced because of the endogenous lack of money.
The model could be improved by opening the economy to foreign investments and trades, giving the possibility to the economy to continue in the direction of growth.

A further improvement could be to add the role of the information in the model, so that the turtles could become entrepreneur because of the informations they receive from the turtles that already are producers.


CREDITS AND REFERENCES
----------------------
Hoekstra, R.(2005). Economicexchange. http://ccl.northwestern.edu/netlogo/models/community/economicexchange